Although some small businesses need not register a company, and while it is possible to run a business as a sole proprietor, there are a number of advantages to incorporating your business as a company:
Credibility.
First, and most importantly, having a properly incorporated company can increase your credibility in the eyes of customers and suppliers. A large company is unlikely to do business with a sole trader, but may be more willing to do business with you as a company. This increased credibility may also make it easier for you to raise funding from investors.
Limited Liability.
As a sole proprietor, your business does not have a separate legal personality from you – the law considers you to be one and the same. Therefore, you are responsible for the company’s debts. However, a private company does have a separate legal identity, which means that its debts are not necessarily yours. Note, however, that in some cases, a creditor may obtain a court order holding you personally responsible for your company’s debts.
Perpetual lifespan.
Because a company has separate legal personality from its directors, it can continue even if one of the directors passes away.
Tax benefits.
Generally, registered companies pay less tax than sole proprietors.
When should you register a company?
Although incorporating does have benefits, it may wise to first ensure that your business idea is viable. The company registration process can be frustrating and time-consuming, and many entrepreneurs lose precious time on this instead of properly testing their business idea. Consider allowing a professional to assist you with registering the company, while you focus on the bottom line - turnover.
You can find more free commercial law articles on our website, as well as important business contracts which companies need, in our Contracts section. Maybery Incorporated Attorneys provides a range of services to assist businesses, including company secretarial work, commercial law, contracts and litigation, and is passionate about helping entrepreneurs succeed!
Please note that this article represents a brief summary of company law, and is therefore meant for informative purposes only and does not constitute legal advice. For more information or to arrange a consultation, contact Maybery Inc. at (012) 004 1296 or commercial@mayberyinc.co.za.
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