Registering my online business

[Asa]

Hi. I want to create a website that provides services it is more like an online business. Problem is i dont know if or how I should register my business.

Business idea i have involves people getting paid for doing certain tasks in the website.

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[BusFact]

Usually for small businesses there is no need to register formally. Instead you will trade in your own name. This is known as a sole proprietor business. You just need to submit your business income when you do your personal tax return each year.

Its only when you want to create a company to own your business that formal registration is required. There are several reasons for registering a company, the most common of which are:

- When there are to be more than one owners in the business.
- Sometimes when the business becomes large enough so that it needs to become an employer or registered for VAT.
- When you want to tender for government tenders.

[Basment Dweller]

I think the decision to register a company should be based on one thing, how much profit the company generates.

Companies benefit from a lower tax rate on profits than would be paid by an individual in their own name.

[BusFact]

1) Is there really much of saving - in terms of getting the profits to the owner?

2) Would you suggest they first see how much profit they make or would you rely on forecasts / budgets?

3) I assume the extra costs of running a company would be in the formula to determine the breakeven point at which a business should become a company?

[Basment Dweller]

In my case, I already have a day job and already get taxed out the wazoo in my personal capacity so I try to avoid any extra income in my personal name so I set up a company that gets taxed at a flat rate of 28% but 'withdraw' money through expenses that would otherwise have been paid by my after tax income.

If I want to get paid any other way beyond that I withdraw a dividend that gets taxed at 15% ( haven't paid any yet). I think the savings are quite significant running everything through a company compared to having it run through my personal name. Once you get into this paradigm you will find that paying yourself a salary is in fact a bad idea and you would rather leave the money in the business to grow.

I think a sole proprietor would be useful if you are running a start up and need to ramp up quickly and bypass the red tape but would need to set up a proper PTY at some point in the future. If you forsee big profits ahead and have the lead time, rather get the company, shareholders, share agreements, tax numbers, business accounts, directors etc done up front and go for it.

Regarding extra costs of running a company, the costs are marginal if you are making money and growing the company but obviously you will factor this in to your costs. I'm not an accountant but this is how I approached it and it worked out nicely for me.

Another thing to add is personal liability, the company is one step removed from the director when someone tries to sue you, so there is some protection involved here.

[SACE]

The Companies Act : South Africa

I think you should trade in your own name [see BusFact comments above] until the business makes enough profits and then you can re-visit this question.

IN THE MEANTIME HERE IS WHAT THE COMPANIES ACT SAY:

All companies in South Africa needs to be registered in terms of the Companies Act, 71 of 2008

For more information on how it works you can visit CIPC

If you want to start your own business and you want partners or shareholders to help you fund your new business you basically have three options.

Option 1. Start a partnership – also called a Personal Liability Company (Inc) with partners who has enough cash to invest in the business.

Option 2. Register a Private Company [(Pty) Ltd] with partners (directors and shareholders) who share your ideas and who has money to invest in your venture in return for a slice of your profits.[A private company trades for profit. It may not offer its shares to the public and the transferability of its securities is restricted. It may be incorporated by one or more persons.]

Option 3. Start (register) a Public Company (LTD) and issue shares to the public for a share of the profits and payment in dividends. [This is a company that operates for profit. It is allowed to offer its shares to the public. All listed companies must be public companies but not all public companies are listed on a stock exchange. It may be incorporated by one or more persons.]

I hope this help!


Good Luck