[Question] CC VS SP

[NAN]

Please help!!!!! Witch 1 is the better option, CC or SP? Why & what are the diffrent vat implications?
I currently have a CC, but after speaking to several diffrent businees people they advise me to change it to a SP! I'm the only member of the cc. And I have heard that were in the past the cc were responsible for "itself" you the member are now relaible, same as in a sp! I have no outstanding accounts, and want to buy a new vechile. But isnt it better to change it first? How do I go about on doing so? Any help & opinions will be deeply appriciated!!

Thanx

[Dave A]

I'd love to hear a good reason to change from a CC to a sole proprietor.

[KimH]

Hi Nan,

In response to your questions I have included excerpts from:

https://www.pastel.co.za/Other-Paste...ance-Sheet.asp

that I think you will find rather informative.


In terms of the provisions of the Income Tax Act, SARS requires that all individuals that are either; a member of a close corporation or director of a company, or receive income from business, trading or professional activities, to complete and submit a statement of assets and liabilities, as part of the annual IT12 tax return. The individual is required to list all local assets and liabilities and to declare the aggregate amount of foreign assets and liabilities. Also, the assets must be disclosed at the original cost (not valuation), with no adjustment for impairment, depreciation, or re-valuation. SARS requires this disclosure to assist in testing the reasonability of income declared by reviewing year-on-year assets changes and how such changes are funded.

Assets disclosed in financial statements must be done with fair presentation in mind, as the users, such as the bank and creditors will require such. To obtain fair disclosure of assets, impairments, depreciation and even re-valuation would have to be used.

There is no legislation, promulgated accounting standards or financial reporting requirements that call for financial statements to be produced by sole traders, nor offer any guidance to the format or standard that would be deemed appropriate.

For tax purposes, the income generated from the trading activities is taxed in the individual’s hands. Not all expenses are automatically deductable. In fact, the Income Tax Act recognises that expenses incurred by the sole trader could either be for full or partial trade purposes; and only allows partial apportionment of expenses incurred during trade and income generating activities. Similarly, the Value-Added Tax Act has been drafted to allow for the recognition of sole traders. The requirements set by both the Income Tax Act and Value-Added Tax Act with regards to the keeping of accounting records aim to ensure disclosure of income (with taxable nature being distinguished) and deductions such as expenses and allowances to determine taxable liability. The Income Tax and Value-Added Tax Acts do not call on sole traders to produce financial statements!

The only benefit trading as a sole prop as far as I'm concerned is that you save on your accountants fees for drafting your annual financial statements, the pro's of a CC far outweigh those of a sole prop.


Hope this helps

[sterne.law@gmail.com]

I am with Dave, would LOVE to hear the advantages.
I guess the only advantage of a Sole Prop is, that I can think of, no formalities. But this is far overshadowed by the advantages of a cc vs SP.
Any liability you would have as a cc will exist as a SP. A cc has tax advantages, some protection against creditors and liabilities, and has more credibility in market place compared to SP.
If the question was choosing between cc and a Private company it would make more sense.

[BusFact]

The only advantage of a SP is cost - typically incurred within the first year. A cc costs a few hundred to set up (at most) plus the annual fee for an accounting officer and the R150 or so annually to Cipro. For a "business" where these amounts are a major hurdle or exceed the expected profits - a subsistence business, then SP is the only option.

Anybody who intends to earn a decent profit should go the cc route at least.

[BusFact]

Please help!!!!! Witch 1 is the better option, CC or SP? Why & what are the diffrent vat implications?
I currently have a CC, but after speaking to several diffrent businees people they advise me to change it to a SP! I'm the only member of the cc. And I have heard that were in the past the cc were responsible for "itself" you the member are now relaible, same as in a sp! I have no outstanding accounts, and want to buy a new vechile. But isnt it better to change it first? How do I go about on doing so? Any help & opinions will be deeply appriciated!!

Thanx

I think the others have answered best - go for the cc option. To specifically answer your questions:

If you trade recklessly/illegally; sign personal sureties or owe SARS money, then you will probably become liable personally for these debts in the event of bankruptcy. In most cases though, the cc provides you with pretty good protection from company debts.

The VAT implications are the same (just be aware that you can't claim for normal cars - in both cases). The only issue with SP VAT is that it can get complicated when you try and buy or sell personal items that are not part of the business. Do you still charge VAT then? Plus what happens after the business closes? You're still stuck with these VAT issues even though the business is gone. In fairness you should be able to deregister, but be prepared for the call 10 years down the line from some SARS kippie, quering your missing returns.

[NAN]

Thank you

Thank you for the overwhelming response to my Q! I think it clear, very clear...go with a CC not a SP! Thaks a million! You all were great!

[Breyten Potgieter]

Just a quick add to this issue

A CC is in my opinion not the best entity to do business in.

Take into account the following:
The membership interest in a CC is considered to be an asset in your personal estate. If you have a few businesses, and all of the membership interests are in your personal estate and you signed surety for, lets say one of the CC's that are in financially struggling. If last mentioned CC gets liquidated, the membership interest in your personal estate gets attachable because of the liabilities signed.

Also, deregistration of a CC causes the CC's liabilities to vest on the members in their personal capacity.

I suggest you read the case studies on our website about Asset Protection.

[Dave A]

I'm sorry, Breyten - but I must have missed something.

How is this situation any better trading as a sole proprietor?

[BusFact]

I'm sorry, Breyten - but I must have missed something.

How is this situation any better trading as a sole proprietor?

I probably shouldn't answer on his behalf, but I'm pretty sure he's not saying a SP is better than a CC. Rather he is saying there are even better structures than both a SP and a CC, which involve PTYs and Trusts. He's probably right, but these are not cheap options for small, one man businesses. I think that by trying to read between the lines of the initial question, we all pretty much understood this to be a small venture, where SP and CC were the only really viable options based on costs and cash availability.

[BusFact]

I suggest you read the case studies on our website about Asset Protection.

Hi Breyten, you may want to check the information on this page. You say there that no cc's can be registered after 1st July 2010 !!! Sorry, but that must be an oops. I personally registered one in August 2010 and to the best of my knowledge there are still cc's been registered as we speak.

[Martinco]

Hi Breyten, you may want to check the information on this page. You say there that no cc's can be registered after 1st July 2010 !!! Sorry, but that must be an oops. I personally registered one in August 2010 and to the best of my knowledge there are still cc's been registered as we speak.

If anybody is looking for a CC. I have a shell with an accumulated loss ( asset) for a song !

[Justloadit]

The date for registration has been postponed to end of this month if I am not mistaken, as CIPRO was not ready to dot he Private Company registration.

[BusFact]

The date for registration has been postponed to end of this month if I am not mistaken, as CIPRO was not ready to dot he Private Company registration.

I think its more to do with the new companies act being signed by the big boss in Pretoria. Its been delayed several times with the next supposed date being 1st May, but I'm not holding my breath.

[Breyten Potgieter]

Hi yes, i was referring to the fact that there are better structures to do business in than a CC and a SP. A business trust for instance (expensive to setup) but costs virtually the same as a CC as it does not need to be audited etc.

(Website might be out of date concerning the registration of CC's as the new companies act has been delayed).

But to sum up, if you can't afford to do business in another entity, then yes for CC.