Sole Proprietor vs Pty (Ltd) – which one is right for you?
One of the first things with which budding entrepreneurs need to attend to is how to incorporate or trade when setting up their business.
What are the options?
There are two options now that the close corporations are off the table and personal liability company’s (INC) are more suited for firms of professionals…
Business owners can operate either as a sole proprietorship or as a private company (Pty) Ltd.
SOLE PROPRIETOR
- Do not need to register with CIPC
- One owner who is entitled to all the profit
- No limited liability (therefore there is no separation between the business assets and liabilities and personal)
- Taxed in personal capacity under individual rates… your business profit is added to your other taxable income and you are taxed according to your tax bracket (this can push you into higher tax brackets)
PRIVATE COMPANY
- Needs to be registered with CIPC (company and business name)
- Can have up to 50 owners. Having one owner makes it an owner managed company
- A company is a separate juristic person and enjoys limited liability (therefore there is a separation between the business assets and liabilities and personal)
- Taxed on profit according to corporate taxation models. If you are not a shareholder in any other company, your company could qualify for small business corporation tax