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Registering a new company vs. trading as a Sole proprietor

There is no simple answer for when is the right time to register your company and enter the formalised enterprise structure, there is however important factors to consider and take into account when making the decision.

Sole Proprietors are easily established, have no formal structure and do not require a company name. Trading as a sole proprietor is simple and uncomplicated when starting a business. The business and the owner are synonymous, you are seen as one.

This is however the negative aspect of trading as a sole proprietor. All financial assets are link, what belongs to you belongs to the businesses. If the business fails or the business finds itself in legal trouble, this would result in your personal financial assets being taken by creditors. Tax becomes a hassle when trading as a sole proprietor as your personal tax and income tax are combined.

Most people believe the next step for your business to take in order to grow is to register as a close corporation. Registering a CC is no longer possible as no new close corporations can be registered due to the New Companies Act that took effect in May 2011. So now what?

In the past private companies were expensive, difficult and perceived to be more suited to large companies. When the New Companies Act came into effect in May 2011 this all changed.

Private companies are abbreviated with the term PTY (Ltd). Private companies are suited to small and large business, inexpensive to register and allow your business to grow portraying a sense of professionalism.

There are also many benefits to registering a private company.

1. The private company is a separate legal entity. Therefore the personal assets of the shareholders of the private company cannot be taken by creditors if the business should fail or be in legal trouble.

2. The company has continuity.

3. Capital is easily raised as the can be 50 shareholders. A private company can have up to 50 shareholders and a minimum of one Director.

4. The shares can be easily transferred they cannot however be listed and sold to the public.

5. Only once turnover exceeds R5 million annually is the private company required to have financial statements audited.

6. When registering a private company you can protect your company name by doing a name reservation. This will allow for your private company to be distinguished in the current competitive market

There are certain taxes you are required to register for when you registering a private company, but this will depend on the industry you operate in, the size of your business and number of employees.


If you are unsure whether registering a private company is the right move for you contact Phase One Business Registration where we will assist you. Or register your business here today.