sole proprietor vs. pty by nicolene schoeman
DESCRIPTION
A presentation given to the Xtraordinary Women in Business Network in Blouberg on 18 April 2013 by Nicolene Schoeman from Schoeman Attorneys TOPIC: Sole Proprietor vs. Pty: Legal meets Finance So, they say – “Rome was not built in a day” and that is certainly true for any business. Most small businesses start off as sole proprietorships or even partnerships, simply in order to save costs. Some on the other hand because the other options are often widely misunderstood. Is there really a cost saving and if there is, is cost saving really worth the risk? An insightful morning was spent with Nicolene Schoeman and Chris Farquharson as they shared the legal and financial practical business solutions to these challenges.TRANSCRIPT
Sole proprietor vs Company
NICOLENE SCHOEMAN Director – Schoemanlaw Inc t/a Schoeman A;orneys, Conveyancers and Notaries Public LLB cum laude (UFS) LLM (UFS) PracIsing A;orney, Conveyancer, Notary Public and B-‐B BEE consultant
t 021 425 5604 f 021 421 8913 e [email protected] w www.schoemanlaw.co.za
a 8th Floor, 80 on Strand Street, Cape Town, 8000 p PO Box 507, Cape Town, 8000
© NF Schoeman 2013
Tailored. Entrepreneurial. SoluIons.
Disclaimer • Both this presenta1on and slides are copyright protected. • In terms of the Copyright Act No. 98 of 1978, no part of this
presenta1on and slides may be reproduced or transmiBed in any form or by any means, electronic or mechanical, including photocopying, recording or by any informa1on storage and retrieval system, without the prior wriBen permission from the author.
• This presenta1on and slides are for educa1onal purposes only and does not cons1tute legal advice.
• The author and Schoemanlaw Inc t/a Schoeman ABorneys, Conveyancers and Notaries Public (Schoeman ABorneys) do not accept any liability for any loss or damage that may be occasioned as a result of the reliance by any person on the informa1on contained in this presenta1on and/or slides.
© NF Schoeman 2013
The vehicle
• Choosing the right enterprise / vehicle is imperaIve to the success of any business enterprise:
– Sole proprietor
– Partnership
– Trust
– Close Corpora1on
– Company
– Co-‐opera1ve
© NF Schoeman 2013
Sole proprietor
• Most businesses start as sole proprietors because it is cost-‐effec1ve
• No legal personality i.e. you are the business and the business is you
• Unless there is sound reason (tax reason) this is a high risk vehicle
© NF Schoeman 2013
Partnership
• Is regulated by the common law and law of contract
• Can consist of up to 20 partners and be no less than 2
• No legal personality
• Partners are jointly and severally liable for the debts of the partnership, in propor1on to the contribu1on to the partnership
• Exemp1on of partners to share in losses is very limited
• High risk vehicle
© NF Schoeman 2013
Trust
• Regulated by the provisions of the Trust Property Control Act 57 of 1988
• Although regulated by legisla1on the trust is further regulated by contractual provisions (the trust deed)
• No “pre-‐incorpora1on” agreements are possible
• Func1onaries in the trust:
The founder
The trustee (s)
The beneficiary ( ies)
Purpose must be clear and sound
Trust should be set up with care otherwise high risk vehicle
© NF Schoeman 2013
Co-‐operaIves
• Co-‐opera1ves are regulated by the provisions of the Co-‐opera1ves Act 14 of 2005
• Coopera1ve structure is similar to that of the company except that each member of the co-‐opera1ve only has one vote regardless of amount contributed
• Facilitates bulk buying power – smaller businesses specifically
• Primary, secondary, ter1ary structures
• Limited liability and separate legal personality
• Only suitable where circumstances are appropriate
• Low risk
© NF Schoeman 2013
Close CorporaIon • A close corpora1on is currently par1ally regulated by Close Corpora1ons Act 69 of
1984 and Companies Act 71 of 2008
• Exis1ng close corpora1ons con1nue to exist with same name and registra1on number
• Limited liability and separate legal personality
• Members automa1cally take part in management with out restric1on, unless provided for otherwise in the associa1on agreement
• A close corpora1on was the cost-‐effec1ve structure and had no inherent audit requirement. Now audits are based on the calcula1on of the public interest score (PIS) = status quo remains
• Conversion into company structure only if in best interests of business
• Low risk = more than 1 member = associa1on agreement
© NF Schoeman 2013
Companies
© NF Schoeman 2013
Types of Companies
Profit
Not for profit “NPC”
Public “Ltd”
Personal liability “Inc”
State owned “SOC”
Private “(Pty) Ltd”
Company
• Companies regardless of size regulated by Companies Act 71 of 2008 • Limited liability and separate legal personality • Division of management (directors) and ownership (shareholders) • Smaller companies have less regulatory requirements to meet than larger
companies • Audit requirement no longer compulsory = PIS • MOI now vital document • Exis1ng companies = Implement MOI + shareholders agreement before window
period lapses and new companies tailor MOI • Group structures • Low risk = suitable MOI and shareholders’ agreement
© NF Schoeman 2013
Thank you!
© NF Schoeman 2013
Email: [email protected] Tel: 021 4255604
Website: www.schoemanlaw.co.za
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