Deciding on the right corporate structure, is a head-scratcher that most people wrestle with when starting out their new business.
The different options can be quite overwhelming and often, entrepreneurs just need someone to break it down for them. Our CEO, Marnus Broodryk, shared his insights on the matter in his book – 90 Rules for Entrepreneurs. Below we share his thoughts on the topic.
When you start your business, there are many different corporate structures in which you can operate. However, there are two main routes you can follow. You can either:
- Register a company
Or
- Trade in your personal name
Although there’s no one-size-fits-all – there is definitely an option that makes the most sense for you. We’ll look at the key considerations that should guide you in choosing the right corporate structure.
The Benefits of Registering a Company
Registering a company essentially creates a separate entity, and offers multiple benefits. The most important ‘pros’ on the list include the following:
1. Tax Benefits
There are numerous tax benefits if you register as a company. You can structure your tax affairs better and pay less tax. Companies are taxed at flat rate of 28%, as opposed to individual tax tables reaching 45% should you fall in the highest tax bracket.
Another very important consideration is the tax benefits available to your business – should you qualify as a Micro-business or Small Business Corporation. These companies are taxed at extremely favourable rates:
Micro-Businesses
| Taxable income (R) | Rate of tax (R) |
| 0 – 335 000 | 0% |
| 365 001 – 550 000 | 1% of each R1 above 335 000 |
| 550 001 – 750 000 | 1 650 + 2% of the amount above 500 000 |
| 750 000 – Above | 6 650 + 3% of the amount above 750 000 |
Small Business Corporations
| Taxable income (R) | Rate of tax (R) |
| 0 – 78 850 | 0% |
| 78 151 – 365 000 | 7% of taxable income above 78 150 |
| 365 001 – 550 000 | 20 080 + 21% of taxable income above 365 000 |
| 550 001 – Above | 58 930 + 28% of taxable income above 550 000 |
2. Reputation
Customers, especially those you’ve never worked with before, need reassurance that you are a legitimate business. A potential client may suspect your business of being a ‘fly-by-night’ operation if your company isn’t properly registered.
3. Less Risk
Because a company is seen as a separate entity, it means that you (as the owner) are much less at risk if something goes wrong than when you are dealing under your own name.
A costly affair: the Downside of Registering a Company
When you’re serious about your business, you may choose to register a company and do it properly right from the start. Keep in mind that companies need to comply with additional rules and regulations. This can be a costly exercise, but these costs should be outweighed by the tax benefits, reputational clout and the legal protection it offers.
Perhaps you’re in a position where you want to test the water first to see whether or not the business will work out. Then it will be wise to start your business in your personal name. Nine out of ten companies that are registered never trade – a terrible waste of time and money… Once your business has proved to be successful, you can proceed to register a separate entity.
Whatever you decide, make sure the corporate structure you choose fits your business. Make sure it fits what you’re working towards: You’re planning to prosper.