Business Structures
There are many different company structures that one can use
when starting a business. It is a very important consideration since changing
the company structure once the business is running does involve time and cost.
We can consider the following business structures:
1. Sole
proprietor
2. Partnership
3. PTY (and
address CCs as well)
4. Limited
Company
5. Cooperatives
6. Non-profit
Organisation
Sole Proprietor
This is essentially when the business owner has decided to
run the business in his/her personal capacity. The person will be taxed
according to individuals. If this is the chosen route, then the business owner
can get a bank account created in the proposed business name and then create a
brand/name for the business and start trading. Our concern around this is the
protection of the brand or company name. Since this has not been registered
with the CIPC or the business owner does not have a trademark, how can the
business owner protect his company name and reputation if someone registers a
similar name 2 years later? Obviously, one will need to get legal advice around
this, but our suggestion is to at least get a trademark done so that the
business owner can protect their brand.
Partnership
This structure is where two or more people decide to start a
business together. The rules around the partnership need to formalised and this
is best done using the services of a commercial attorney. The interesting rule
around this structure is that once one partner leaves, the partnership ceases
to exist.
PTY (and address CCs as well)
This is by far the most common and our recommendation in
terms of business structure. Until 2 years ago, business owners also had the
option of using a CC which was a stripped down version of a PTY. But with the
introduction of the New Companies Act, PTYs and CCs are treated with the same
rules and one cannot register a new CC anymore.
A PTY is ideally for people who want to establish a business
that is more structured and has a distinct separation between ownership and
management. The business owners can appoint a management team that will be
responsible and be held accountable for the operations of the PTY.
The advantages are as follows:
• The
Companies Act lays down a set of rules and regulations to which the Company and
the Board of Directors of the Company must adhere to.
• It offers
the shareholders limited liability, thereby safeguarding their personal assets.
• The
company is managed by appointed officers and directors which could become
liable for the debt of the company if they acted recklessly in the fulfilling
their duties.
• It can be
registered with only 1 shareholder. Other shareholders can join later - up to
50 shareholders.
• Natural
persons and other legal entities may be shareholders of the company.
• A company
is registered with a specified number of shares.
• A
shareholder can be allotted as many shares as approved for by the board of
directors.
• Voting
rights at shareholder’s meetings are normally proportionate to the number of
shares issued.
• Should
the number of shareholders grow to more than 50, the PTY can be converted to a
Limited Company.
• The
shareholders do not participate directly in the decision making - except to
vote in shareholder’s meetings.
• Trading
in a PTY gives a more professional look to the operation than when trading in a
personal capacity or “trading as” or trading in a CC.
• Minors
may be shareholders of a PTY.
• The
assets of the business are clearly separated from those of its owner(s).
• A PTY is
owned by shareholders. Profits declared by the Board of Directors, and approved
of by a shareholders meeting, is called a “dividend” paid out according to the
shareholders' percentage interest in the Pty.
• A
PTY can own assets and enter into agreements.
A PTY is our recommended company structure, since it allows the business owner
to create something of sustained value at relatively low cost.
Limited Company
This is a company that is registered on the stock exchange. There are many
regulations and much cost associated with this type of structure. The business
owner that wants to pursue this company structure needs professional accountant
and legal advice.
Cooperatives
This is a type of business
structure that is governed and managed by the CIPC, and has many attributes of
having a PTY. However, the major attribute is that it is more project based.
Hence, if you have a project that needed to be completed and there were 10
parties involved in completing the project, a cooperative will be one of the
options that can be used for the company structure.
Non-profit
Organisation
This is a type of company
where the purpose is non-profit. Examples of these are religious organisations
and charities. It has many of the rules of a normal PTY, but needs to be run
according to the rules of a non-profit organisation. GrowABusiness provides the
registration of this type of company structure, but the rules around managing
it need to be checked by the business owner with the necessary experts.
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