There are basically 4 business formats that you as an entrepreneur can use to trade under , each has its advantages and disadvantages , choosing the right business structure will largely depend on your own particular circumstances and the scale of the business that you intend operating. Here is a brief summary of each of the business formats available to South African entrepreneurs:

Sole Proprietor – you trade in your personal capacity and the business does not have a separate legal identity of its own. Assets and liabilities are not separated and any debts of the business are effectively your debts as well.

Partnership – if there are 2 or more owners you can operate as a partnership. Legally it is the same as trading a a sole proprietor the only major difference is that in most cases with a partnership there is a formal partnership agreement. In all other aspects it is the same as a sole proprietorship and there is no division between the assets and liabilities of the owners and those of the partnership , which is major disadvantage of both business formats.

Close Corporation (CC)

This is probably the most popular format for SMEs , the owners of a CC are referred to as the members and only natural persons can be members of a CC. A CC has a separate legal identity and the assets of the CC and those of its members are separate. Members of the CC enjoy limited liability , one of the major advantages of this format. Another favorable consideration is the relatively low cost and the fact that a CC is not subject to an annual audit. Close corporations are registered and managed in terms of the Close Corporations Act.

Private Company (Pty) Ltd

A private company or (Pty) Ltd is owned by its shareholders , who can be natural persons , companies and even close corporations. Like a CC the (Pty) Ltd has a separate legal identity and the shareholders enjoy the benefits of limited liability. The registration costs are higher than those of a CC and the annual accounting fees are also substantially higher because a (Pty) Ltd has to be audited by a registered auditor. It is generally easier for a (Pty) Ltd to obtain finance because of this and certain government tenders often require that the business be audited. Private companies are registered and managed in terms of the Companies Act.

Selecting the right business format for your business will depend on your personal circumstances and the growth and fund needs of your business. To get the best advice in this regard you should consult with a qualified legal person , accountant or business consultant.

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