Bluecare Financial Services

Business Insurance
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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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