Starting your own business: the basics

•  simple
•  you, as owner are free to make decisions.
•  minimum of legal requirements
•  you, as owner receive all the profits.
•  easy to discontinue

• Unlimited liability. The owner is legally liable for all the debts of the business. Not only the investment, but any personal and real property may be attached by creditors.
• Limited ability to raise capital, a problem when expansion requires new capital. A common cause of failure of this form of business.
• You, as owner bring in your own skills. Other skills you have to hire, incidentally or by employing individuals on a regular basis.

• It is easy to organise.
• It has greater financial strength.
• It combines managerial skills of the partners.
• It has a definite legal status.
• Each partner has a personal interest in the business.

• Unlimited liability of the partners. Each partner may be held liable for all the debts of the business.
• Therefore, one partner not exercising good judgement can cause the loss of the assets of the partnership as well as the personal assets of the remaining partners.
• The authority for decisions is divided.

• It is relatively easy to organise.
• The life of the business is perpetual (i.e. continues after members die).
• The members have limited liability (i.e. they are not personally liable for the business debt).
• The transfer of ownership is easy.
• Fewer legal requirements than a private company.

• Special taxation rates.
• More legal requirements than a sole proprietorship or partnership.

• The life of the business is perpetual.
• The shareholders have limited liability.
• The transfer of ownership is easy.
• It is easier to raise capital and to expand.
• Efficiency of management is maintained.
• It is adaptable to both small and large business.

• Special taxation rates.
• It is more difficult and expensive to organise than other forms of ownership.
• It is subject to many legal requirements.

• Income tax (for this you will get a reference number). Sole proprietorships and partnerships do not have separate legal personalities as is the case with close corporations and companies. With a sole proprietorship, the owner or proprietor must include the income from his business in his own gross income as he is responsible for the payment of taxes thereon in his individual or personal capacity. This is also the case with partnerships. A partnership is not a taxpayer but each partner is taxed on his share of the partnership profits. Close corporations and private companies are legal entities and have separate legal personalities of their own. They must therefore register as taxpayers in their own right as opposed to a partnership or sole trader/proprietor where the only taxpayers are the owners or partners of the business. Unlike natural persons, a company or close corporation pays tax at flat rate (35% tax 12.5% STC).

• Employees tax (PAYE) for any employees you might have. You must deduct this tax from their salaries or wages and pay for your local Receiver of Revenue. The advantage of this system to employees is that payment of tax is spread over the whole year so that it will not be necessary for them to pay a lump sum at the end of each year. If an employee leaves your service, you must immediately inform the Receiver.

•  Value-Added Tax (VAT), to be included in the price of every taxable supply (i.e. the sale of goods and/or the supply of services) and meant for the taxman. Where a vendor's output tax (i.e. VAT charged on supplies of goods or services) exceeds his input tax (i.e. VAT paid or payable by a vendor on goods or services which are acquired for the purpose of making taxable supplies) the difference is the VAT payable by the vendor. Where the input tax exceeds output tax for any period a refund will be paid to the vendor. Because every vendor within the production and distribution chain is liable for VAT, but claims the amount of tax paid in respect of inputs by setting it off against its output tax, the total amount of tax is collected by the Receiver of Revenue at the final stage of consumption. The end consumer is therefore actually paying on the value added: hence the term Value-Added Tax. But only when your taxable supplies exceed, or likely will exceed R150,000 per annum, you are obliged to register for VAT.

• Local licensing authorities.
• Health authorities.
• Customs and excise authorities

• Know the source of receipt.
• Prevent omission of deductible expenses.
• Establish amounts paid out as salaries or wages.
• Explain items reported on your income tax return.

You are required to keep the books and records of your business available at all times for a period of up to 6 years. The retention period commences from the date of the last entry in the particular document, record or book.

Net profit and income tax
In order to prepare your income tax return, you will need to determine your business' profit or loss. Basically: income - expenses = profit (loss). Gross sales is the income a business receives. Gross profit is the gross sales less the cost of goods sold or expenses for rendering your services (travel, books, etc.). Business expenses are the necessary expenses incurred in the operation of the business. Net profit is the amount by which the gross profit of a period exceeds the expenses of the same period. Net loss is the amount by which the expenses exceed the gross profit. Net profit serves as the basis for the calculation of your income tax.

All that you would rather forget about, but must know anyhow, can be found on www.sars.gov.za
Physical Address: South Africa Revenue Service (SARS)
Pretoria Head Office
299 Bronkhorst Street
Private Bag X923 Pretoria 0001
Tel: 012 422 4000