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Sole proprietor vs Company


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A presentation given to the Xtraordinary Women in Business Network in Blouberg on 18 April 2013 by Nicolene Schoeman from Schoeman Attorneys

TOPIC: Sole Proprietor vs. Pty: Legal meets Finance

So, they say – “Rome was not built in a day” and that is certainly true for any business. Most small businesses start off as sole proprietorships or even partnerships, simply in order to save costs. Some on the other hand because the other options are often widely misunderstood.

Is there really a cost saving and if there is, is cost saving really worth the risk?

An insightful morning was spent with Nicolene Schoeman and Chris Farquharson as they shared the legal and financial practical business solutions to these challenges.

Published in: Business, Economy & Finance
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Sole proprietor vs Company

  1. 1. Sole proprietor vs CompanyNICOLENE  SCHOEMAN    Director  –  Schoemanlaw  Inc  t/a  Schoeman  A;orneys,  Conveyancers  and  Notaries  Public    LLB  cum  laude  (UFS)  LLM  (UFS)  PracIsing  A;orney,  Conveyancer,  Notary  Public  and  B-­‐B  BEE  consultant  t  021  425  5604    f  021  421  8913    e  w    a  8th  Floor,  80  on  Strand  Street,  Cape  Town,  8000  p  PO  Box  507,  Cape  Town,  8000  © NF Schoeman 2013Tailored.  Entrepreneurial.  SoluIons.  
  2. 2. Disclaimer  •  Both  this  presenta1on  and  slides  are  copyright  protected.  •  In  terms  of  the  Copyright  Act  No.  98  of  1978,  no  part  of  this  presenta1on  and  slides  may  be  reproduced  or  transmiBed  in  any  form  or  by  any  means,  electronic  or  mechanical,  including  photocopying,  recording  or  by  any  informa1on  storage  and  retrieval  system,  without  the  prior  wriBen  permission  from  the  author.    •  This  presenta1on  and  slides  are  for  educa1onal  purposes  only  and  does  not  cons1tute  legal  advice.  •  The  author  and  Schoemanlaw  Inc  t/a  Schoeman  ABorneys,  Conveyancers  and  Notaries  Public  (Schoeman  ABorneys)  do  not  accept  any  liability  for  any  loss  or  damage  that  may  be  occasioned  as  a  result  of  the  reliance  by  any  person  on  the  informa1on  contained  in  this  presenta1on  and/or  slides.  © NF Schoeman 2013
  3. 3. The  vehicle    •  Choosing  the  right  enterprise    /  vehicle  is  imperaIve  to  the  success  of  any  business  enterprise:  –  Sole  proprietor  –  Partnership  –  Trust  –  Close  Corpora1on  –  Company  –  Co-­‐opera1ve  © NF Schoeman 2013    
  4. 4. Sole  proprietor    •  Most  businesses  start  as  sole  proprietors  because  it  is  cost-­‐effec1ve  •  No  legal  personality    i.e.    you  are  the  business  and  the  business  is  you  •  Unless  there  is  sound  reason  (tax  reason)  this  is  a  high  risk  vehicle  © NF Schoeman 2013    
  5. 5. Partnership    •  Is  regulated  by  the  common  law  and  law  of  contract  •  Can  consist  of  up  to  20  partners  and  be  no  less  than  2  •  No  legal  personality  •  Partners  are  jointly  and  severally  liable  for  the  debts  of  the  partnership,  in  propor1on  to  the  contribu1on  to  the  partnership  •  Exemp1on  of  partners  to  share  in  losses  is  very  limited  •  High  risk  vehicle  © NF Schoeman 2013    
  6. 6.  Trust    •  Regulated  by  the  provisions  of  the  Trust  Property  Control  Act  57  of  1988  •  Although  regulated  by  legisla1on  the  trust  is  further  regulated  by  contractual  provisions  (the  trust  deed)  •  No  “pre-­‐incorpora1on”  agreements  are  possible  •  Func1onaries  in  the  trust:  The  founder  The  trustee  (s)  The  beneficiary  (  ies)  Purpose  must  be  clear  and  sound  Trust  should  be  set  up  with  care  otherwise  high  risk  vehicle  © NF Schoeman 2013    
  7. 7. Co-­‐operaIves    •  Co-­‐opera1ves  are  regulated  by  the  provisions  of  the  Co-­‐opera1ves  Act  14  of  2005  •  Coopera1ve  structure  is  similar  to  that  of  the  company  except  that  each  member  of  the  co-­‐opera1ve  only  has  one  vote  regardless  of  amount  contributed  •  Facilitates  bulk  buying  power  –  smaller  businesses  specifically  •  Primary,  secondary,  ter1ary  structures  •  Limited  liability  and  separate  legal  personality  •  Only  suitable  where  circumstances  are  appropriate  •  Low  risk  © NF Schoeman 2013    
  8. 8. Close  CorporaIon    •  A  close  corpora1on  is  currently  par1ally  regulated  by  Close  Corpora1ons  Act  69  of  1984  and  Companies  Act  71  of  2008  •  Exis1ng  close  corpora1ons  con1nue  to  exist  with  same  name  and  registra1on  number    •  Limited  liability  and  separate  legal  personality  •  Members  automa1cally  take  part  in  management  with  out  restric1on,  unless  provided  for  otherwise  in  the  associa1on  agreement  •  A  close  corpora1on  was  the  cost-­‐effec1ve  structure  and  had  no  inherent  audit  requirement.  Now  audits  are  based  on  the  calcula1on  of  the  public  interest  score  (PIS)  =  status  quo  remains  •  Conversion  into  company  structure  only  if  in  best  interests  of  business  •  Low  risk  =  more  than  1  member  =  associa1on  agreement  © NF Schoeman 2013    
  9. 9. Companies    © NF Schoeman 2013    Types  of  Companies  Profit  Not  for  profit  “NPC”  Public  “Ltd”  Personal  liability  “Inc”  State  owned  “SOC”  Private  “(Pty)  Ltd”  
  10. 10. Company  •  Companies  regardless  of  size  regulated  by  Companies  Act  71  of  2008  •  Limited  liability  and  separate  legal  personality  •  Division  of  management  (directors)  and  ownership  (shareholders)  •  Smaller  companies  have  less  regulatory  requirements  to  meet  than  larger  companies  •  Audit  requirement  no  longer  compulsory  =  PIS  •  MOI  now  vital  document  •  Exis1ng  companies  =  Implement  MOI    +  shareholders  agreement  before  window  period  lapses  and  new  companies  tailor  MOI  •  Group  structures  •  Low  risk  =  suitable  MOI    and  shareholders’  agreement    © NF Schoeman 2013    
  11. 11. Thank  you!    © NF Schoeman 2013Email:  Tel:  021  4255604  Website:    Go  to  our  website  to  subscribe  to  our  exclusive  free  monthly  newsle;er  –  it  contains  useful  Ips  for  business  owners!    Remember  members  get  an  exclusive  10%  discount  on  fees  and  are  eligible  for  a  complimentary  30  minute  consultaIon  with  N  Schoeman.  Voucher  distributed  with  new  membership  packs.