Sole Proprietorship, Partnership,
Close Corporation or Private Company … which one?
Deciding which one of the small business structures are right for your Virtual Assistant business is an important part of setting it up, especially since some forms of business must be registered with the Registrar of Companies, and need to meet certain legal requirements.
The small business structures you choose will depend on the nature and size of your business, and should suit your specific needs.
Starting a business
According to Small Business Law there are different ways of starting a business. The law says what you must do for each one. For example, whether you must register the business, how you must register it, tax regulations and so on.
If you want to start any business, you must decide on one of the following small business structures. (There are a few more business structures, but for the sake of a Virtual Assistant business, we will keep to the more general structures.)
The information on small business structures is reproduced with the courtesy from paralegaladvice.org.za
Sole trader or sole proprietor
A sole trader or a sole proprietorship means one person owns the business. (Proprietor means owner).
For example: Susan wants to start a Virtual Assistant business and she runs this business from her home.
A sole trader does not have to register the business. If you are a sole trader, the law does not make a difference between the things that belong to you and the things that belong to your business, which are called assets.
What does this mean?
It means that the computer and fax which Susan uses to deliver administrative services to a client belong to her in the same way that her television set or her bed belongs to her.
There is also no difference between the money you owe people and the money your business owes people, which are called debts. It means, the money Susan must pay for using electricity is considered no different to the money she must pay for internet connection or stationary.
For example: Susan buys stationary from a supplier to be able to make copies and complete her work properly. She does not pay the supplier for six months, so the supplier decides to go to court to get his money. If Susan does not have the money to pay the supplier, the court can take away her computer, her tv, her car, or anything that is a luxury, and sell it to pay the supplier. Also, if Susan does not pay her water and electricity accounts or an instalment for the new cupboard she bought, the Sheriff of the Court could take the equipment she uses to do her work and sell these to pay her personal debts.
A sole proprietor can give her business a name, for example “Virtual Admin services”. When a sole proprietor fills in any form or signs contracts or opens a bank account, he or she must write their own name and then write ‘trading as’ (or ‘t/a’ for short) and then write down the name of the business.
For example, Susan Jacobs is a sole proprietor. She runs a Virtual Assistant Business from her house and her business name is Virtual Admin Services. She must then fill in all forms for her business like this: Susan Jacobs t/a Virtual Admin Services.
A partnership is a business that has between 2 and 20 partners. The partners own the business together.
If two or more people want to start a partnership, they should sign a written agreement – preferably prepared by a lawyer. The agreement must include these points:
- what happens to the assets of the business (for example, the tools and the furniture), if the partnership ends
- how the partners will share the profits (for example, one partner works every day and another partner only works three days a week. They would not want to share the profits equally because the one partner has worked more days than the other).
- what happens if one of the partners wants to leave the partnership
Every time a new partner joins, the partners must sign a new agreement.
Like a sole trader, the law does not recognise a difference between the partnership’s assets and debts and the assets and debts of the partners themselves. Not only that, but the law does not recognise a difference between different partners’ assets and debts.
For example: Susan’s partner Ben builds a house and does not pay the builder. The builder takes him to court to get his money. The court can take the tools and furniture of the partnership and sell them to give the builder his money. The court can do this because there is no difference between Ben’s assets and debts and the assets and debts of the partnership. So Ben’s debts are also the debts of the partnership. If Ben cannot pay the builder, the builder can get his money from the partnership. Susan would be able to go to court to get the money back from Ben, but it is expensive to pay lawyers to take a case to court and it takes a long time before the court will hear her case.
If a partnership wants to give their business a name, like “Virtual Admin Services”, they can do that. When partners fill in any form or sign contracts or open a bank account, they must write their own names and then write ‘trading as’ (or ‘t/a’ for short) and then write down the name of the business. small business structures
Companies have to obey all the rules of the Companies Act, which is a long and complicated law.
If more than 10 people want to start a business together, they cannot form a CC. They will have to go to a lawyer to form a partnership or a company.
A company has shareholders and directors. Shareholders can be people or other companies. Shareholders put the money into the business and are the owners of the business. Directors are the managers of the business. Sometimes the owners and the managers are the same people and sometimes they are different people.
The law sees a company as separate from its shareholders and directors. This means that like a CC, the assets and debts of the business belong to the company and the assets and debts of the shareholders and directors have nothing to do with the Company.
Suppliers or banks, which lend money to companies, will often ask the shareholders or the directors to sign surety for the company. If the company cannot pay its debts, then the people who have signed surety will have to pay the company’s debts.
Directors and shareholders must always write Pty (Ltd) behind the name of the company. If they write the name of the company without writing Pty (Ltd) behind it, the law does not see the company as separate from its shareholders, and the debts and assets of the company are not separate from the debts and assets of the shareholders.
If the business is a company and the company has a letterhead, the registration number of the company and all the names of the directors must be printed at the bottom of the letterhead.
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