Often business people
have to make a decision between a close corporation and a sole proprietorship.
There are many advantages and disadvantages to both of these structures.
Whether you wish to set up a sole proprietorship or a close corporation,
or need some guidance on the best company formation for you, our
business experts will be delighted to help.
| Factors |
Sole Proprietorships |
Close Corporations |
| • Characteristics |
• Owned and managed by an individual
• No legal requirements for registration except for
ensuring that owner is registered for income tax purposes
• Type of business traditionally used for managing shop,
consulting, hairdressers, taverns, and similar small business |
• Subject to Close Corporations Act 1984
• Has characteristics of both partnerships and companies
• Established by way of a founding statement containing
details of members, proposed name, interests of members
• The name must end with cc |
| • Legal persona |
• It does not have a legal personality
• There is no existence of the business without the
owner
• All assets and income belong to the owner in his personal
capacity
• He is taxed in his personal capacity
|
• It is a separate entity that exists separately from
its members
• Membership must be expressed as a percentage and total
100%
• Members both own and control the business
• Usually two or more members have to sign legal documentation
• Each member makes a contribution when he joins and
it does not have to be equal to other contributions |
| • Liability |
• The owner is liable for all debts and claims against
the business |
• CC is a legal person so members are not liable in
their personal capacity
• Members are held jointly and severally liable in specific
instances
• Exceptions to personal exemption: abuse of powers,
fraud, etc
• Profit taxed as company tax and not in the hands of
the member |
| • Control and authority |
• The owner has direct control over all decisions
• All profits go to the owner
• Free to make all decisions and changes
• Business demands high level of commitment from owner
in terms of time and his or her resources
|
• Fiduciary duties (in good faith)
• Each member has authority to bind corporation to transactions |
| • Capital acquisition potential |
• Limited to the owner’s personal and financial
credit rating
• Expansion is limited because of the limited availability
of funds
• Exposure to excessive loan capital can result in the
owner having to forfeit control, authority and freedom |
|
• Transfer of Ownership /
Lifespan and continuity |
• Owner can decide at any time to sell, close down
to transfer to someone else
• The lifespan of the business is usually linked to
the owner’s capacity
• If the owner dies or becomes insolvent, or otherwise
legally incapable, this usually means the end of the business |
• Not influenced by the withdrawal of members
• Can be transferred to individual if all members agree
• Can be terminated in a Court of Law |
| • Legal prescriptions |
• None |
• These are not strict and registration costs are
low
• Does not need an auditor but does need an
accounting officer
• Financial statements must
be drawn up within 9 months of the year-end and approved by
all the members |
