Know and un­der­stand your busi­ness

Pros and cons of the dif­fer­ent le­gal en­ti­ties

Sunday World - - Jobs - PER­SONAL FI­NANCE Nonhlanhla Zaba

Many times peo­ple are told to es­tab­lish busi­nesses be­cause they have good ideas or vi­sion, butno one ever tells them about the ad­min­is­tra­tion side of things, on how to reg­is­ter the busi­ness and get it up and run­ning. The dif­fer­ent types of le­gal en­ti­ties in­clude:

Sole pro­pri­etor­ship: You are a sole trader and not reg­is­tered with the Com­pany and In­tel­lec­tual Prop­erty Com­mis­sion (CIPC). All your as­sets and li­a­bil­i­ties are the same, they will not be sep­a­rated. Ad­van­tages

■ The busi­ness is sim­ple to or­gan­ise.

■ The owner is free to make de­ci­sions.

■ The owner re­ceives all the profits. Disad­van­tages

■ Un­lim­ited li­a­bil­ity.

■ No per­pet­ual suc­ces­sion.

■ The pro­pri­etor as­sumes all risk.

Part­ner­ships : The part­ners do share risk and re­wards, so each part­ner has a stake inthe busi­ness. There must be apart­ner­ship agree­ment in place.

Ad­van­tages

■ Easy to ad­min­is­ter.

■ It has a def­i­nite le­gal sta­tus.

■ The part­ners can stand in for each other. Disad­van­tages

■ Un­lim­ited li­a­bil­ity for part­ners.

■ No per­pet­ual suc­ces­sion.

■ No trans­fer of own­er­ship.

Com­pa­nies : (pub­lic and pri­vate): This type needs to be reg­is­tered with the CIPC.

Pub­lic: There is no lim­i­ta­tion on max­i­mum share­hold­ers, but there is a min­i­mum of seven. Shares are of­fered to the pub­lic; in­for­ma­tion is known to the pub­lic.

Pri­vate: The shares are not of­fered to the pub­lic. It does not have to make in­for­ma­tion avail­able to the pub­lic. Ad­van­tages

■ A pub­lic com­pany can is­sue shares to the pub­lic to raise cap­i­tal.

■ Share­hold­ers are not li­able for debts .

■ The trans­fer of own­er­ship is easy. Disad­van­tages

■ Chal­lenges with quo­rum.

■ Lack of ef­fi­ciency.

■ Lack of ac­count­abil­ity.

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