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Quick answer: A sole proprietor is quick and cheap to start, but you are personally responsible for business debts and taxed as an individual. A Pty Ltd is a separate legal person, is usually required by larger clients and tenders, and has yearly registry and SARS admin.
| Sole proprietor | Private company (Pty) Ltd | |
|---|---|---|
| Legal status | You and the business are the same person | A separate legal person that can own assets and sign contracts |
| Registration | No company registration needed | Registered with the companies registry |
| Personal liability | You are personally liable for business debts | Generally limited to what you invested, with exceptions such as personal guarantees or reckless trading |
| Income tax | Business profit is taxed on your personal tax return | The company pays company income tax and files an ITR14 each year |
| Credibility | Fine for small, informal work | Expected by corporates, tenders and many suppliers |
| Yearly admin | Personal tax return | company annual return, beneficial ownership, company tax returns and records |
When a sole proprietorship is enough
Testing an idea, freelancing on your own, or small side income with low risk. You can start trading immediately under your own name and register a company later.
When to register a Pty Ltd
- You plan to employ people or sign significant contracts
- You want to bring in partners or investors
- You want to tender or supply larger businesses
- Your work carries risk of claims or debts you don't want to carry personally
Things people often miss
A company's money is not your money. You pay yourself through a salary or dividends, each with its own tax treatment, and you keep proper records. Banks often still ask directors of new companies for personal guarantees on loans, so limited liability doesn't cover everything.
Tax is the area where getting advice pays off. Speak to an accountant about which structure is most efficient for your expected income.
Company Registration from Digitalx, priced in writing before we start.