When setting up your business, deciding between a sole proprietorship, partnership, or private company is crucial, each carrying distinct pros and cons.
If you’re planning a one-person business, you may consider running a sole proprietorship, which is the simplest form of business entity and involves very little administration – although note that a sole proprietorship is not a legal entity and does not exist separately from the owner. In the case of multiple business partners, the available options include setting up a partnership or registering a private company.
Although there are no legal requirements for registering a partnership, it is always advisable to set up a partnership agreement. The registration of a private company is strictly regulated by the CIPC, and you’ll need to provide them with all supporting documentation, including a Memorandum of Incorporation and shareholder’s agreement, bearing in mind that there are registration costs involved.
On the other hand, if you initially set up as a sole trader and then decide to bring in additional resources, you will likely need to change the structure of the business to accommodate the growth. On this note, keep in mind that if you subsequently register a private company, you may not be able to register the same name as the one you’ve been trading under as a sole proprietor. Sole proprietors and partnerships have no obligation to prepare financials for the business.