Trading as a Sole Proprietor… WHAT YOU NEED TO KNOW
In our very first Blog we looked at the different business types you as an entrepreneur would probably need to consider when starting out, in this blog we will look at these business types in a little more detail.
The simplest business “type” would be trading as a Sole Proprietor. While this type of business requires no formal registration with a regulatory body like CIPC, it still however means that you have to follow a few simple rules to keep you on the right side of the law.
The first thing to remember when trading as a Sole Proprietor is to always reflect the “correct” business information on all official documentation (invoices, agreements, letterheads, etc.). What this means is, at all times the reader should know that regardless of the business name you have chosen, you are trading in your own name. E.g. John Doe t/a My Own Business. In place of a business registration number, you would use your ID number.
The next big thing to remember when operating as a Sole Proprietor is that you will be taxed on your business profits at the higher individual tax rate and not at the lower Small Business Corporation (SBC) rate. It’s not all bad news though, as you are allowed to offset any losses against your other income, thereby paying a lower tax rate for those years that qualify.
When your business reaches a point where you need to hire staff or begin charging VAT, you would follow the same procedure as any other business and register for UIF, Workman’s Comp, PAYE and VAT. The only difference would be that these registrations would be linked to you as an individual i.e. John Doe t/a My Own Business.
Lastly, the biggest risk factor when trading as a Sole Proprietor is that there is no separation between you as the individual and your business. So what this essentially means is you as the individual are personally liable for any mischief you may cause in the company name and your assets would be at risk if you were to be sued.
In this series we will be diving a little deeper into many of the topics we raised in our “Year in the Life” of a business series started earlier, so feel free to visit our website to see what we’ve already covered.
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We are your “one stop SME shop”, assisting with everything from Accounting, Business Management, BEE, Consulting, Company Registration to Payroll and Mentoring.
For more information, please visit our website www.sme.tax or give us a call on 087 238 4357
