Changing a Sole Prop to a (Pty) Ltd

**Incentive** · 18-Mar-14, 12:46 PM

Hi there

As the title reads, I need guidance from knowledgeable folk on what the process (as well as an indication of possible costs) would be on changing a Sole Prop to a Pty(Ltd).

I'd appreciate any help.

**KristiKat** · 18-Mar-14, 01:31 PM

Very interesting question.

Well for a sole proprietorship there was no formal registration involved.

So when you have to convert it into a company it would be easier, than converting a CC into a company.

Did you have a separate business account for the sole proprietorship?

You can close that account and transfer that money into the new bank account (for the company) after the registering of the company name etc have been approved, as capital.... or you can transfer that money to another personal account.

there is a possibility of doing it online - the registration if you so choose.

here is a similar question in this forum about a making a CC into a sole proprietorship.

Useful guide to setting a company and the relevant forms

On the Commission of companies site there is info as well on registering a company.

Your main concern is just getting your sole proprietorship account closed, there is no de-registration involved...no excess admin, except that you have to inform SARS that you want a NEW TAX number and the old one for the SP won't be used any more.

You have to close the old accounts and tax number, and get new ones for the new BUSINESS.

**Greig Whitton** · 18-Mar-14, 03:45 PM

KristiKat has pretty much covered everything, although you wouldn't be converting a sole prop into a company so much as registering a company and discontinuing your trade as a sole prop.

In addition to the links that KristiKat already shared, you may want to check out this other one on the CIPC website as well as their company FAQ.

Thanks to the new Companies Act, registering and administering a company isn't as expensive and complicated as it used to be (especially for SMEs). You can literally do it on your own for virtually nothing (the CIPC registration costs less than R500). You don't have to involve any attorneys, but it may be a good idea to seek legal advice if there will be multiple directors and/or shareholders to ensure that your Memorandum of Incorporation and any supporting agreements are properly documented (I have worked with many small business owners who never documented their partnership agreements properly at the outset and ran into serious problems later when disagreements, conflict, misconduct, etc. emerged).

**Incentive** · 19-Mar-14, 08:20 AM

Thanks guys for your kind assistance.

My main concern is regarding the moving of the assets currently in the name of the individual trading as the sole prop, over into the company, especially fixed assets. This would involve transfer duties, in the case of buildings? The sole prop will hold 100% in the company. To limit these costs, would it be best to only move the operational assets over into the new company, while renting the building from the sole prop?

And then, would the new company be able to carry on trading as a going concern, and use the financials of the sole prop as its historical financials?

**CLIVE-TRIANGLE** · 19-Mar-14, 09:15 AM

Originally Posted by Incentive

Thanks guys for your kind assistance.

My main concern is regarding the moving of the assets currently in the name of the individual trading as the sole prop, over into the company, especially fixed assets. This would involve transfer duties, in the case of buildings?

There are many issues; is the proprietor VAT Registered? Is the company VAT registered? Then there are capital gains to consider. Detail is important.

Originally Posted by Incentive

The sole prop will hold 100% in the company. To limit these costs, would it be best to only move the operational assets over into the new company, while renting the building from the sole prop?

Your property option on the face of it involves the least drama.
Other assets; you need to consider the same issues; VAT, CGIT and so on.

Originally Posted by Incentive

And then, would the new company be able to carry on trading as a going concern, and use the financials of the sole prop as its historical financials?

For illustration purposes only. The company has no history prior to it's registration. Even if it is an old shelf company, the sole proprietor history is not it's history.

Simply put, the one ceases and the other starts.

**Richard S** · 19-Mar-14, 10:22 AM

In principle it is best to never put your assets into your trading company.
If something goes wrong with the business - and it can be due to a multitude of things, such as bad decisions, deals going sour, clients going bust and unable to pay you, accidents, health issues, etc. - then your buildings and other assets are not at risk. Rather leave them in your own name or even better, put them into a trust. The trust can own the assets as well as a separate pty which owns the business. Because this sounds like a reasonable sized business and property is involved I would recommend that you spend a few rand on advice from a trust attorney or an accountant.
But try to separate yourself from your business as well as your assets.

**Justloadit** · 19-Mar-14, 11:18 AM

Originally Posted by Richard S

In principle it is best to never put your assets into your trading company.
If something goes wrong with the business - and it can be due to a multitude of things, such as bad decisions, deals going sour, clients going bust and unable to pay you, accidents, health issues, etc. - then your buildings and other assets are not at risk. Rather leave them in your own name or even better, put them into a trust. The trust can own the assets as well as a separate pty which owns the business. Because this sounds like a reasonable sized business and property is involved I would recommend that you spend a few rand on advice from a trust attorney or an accountant.
But try to separate yourself from your business as well as your assets.

Damn good advice.
Fortunately I did this. The sheriff visited sometime back for something I was not aware off, and came to bite my but, but I was pleased to tell the sheriff that the company owned nothing, that even the furniture belonged to the landlord. The problem was cleared later, but only due to the fact that there was nothing to attach. Had there been, my business would have been in deep trouble, and would have required me to give up a lot to resolve the problem with in the prescribed period. With out anything to worry about it was very easy to make arrangements.

So the fact that you are in business, and that you are careful does not mean that you are completely clear, there is always some curved ball out there that you are not even aware of that comes and gives you a very hard smack. Being protected like this sure gives you the ability to control the situation in your favour.

**KristiKat** · 21-Mar-14, 06:59 PM

Originally Posted by Incentive

Thanks guys for your kind assistance.

My main concern is regarding the moving of the assets currently in the name of the individual trading as the sole prop, over into the company, especially fixed assets. This would involve transfer duties, in the case of buildings? The sole prop will hold 100% in the company. To limit these costs, would it be best to only move the operational assets over into the new company, while renting the building from the sole prop?

And then, would the new company be able to carry on trading as a going concern, and use the financials of the sole prop as its historical financials?

I don't understand your question,

I mean THE CC cannot rent from the sole proprietorship if you are apt in changing it into the CC.

**HR Solutions** · 19-Mar-14, 08:50 AM

Personally I would not move big assets into your newly formed business, but then again this is just a personal thing.
I think you need to way up the pros and the cons of moving a big asset eg a building. Sometimes far better for the actual business to rent the building from another "party". But as I say this is my personal opinion.

**Greig Whitton** · 19-Mar-14, 10:17 PM

Some good advice here for what is a tricky question.

The pros of keeping the assets separate from your business have already been well pointed out. However, there are also potential disadvantages. For example, a company with few assets may struggle to secure financing, qualify for grants, etc. A lack of assets may also sabotage your company's potential value (which may not seem like a big issue now, but is something that you will definitely care about should you decide to sell your business one day!)

If you do decide to separate the assets, I would strongly advise against retaining them in your sole prop capacity. This is way too risky should you ever incur any personal liabilities. Moving them into a trust definitely makes more sense, but then you will have to deal with many of the same issues (transfer duty, capital gains tax, etc.) as moving the assets into the company ...