When establishing a business, an entrepreneur should consider its legal structure commencing to trade. Options of such structures include sole trader, partnership, private company or business trust.
Each has its pros and cons, especially on tax implications. A combination of legal structures may be used by entrepreneurs.
Companies are the most common business vehicles used. In South Africa companies are established in terms of Company Act of 2008. Companies are established as juristic entities separate from their directors and shareholders and can sue or be sued as such.
Companies own assets and incur liabilities separate from their directors or shareholders. That is why it is imperative to keep a separate bank account for the company. Companies are liable for their own debts though directors cannot hide behind the veil of the company when the company is unable to meet its obligations. The directors’ personal assets can be exposed to creditors of the company where a company is unable to meet its obligations.
A good thing about companies is that they offer business continuity beyond the death of the owner, unlike sole proprietorships and partnerships.
Trading through a company offers a better option for tax matters. The maximum tax rate for companies is 28%, for trusts 45% and individuals are above 30% and escalate with the increase in taxable income.
An entrepreneur should seek expert advice on the kind of legal structure that suits their business needs. P3 Investment Group is at your service to provide sound business advice in this regard.