Setting up a business: What to consider when choosing a legal entity

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[ADVISOR VIEW] When setting up a business, it’s important to take a long-term view of how you envisage it growing as this will determine the type of entity best suited to house your business: DevonCard - crueinvest. SME FinancialPlanning

When setting up a business, it’s important to take a long-term view of how you envisage your business growing as this will, to a large extent, determine the type of entity best suited to house your business. In this article, we take a closer look a sole proprietorship, partnerships and private companies, and how to determine which structure is most appropriate for your needs.

As in the case of a sole proprietorship, the partnership does not need to be registered with the CIPC, no name needs to be reserved and there are no registration costs involved. The set-up and registration requirements of a private company are the most onerous as the entity must be registered with the Companies and Intellectual Properties Commission and must comply with the Companies Act 71 of 2008.

If there are two or more shareholders, it may be beneficial to set up a shareholders’ agreement to structure the relationship between the shareholders. When registering your company, you will need to submit your MOI together with your notice of incorporation, which should include details of the incorporators, the number of directors, and the share capital.

Very often, entrepreneurs with a solid business plan will be able to raise venture capital in order to fund their start-up business and, if this is your intention, a private company would be an appropriate structure.As a sole trader, you will need to declare any income earned from your business when filing your personal annual tax returns, and you will be taxed according to the individual income tax scales.

 

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