If you’re going to start a business in South Africa, then you need to know what different forms of business ownership structures exist. The type of business ownership you choose should be based on the type, size, operations, and style of your business.
To help you get started, here are six different types of business structures you can consider.
Sole Proprietorship
Sole proprietorships are simple business structures, where a single person owns and operates the business. It’s the most straightforward form of business ownership. The advantage of being a sole proprietor is that it’s easy to establish these businesses, and you can simply manage them as an individual. The downside is that you have no separation between your personal self and your business – which could be risky. If you want to start a small business independently, without the need for complex legal requirements, then this is a good business structure.
Partnership
Partnerships are a business structure where two or more individuals join together to form a business. All profits, losses, and responsibilities of the business are shared between the partners. To establish a partnership, you’ll need to create a partnership agreement that outlines the specific roles, responsibilities, and level of business ownership of each partner. Each partnership agreement can look different for each business.
Proprietary Limited Company (Pty Ltd)
A proprietary limited company (Pty Ltd) is a type of business ownership that separates the individual business owner from the business. This provides protection to business owners and shareholders so that their personal assets are not at risk or tied to the business. A Pty Ltd is a common business structure that is applied to many types of businesses. This is ideal if you want to separate your personal self from the business. It’s also a good business structure if there are multiple business shareholders.
Public Company
Public companies offer shares of the business to the general public, listed on the JSE. These types of businesses have strict legal and reporting requirements compared to other structures. They’re generally only suitable for large-scale enterprises.
Franchise
A franchise is a business structure where an individual (franchisee) buys the rights to operate a business model and brand from the franchisor. This is a great business structure if you want to invest in a business model that offers support and is proven to work.
Non-Profit Company
Non-profit companies operate for public benefit, instead of the owners looking to make a profit. These companies are created to achieve certain objectives and causes. This business structure can be applied to organizations looking to make a positive impact on society. Non-profit companies can access certain tax benefits and generally rely on donations. Each business ownership structure has its unique pros and cons. It’s important that you choose a structure that makes the most sense for your specific business.
Once you’ve established your business structure, you can start to set up all other functions of your business – like marketing, communications, financial management, and so on. This should all be carefully planned before you start trading.
Download: Business Plan Template
