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What's the difference between trading as a Company and trading as a Sole Proprietor?

by , 16 February 2015
This week, our experts got a question from someone who wants to start a new business. He wants to know the difference between trading as a Company and trading as a Sole Proprietor so he can decide the best option for himself.

If you'd like to know the answer too, keep reading.


Here's the difference between registering as a company or a Sole Proprietor

 
Sole Proprietor: According to entrepreneur.com, 'sole proprietorship is the simplest business form under which one can operate a business. It simply refers to a person who owns the business and is personally responsible for its debts.'
 
It's easier to set this form of business and it's cheaper when you compare it to trading as a company. For example:
 
  • There's no formal registration process. You simply start trading in your own name. Or trade under a business name of your choice.
 
  • You save money because you don't have to submit Annual Returns to the CIPC.
 
 
While it's easier to start trading as a Sole Proprietor, the big downside to it is that as the owner you remain personally liable for all the business's debts.
 
If your business runs into financial trouble, creditors can force you to pay the business debts with your own money.
 
Now that you know what trading as a Sole Proprietor entails, take a look at trading as a company
 
 
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Here's what you need to know about trading as a company

 
There are three types of companies you can register under:
 
  1. Profit Company (Public Company and Private Company)
  2. Non-Profit Company
  3. Personal Liability Company
 
Unlike a Sole Proprietor, a company is a legal entity in its own right. This means the company's liabilities are separate from your personal assets and this gives you more security, says the Practical Tax Loose Leaf Service.
 
Trading as a company is a bit more complex. For instance:
 
  • There are nine documents you need to complete before you start trading;
 
 
  • If you're a public company, it's a legal requirement to do an audit.
 
The downside here is that all current and sometimes past directors of a personal liability company are jointly liable for any debts that come about during their term of office.
 
Now that you know the difference between trading as a Company and trading as a Sole Proprietor, choose the option that best suits you.
 
PS: For more information on company registration, check out the Practical Tax Loose Leaf Service.

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