Pros and cons of different registered enterprises

A group of people in Mamelodi, Tshwane, work for the Ntiro Project, the only programme in SA helping intellectually impaired people to find jobs or at least undergo on-the-job-training so they can become financially independent.
Christopher Ramoshaba (left)  was trained by the Ntiro Project and now works for Boy Madzivane as a panel beater.
2/8/01.
Pic: Simon Mathebula.
© ST.
A group of people in Mamelodi, Tshwane, work for the Ntiro Project, the only programme in SA helping intellectually impaired people to find jobs or at least undergo on-the-job-training so they can become financially independent. Christopher Ramoshaba (left) was trained by the Ntiro Project and now works for Boy Madzivane as a panel beater. 2/8/01. Pic: Simon Mathebula. © ST.

Before you register your business consider the form it will take. There are four types: a sole trader or proprietorship, a partnership, a close corporation and a company. Check the advantages and disadvantages of each for your business.

Before you register your business consider the form it will take. There are four types: a sole trader or proprietorship, a partnership, a close corporation and a company. Check the advantages and disadvantages of each for your business.

One person owns a sole trader or sole proprietorship and it is registered under the owner's name. The owner and the enterprise are inseparable, which means the owner's assets are not separate from the business's and could be taken and sold if the business fails to pay its debts.

The owner could lose everything in case of bankruptcy. This is the main disadvantage of sole proprietorship. The advantage is you can get going without filling in a raft of documents. Many general dealers and butchers use this form of ownership.

A partnership is an enterprise between two and 20 partners. Each partner contributes a defined percentage of money, skills or labour. As with a sole trader, all partners are liable for incurred debts.

Partnerships require no formal registration, but should have a signed partnership agreement, which serves as a guiding and managing document for the business.

The main disadvantage of this form of ownership is that when one member dies or withdraws, the partnership dies and needs to be restarted.

For more information on the disadvantages of partnerships refer back to our third issue of Into Business, where we talk about pitfalls on the path to profits.

The concept of a close corporation was created to cater for small businesses. One to 10 people may own this type of business. The main advantage is that members enjoy limited liability, meaning that the owners' assets are separate from that of the business. So an individual owner will not lose assets if the business goes bankrupt. Registering a close corporation is simpler and cheaper than registering a company.

Complicated formalities and legal requirements must be followed to register a company in any of its three main forms: public, private or section 21.

A public company has one to seven members. Two should be directors. It is called a public company because it can sell shares to the public to raise working capital.

The company must prepare and publish audited financial results at the end of each financial year.

A private company can be formed by one to 50 members, but it cannot sell its shares and need not list on the stock exchange.

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