An important decision to make when starting a business is which form of business ownership is best for you. Each form of ownership has its own legal implications.
Sole Trader or Proprietor:
One individual operates the business. The owner assumes all financial responsibility, (meaning increased liability) and receives all profits. Minimal paperwork is required and there are no capital restrictions. A disadvantage is that the business is not a separate legal entity.
Partnerships:
Multiple partners finance and manage the business, receive a predetermined share of profits and assume legal responsibility of debts incurred. There are multiple sources of capital and multiple perspectives on business decisions.
Co-operatives:
These are businesses owned by multiple people or companies who unite to meet common economic or social needs. They are democratically controlled and owned by all members. Because there are lower returns on capital, there is usually less incentive for high investments. Resources are pooled from all members.
Close Corporation:
The Companies Act 71 of 2008 determines the legal requirements for a business to qualify as a CC. It is a separate legal entity so its members (who are restricted to 10) have reduced liability.
Different Types of Companies:
A company is a legal entity, so it has the capacity to act on its own. Strict legislation applies and a MOI must be filed. They are either Profit or Non-Profit companies.
Private:
These are owned by one or more individuals and require at least one director. The number of shareholders is unlimited and shares are not offered to the public.
Personal Liability:
The liability of shareholders and directors is shared. These companies are subject to fewer transparency requirements.
Public:
3 directors are required and these businesses are subject to a high degree of transparency. Shares are offered on the open market.
State-owned companies:
These are created by government, to allow it to partake in commercial activities. There is easy access to capital, but decision-making can be complicated.
Non-Profit companies:
These have a structure similar to other types of companies, but any profits generated must be used to continue its work.