Business Entities and Structures
Business Entities and Structures
Sole Proprietor
- Simplest form of business
- Widely used for small business and by entrepreneurs and farmers
- Limited formalities
- Individual income tax rates (18% to maximum 40%)
- Capital gains tax maximum rate 13.3% [40% x 33.3%] (annual exclusion R30 000)
- Owner personally liable for the business debts
Partnership
- Two or more persons operating a business and sharing profits
- Partnership agreement recommended
- Individual income tax rates (18% to maximum 40%)
- Capital gains tax maximum rate 13.3% [40% x 33.3%] (annual exclusion R30 000)
- Partners personally liable for the partnership debts and not restricted to individual debts
Close Corporation
- Separate legal entity in corporate form
- Regulated by the Close Corporations Act and Companies Act
- Natural persons and trusts (subject to restrictions) can be members – maximum of 10
- Income tax rate 28%, however Small Business Corporation rates may be applicable 0%, 7% & 21%
- Capital gains tax 18.6% [28% x 66.6%]
- Members enjoy limited legal liability
Company
- Separate legal entity in corporate form
- Regulated by the Companies Act
- Unlimited shareholders – also legal persons (companies, close corporations, trusts & other)
- Income tax rate 28%, however Small Business Company rates may be applicable 0%, 7% & 21%
- Capital gains tax 18.6% [28% x 66.6%]
- Shareholders enjoy limited legal liability
- Requires annual audit
Trust
- Recommended for "protecting” assets
- Estate planning tool
- Trustees administer and manage assets on behalf of beneficiaries
- Income tax rate 40% of income not distributed
- Capital gains tax 26.7% [40% x 66.6%] of gain not distributed
- Trustees not personally liable unless negligent in the performance of their duties or party to fraud