If you want to start a new business, registering your company as a Sole Proprietor is one of the options you can choose.
When you register a Sole Proprietor, you don't have to submit Annual Returns to CIPC. This will save you money and you'll also get certain tax benefits.
But as with anything, this option has a downside. And you must consider the consequences before you register so you know what you're getting into. If you don't, your personal assets could be at risk.
Keep reading to discover the three consequences you must consider.
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Here's another situation where SARS has the upper hand.
In this article
Registering as a Sole Proprietor has these three implications
, we explain that if you're a Sole Proprietor, it means you trade for your own account. There's no legal separation between you as an individual and your business interests.
This brings us to the consequences…
When you register as a Sole Proprietor the risks you take are in your personal name.
Your personal assets could be in danger if you can't pay your creditors. Any creditor can ask you to settle their claims to the full extent of your personal assets!
If an employee is negligent, you become personally liable for damages. This is true if someone gets hurt on your premises. That's why insurance is important if you trade as a Sole Proprietor.
There's no continuity if you're trading as a Sole Proprietor. So, if you die, your business automatically terminates. And your business assets and liabilities will form part of your estate.
You need to think carefully about this implication. This because, if you want someone specific to carry on your business, there's a possibility of conflict between the heirs to your estate, warns the Practical Tax Loose Leaf Service.
Now that you know about these consequences, take a look at the two reasons why you'd think about trading as a Sole Proprietor in the first place
, we explain that it's best to trade as a Sole Proprietor if:
You want to test a business idea on your own; and
If you want to start a service based business that doesn't carry much financial risk. Or doesn't need a lot of initial financial investment in major assets.
Basically, if you're testing a business idea, you shouldn't commit large amounts of money to this venture. And going into debt is a definite 'no-no' at this stage as your personal assets could be at risk if your business doesn't pan out as you hoped.
Now that you know the consequences of registering as a Sole Proprietor, it's up to you to decide if you're willing to take the risk.
PS: Besides registering as a Sole Proprietor
, there are four other ways you can use to register. To find out what they are, check out the Practical Tax Loose Leaf Service.
It has everything you need to know about company registration.