Private company – (Pty) Ltd
The company entails a structure that is recognised by law, and has a separate personality to acquire legal rights and be subject to legal duties. A company will have shareholders who own the company, and directors who manage and operate the company.
Liability
Shareholders have limited liability which means that if the company is unable to pay its creditors, then the creditors cannot claim payment from the shareholders of the company.
Formation
Various forms of profit companies are established through incorporation by one or more individuals by registering a company at CIPC. Private companies have the flexibility to have an unrestricted number of shareholders.
Maintenance
The Memorandum of Incorporation (MOI) prevents the public transfer of securities and limits the transferability of its securities hence a “private” company. Financial statements may be compiled, independently reviewed or audited based on PI Scores.
Taxation
The company, as its own legal entity, holds legal ownership of the business it conducts and any assets it acquires, rather than the shareholders. Currently the tax rate for companies is a flat rate of 27% on profit. The company must withhold dividends tax from dividends paid to shareholders, at a fixed rate of 20%.
Sole Proprietor
A sole proprietorship is a business that is run by a sole trader who alone is the legal owner of this business. They alone share in the profits and losses incurred by the business.
Liability
The sole proprietor is personally liable for the debts of the business, and does not enjoy limited liability. The personal assets of the sole trader are not distinguished from the business’ assets.
Formation
Generally, there are no registration requirements for a sole proprietorship. They are not registered at CIPC.
Maintenance
Sole proprietors are not required to have their annual financial statements audited, and there is no perpetual succession in a sole proprietorship.
Taxation
The sole proprietor is required to pay income tax on profits generated by the business, and will need to file income tax returns accordingly.