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Thread: Converting a CC to a sole proprietor

  1. #1
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    Converting a CC to a sole proprietor

    Hi All,

    I have had a CC registered and running for 2 years. After many different people telling me different things, I am still at a loss as what is the best option for my CC for tax implications etc.

    After alot of research and meetings, I have noticed that the costs of keeping a CC's taxes up to date is very pricey in comparison to what the CC actually earns at the moment. (less than 10K profits per year so far, but growing bigger each year) So I have decided to change to a Sole Proprietor.

    What do I have to do to do this?

    I presume I must de-register with CIPRO?
    Is there anywhere I need to register as a Sole Proprietor?
    I need to open a bank account as a Sole Proprietor?
    As I do my own personal tax, Can I do my own TAX filing's etc for the Sole Proprietor and not have to pay someone a fortune to do it?
    Will I need to complete my CC's 2010 tax year and annual return and then do the sole Proprietor tax for 2011? or could I change to Sole proprietor now and do the 2010 tax as a S.P?
    Do you have submit Annual Financial Statements as a S.P?

    Any and all advice is appreciated as I am new to this and just want the best and cheapest option

    Thanking you in advance

    B
    Last edited by bantersaurus; 20-Sep-10 at 01:16 PM.

  2. #2
    Site Caretaker Dave A's Avatar
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    The operational word is probably more "transfer" than "convert."

    Essentially you could buy the business as a going concern (effectively you become the holder of all the assets and liabilities in your personal name), or you could buy the fixed assets and wind up the company.

    In either instance make sure the creditors get paid to avoid complications. If you transfer assets to yourself as a member and happen to stiff a creditor, they've got pretty strong legal grounds to claim fraud.

    Some assets (such as vehicles, particularly still under finance) might not be so easy to simply transfer.

    From a tax point of view, your and the cc are different taxable entities. You will both be required to submit all the relevant returns for the 2011 tax year.

    From a trade earnings point of view, the switch is not a big deal. There could be some capital effects though depending on what the situation of the cc is.

    The fewer assets, debtors and creditors the easier this all will be. If the cc has lots of assets and liabilities, we probably should discuss whether this conversion is really in your best interests.
    The trouble with opportunity is it normally comes dressed up as work.

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    also, and i know this might be sneaky, but could I do the following:

    De-register my CC. 'Back date' or 'Pretend' that the SP has been active from beginning of 2010 tax season and go forth as if no one is the wiser? (as there is no registration of a S.P. and i do not have a full time bookeeper/accountant - there should be no trace of it until i submit the 2010 tax and annual return?)

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    "The fewer assets, debtors and creditors the easier this all will be."

    Thanks Dave,

    to put it simply: I do graphic design, the only asset is a laptop, which i bought on a personal level and 'loaned' it to the CC.

    I have no staff, no overhead, no liabilites, no creditors and I do not take a salary out the cc (I am the only member with 100%)

    so its actually all tax related issues?

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    Site Caretaker Dave A's Avatar
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    Pretty much down to pushing the paperwork through and it's done
    The trouble with opportunity is it normally comes dressed up as work.

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    Pretty much what Dave has said. Remember that a Sole prop is not a different type of company, instead it is you. You are the business.

    So in your very simple case...

    Quote Originally Posted by bantersaurus View Post
    Hi All,
    So I have decided to change to a Sole Proprietor.

    What do I have to do to do this?

    I presume I must de-register with CIPRO?
    Is there anywhere I need to register as a Sole Proprietor?
    I need to open a bank account as a Sole Proprietor?
    As I do my own personal tax, Can I do my own TAX filing's etc for the Sole Proprietor and not have to pay someone a fortune to do it?
    Will I need to complete my CC's 2010 tax year and annual return and then do the sole Proprietor tax for 2011? or could I change to Sole proprietor now and do the 2010 tax as a S.P?
    Do you have submit Annual Financial Statements as a S.P?
    Yes you will need to lquidate and de-register with CIPRO. You have already registered as a sole prop - its called a birth certificate . You probably already have a bank account in your personal name. You could use that or open another in your trading name as well. Choice is yours.

    Yes you can do your own tax returns. You can also do your own cc tax returns. I don't see what advantage you would get by back dating the transfer. Whichever way you do it, just make sure you don't cheat the tax man. Pay him whats due to him. Its not worth the risk.

    As a SP you will have financial statements for the business. You need to know your income and your expenses to calculate tax. However you can do it on a piece of paper or spreadsheet. No need for fancy accounts like Anglo American.
    Last edited by BusFact; 20-Sep-10 at 08:14 PM. Reason: layout correction

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    Thanks Busfact and ForumSA - this is so helpfull: 2 queries though -

    "Yes you can do your own tax returns. You can also do your own cc tax returns. I don't see what advantage you would get by back dating the transfer. Whichever way you do it, just make sure you don't cheat the tax man. Pay him whats due to him. Its not worth the risk."

    Since I have not filed my 2010 Tax return and financial statements for the CC, could I just rather not file it. De-register with CIPRO and carry on as a S.P. skipping the 2010 tax season completely and officially commence with the SP as of the 2011 tax year? (since I only have a turnover of R6000.00 for the 2010 season - which I know I wont need to pay any tax on and I don't need to bother with claiming anything either) I don't have a bookkeeper or anything so in theory there should be no trace or record of my 2010 tax year (not that I am trying to skip paying tax, I just don't want to pay someone R3000.00 for financial statements of a CC that is closing)

    and then:

    "As a SP you will have financial statements for the business. You need to know your income and your expenses to calculate tax. However you can do it on a piece of paper or spreadsheet. No need for fancy accounts like Anglo American."

    where and how do i submit Financial statements for a SP?

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    Site Caretaker Dave A's Avatar
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    You might want to bear in mind any invoices you've issued. All it takes is for someone to issue an IT3a or have a PAYE audit and if you've filed a nil return - expect an audit and penalties.

    Is it really worth the risk for a day's effort to sort out the paperwork?
    The trouble with opportunity is it normally comes dressed up as work.

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    You may well get away with skipping the tax year, but then again you might get found out and have some inconvenience. I don't think it would be too serious either way. Personally I prefer to keep it above board.

    SARS will still be expecting you to submit the cc tax returns for last year, but you could probably get away with not having your accounts done by an accountant.

    Quote Originally Posted by bantersaurus View Post
    where and how do i submit Financial statements for a SP?
    You don't. They are for your personal information only. You would just need to put any relevant information on your personal tax return. Remember this "business" income is now the same as your personal income.

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    This is an interesting discussion because I've been thinking the same thing. However, I keep seeing the benefit of separating my risk with my CC as the overriding benefit of keeping it. My main trade is training.

    What is the dangers of running your business as a CC vs sole proprietor?

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