Comparison of Business Entities
Close Corporation Formation A corporation is formed when a founding statement, which complies with the requirements of the Close Corporations Act, and the regulations thereto, is registered by the Registrar of Close Corporations and a certificate of incorporation is issued
Company A company is formed when the memorandum and articles of association, which comply with the requirements laid down in the Companies Act and the regulations thereto, are registered by the Registrar of Companies and a certificate of incorporation is issued.
Partnership A partnership is formed when the partners conclude a valid partnership agreement. There are no formal requirements that must be met to form a partnership.
Business Trust A business trust is usually formed by agreement between the founder and the trustee(s). There are no formal requirements that must be met to form a trust. A trustee must usually obtain the necessary authority from the Master of the Supreme Court to act as a trust.
Legal Personality
A corporation becomes separate and distinct legal person when it is registered in terms the Close Corporations Act and a certificate of incorporation is issued. If the legal personality of a corporation is grossly abused the
A company becomes a distinct and separate legal person when it is registered in terms of the Companies Act and a certificate of incorporation is issued.
A partnership is not a separate legal person and has no rights and duties distinct from the partners.
A trust is not a separate legal person. It is represented by the trustees acting in their official capacities.
Sole Proprietorship A sole proprietorship does not have to be formed. It comes about whenever a natural person begins any form of business. No separate entity or legal relationship is necessary. There are therefore no formal requirements that must be met. A sole proprietorship is not a separate legal person. It is merely the name given to the business of a person who carries on business in his own name.
Co-Operation Societies Formed when registered with the Directorate of Co-Operatives (Act 91 of 1981)
Has a distinct legal personality when "Statute" is registered.
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Existence
courts may deem the corporation not to be a legal person. A corporation has perpetual succession, which means that it continues to exist even if the members change. The corporation continues to exist until it is formally dissolved.
A company has perpetual succession, which means that it continues to exist even if the shareholders change. The company continues to exist until it is formally dissolved.
A partnership does not have perpetual succession. It ceases to exist when the members of the partnership change. If the remaining partners agree to continue they in effect form a new partnership.
A trust's existence depends on the terms of the trust deed. If the deed so provides, the trust will continue to exist despite changes in the trustees and beneficiaries of the trust.
A sole proprietorship does not have perpetual succession. It ceases to exist when the sole proprietor stops carrying on business.
Termination
The existence of a corporation may only be terminated in the ways provided for in the Close Corporations Act, namely by deregistration or winding-up followed by dissolution. The termination of the corporation does not automatically lead to the sequestration of the members' estates.
The existence of a company may only be terminated in the ways provided for in the Companies Act, namely by deregistration or winding-up followed by dissolution. The termination of the company does not automatically lead to the sequestration of the shareholder's estates.
A partnership may be terminated by agreement between the partners, by a change in the members of the partnership for whatever reason, by operation of law or when a partner's estate is sequestrated. If the partnership terminates due to insolvency, the estates of all the partners will simultaneously be sequestrated, unless the solvent partners undertake
The trust deed stipulates when and how a trust must terminate. The founder, trustees, or beneficiaries may also terminate the trust in certain circumstances. The court may also order the termination of a trust in certain circumstances.
A sole proprietorship terminates when the sole proprietor stops carrying on business, for whatever reason. The sole proprietorship does not continue if the business assets are sold to another person; the assets may be used to start or continue another sole proprietorship.
A co-operative has perpetual succession, which means that it continues to exist even if the members change. The cooperative continues to exist until it is formally dissolved. The existence of a c-operative may only be terminated in the ways provided for in the Act followed by dissolution. The termination of the co-operative does not automatically lead to the sequestration of the shareholder's estates.
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Ownership business assets
of The assets of a corporation are owned by the corporation itself and not by the members. Upon dissolution, the assets are distributed to the members in proportion of their interest, unless otherwise agreed.
The assets of a company are owned by the company itself and not by the shareholders. Upon dissolution, the assets are distributed to the shareholders in proportion to their shareholding, unless otherwise agreed.
Business owners
A corporation must have at least one but no more than ten members. The members must all be natural persons or legal persons acting in an official capacity for the benefit of natural persons. There is only one class of members but their
A private company may have from one to fifty shareholders. A public company must have a minimum of seven shareholders but there is no upper limit to the number of shareholders it may have. Shareholders may be natural or legal
to pay the partnership's debts. The assets contributed by the partners form the partnership property and are owned jointly (in undivided shares) by all the partners. Individual partners cannot deal with the property without authority from the partnership. When the partnership terminated the partnership property is returned to the individual partners to the extent of their contributions, unless otherwise agreed. A partnership must have at least two or not more than twenty partners. The partners may be natural or legal persons. Certain professional partnerships are by law allowed to have more than twenty partners. There are different classes of
The trust assets are owned by the trustees, but only in their capacity as trustees. The trust assets must be kept separate from the trustees' own assets by identifying or registering them as trust assets. Upon termination of the trust the assets must be distributed to the capital beneficiaries.
The business assets are owned by the sole proprietor.
The assets of a co-operative are owned by the co-operative itself and not by the members. Upon dissolution, the assets are distributed to the members in proportion to their shareholding, unless otherwise agreed.
A business trust may not have more than twenty associates. This limit applies to the total number of parties to a trust, namely the founder, trustees and beneficiaries. The founder, trustees and beneficiaries may
A sole proprietorship is by definition a business with one member, who must obviously be a natural person.
Requires 2 or more persons, but no limit on number of members.
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rights may varied in association agreement.
Management
Representation
be persons. There are an different classes of shares (ordinary, preference and deferred shares) and the rights attaching to them may be varied by means of the articles or shareholders' agreements. company is The management A by its and ownership of a owned and corporation are not shareholders separated by law. management by its The members are board of directors. entitled to take part The Companies Act the in the management requires of of the corporation, separation and unless they are management disqualified in terms ownership. of the Act or their right to do so has been restricted by an association agreement concluded by the members. directors All the members The the who have the represent necessary legal company and act on behalf. capacity may act on its behalf of and Shareholders who represent the are not directors corporation, unless have no right to the they are disqualified represent in terms of the Act company.
partners, for example, ordinary and extraordinary partners (whose liability to creditors differ) and universal and particular partners (who share property and income differently).
be natural or legal persons. There is usually only one class of trustees but the beneficiaries can be income or capital beneficiaries or both.
A partnership if managed by the partners and this must be done in terms of the partnership agreement. The partners could agree that certain partners will not take part in the management of the partnership (for example, in en commandite and anonymous/Silent partnership) A partnership acts through its partners and each partners has implied authority to act as an agent and to bind the partnership, provided he acts
The trust's estate and business operations must be managed by the trustees in the way provided for in the trust deed.
The business is Has a board of managed by the directors. sole proprietor and this can be done in any way he sees fit.
The trustees administer the trust property and may only deal therewith as specified in the trust deed.
directors A sole Only represent the coproprietor represents his operative business. There is no associate or separate entity to represent.
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or their right to do so has been restricted by an association agreement.
Shareholders who are not directors have no such fiduciary duty and may therefore act in their own best interests.
Capital Contributions
The members must all make an initial contribution, which can be in the form of money, property or services. A corporation's capital is represented by its member's interest.
The shareholders contribute the share capital of a company. Its share capital is represented by shares held by shareholders.
within the scope of the partnership business. The partnership will also be bound if the partner's act is authorised or ratified. Ordinary partners may therefore act on behalf of the partnership when conducting partnership business, unless the partners agree otherwise. Extraordinary partners may not represent the partnership. The partners must all contribute something to the partnership, which can be in the form of money, property or services.
Distribution profits
members of The become entitled to a distribution of net profits once a resolution
The shareholders of a company become entitled to a share of its net profit when a final dividend has
The partners become entitled to the net profit of the partnership as provided for in the
The trustees and beneficiaries do not have to contribute anything to the trust. A trust's capital is normally donated or lent to the trust by the founder(s) also known as the Donor The net income of a trust must be dealt with in the way specified in the trust deed.
The capital required for the business is provided by the sole proprietor either by using his own funds or borrowing the money.
Very similar to a company and is constituted by shares.
The profits of the business belongs to the sole proprietor. There is no
Statute provides for determination of surplus and/or bonus.
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approving such been declared. distribution has been passed or the distribution has been validated by the approval of the annual financial statements.
Disposal interests
of The members of a corporation may not freely dispose of or transfer their interests. An interest may only be disposed of in accordance with the association agreement or with the consent of all the members.
Liability creditors
to The debts of a corporation are its own and are not the debts of the
The shareholders of a private company may not freely dispose of or transfer their shares. Shares may only be disposed of in accordance with the articles of association or a Shareholders Agreement which contain restrictions in terms of which the shares must first be offered to the other shareholders. A public listed company's shares may be transferred without restriction. The debts of a company are its own and are not the debts of the
partnership agreement. Partners are usually entitled to the net profits at the end of the accounting period. The partnership agreement specifies how the net profits must be divided among the partners. A partner may not transfer his interest in a partnership unless all the partners expressly agree thereto, in which case the old partnership terminates and a new one is created.
The trust deed could give the trustees a discretion regarding the distribution of the net income or it could specify that the net income must be retained in the trust or paid out to the income beneficiaries. The interests of a trust beneficiary may only be disposed of in terms of the trust deed. Whether or not there are restrictions will depend on the provisions of the trust deed.
need for any declaration or distribution of the profits.
A sole proprietor does not have a share, interest or contractual right that can be disposed of or transferred. The sole proprietor and his business are one and the same for legal purposes.
May only be transferred with approval of a cooperative and subject to the statute.
Ordinary partners are jointly and severally liable for the partnership's
The trustees and beneficiaries are not personally liable. The
A sole The debts of a proprietor is co-operative are personally liable its own and are for all the debts not the debts of
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members. If the corporation is unable to pay its debts the members are not liable to the creditors. The liability of a member is limited by the Close Corporations Act to what the member has contributed to the corporation. A member may in certain circumstances become personally or jointly and severally liable for the corporation's debts. Audit An audit is not required by law. The accounting officer must perform an accounting review, which is more limited in scope.
Accounting requirements
An audit is not required by law. The Master of the Supreme Court may require that the trust to be audited before authorising the trustees to act as trustees or before agreeing to dispense with security. A corporation is A company must, in A partnership is not A trust is not required by the terms of the required by law to required by law to Close Corporations Companies Act, keep specific keep specific An audit is not required by law. The partners may by agreement require a complete or partial audit.
shareholders. If the company is unable to pay its debts the shareholders are not liable to the creditors. The liability of a shareholder is limited by the Companies Act to what the shareholder has contributed or undertaken to contribute to the company. A shareholder may in certain circumstances become liable for the company's debts. A full statutory audit must be performed by independent auditors.
debts, provided the debts were incurred in the partnership's name and with its authority. Creditors of the partnership may however, only proceed against the individual partners, jointly or severally, after the dissolution of the partnership. Extraordinary partners (en commandite and anonymous partners) are not liable to partnership creditors provided they are not disclosed.
trustees are liable of his business. in their representative capacities only to the extent of the trust assets. Trusts therefore provide a form of limited liability.
the members. If the co-operative is unable to pay its debts the members are not liable to the creditors, unless the Statute states that. The liability of a member is limited by the Act to what the shareholder has contributed or undertaken to contribute to the company.
An audit is not A full statutory required by law. audit must be performed by independent auditors.
Sole proprietors A co-operative are not required must, in terms of by law to keep the Act, keep
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Insolvency
Act to keep records showing its assets and liabilities, cash receipts and payments, and credit transactions,; a register of fixed assets, annual stock-taking statements; records relating to all members' transactions; records showing how year-end stock values were determined; and vouchers supporting entries in accounting records. The insolvency of a corporation does not lead to the sequestration of the members' estates.
keep records showing its assets and liabilities, cash receipts and payments, and credit transactions, a register of fixed assets; and annual stocktaking statements.
accounting records. Under the common law a partner who controls partnership assets must keep and render accounts annually; all related books, documents and vouchers must be rendered at the same time.
specific accounting records. The accounting Master may records. require trustees to keep specific books, records and documents, and to account to the Master for their administration of trust property.
records showing its assets and liabilities, cash receipts and payments, and credit transactions, a register of fixed assets; and annual stocktaking statements.
The insolvency of a The insolvency of a will company does not partnership lead to the result in the estates sequestration or of all the partners liquidation of being sequestrated, unless the solvent shareholders. partners undertake to pay the partnership's debts.
The sequestration of a trust does not lead to the sequestration or liquidation of the estates of trustees or beneficiaries. The insolvency of a trustee likewise does not affect the solvency of a trust and will not result in the sequestration of the trust.
The insolvency of a sole proprietor's business will result in the sequestration of his personal estate.
The insolvency of a co-operative does not lead to the sequestration or liquidation of members.
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Taxpayer
A corporation is a separate taxable entity. A corporation must therefore register for tax purposes and submit its own tax returns to the revenue authorities.
A company is a separate taxable entity. A company must therefore register for tax purposes and submit its own tax returns to the revenue authorities.
A partnership is not a separate taxable entity. The partners are taxed on the partnership profits, whether or not profits are distributed to the partners.
A trust is a separate taxable entity. A business trust must therefore register for tax purposes and submit its own tax returns to the revenue authorities. The trustees are the representative taxpayers in respect of trust income. Trusts are taxed on the same sliding scale of rates that apply to individual taxpayers.
The income of a sole proprietorship is subject to tax in the hands of the sole proprietor. The business of a sole proprietor is not a separate taxpayer.
A co-operative is a separate taxable entity. A co-operative must therefore register for tax purposes and submit its own tax returns to the revenue authorities.
Tax rates
A corporation is A company is taxed taxed at the flat rate at a flat corporate that applies to rate. companies.
Partners who are natural persons are taxed according to a sliding scale. . Corporate partners are taxed at the flat corporate rate.
Tax year
Provisional tax
A corporation's financial year is also its tax year. There is no fixed date by which a tax year must end. The financial year end is subject to the approval of the Registrar of Close Corporations. A corporation is a
A company's financial year is also its tax year. There is no fixed date by which a tax year must end. The financial year end is subject to the approval of the Registrar of Companies. A company is a
The tax year end for individual partners is the end of February. Revenue approval is required for any other date.
The tax year end for a trust is the end of February of each year. Revenue approval is required for any other date.
A sole proprietor is taxed according to a sliding scale of rates. These rates apply to different levels of taxable income The tax year end for the sole proprietors is the end of February of each year. Revenue approval is required for any other date.
A co-operative is defined as a company and taxed at a flat corporate rate.
A co-operative's financial year is also its tax year. There is no fixed date by which a tax year must end. The financial year end is stated in its Statute. as a
A partnership is a A
trust
is
a A
sole Defined
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provisional taxpayer and must register as such and pay provisional tax at least twice a year.
provisional taxpayer and must register as such and pay provisional tax at least twice a year.
provisional taxpayer and must register as such and pay provisional tax at least twice a year.
Retained earnings
Dividends are taxable in the hands of the members but the Corporation is required to pay it as a withholding tax
Dividends are taxable in the hands of the shareholders but the Company is required to pay it as a withholding tax.
The retained earnings of a partnership are not subject to tax when withdrawn by the partners. Partnership income is taxed in the partners' hands in the year of its receipt or accrual, whether or not such income is distributed.
provisional taxpayer and must be register as such and the trustees must pay provisional tax on behalf of the trust at least twice a year. Trust income is taxed in the trust's hands in the year of its receipt or accrual, if the income is not distributed to the trust beneficiaries. If retained earnings are distributed to the trust beneficiaries in subsequent tax years they will not be subject to tax.
in proprietor is a company Income Tax Act. provisional taxpayer and must register as such and pay provisional tax at least twice a year. Retained earnings belong to the sole proprietor and therefore do not have to be distributed to him. Income retained in a business account will not be subject to in income tax when it is withdrawn by the sole proprietor. Tax losses are deductible in the sole proprietor's hands. An assessed loss may be carried forward and is not lost if the trader ceases to trade. Defined as a company in Income Tax Act.
Tax loses
Tax losses are deductible only in the hands of the corporation. A corporation's assessed loss may not be apportioned to its members. An assessed loss may be carried forward to the next tax year but will be lost if the
Tax losses are deductible only in the hands of the company. A company's assessed loss may not be apportioned to its shareholders. An assessed loss may be carried forward to the next tax year but will be
Tax losses are deductible by the partners in their profit sharing ratios. Assessed losses may be carried forward and are not lost when partners who are natural persons cease to trade. Assessed losses of a
Tax losses are deductible in the hands of the trustees if the trust income accrues to the trust. If the trust income accrues to both the trust and the trust beneficiaries, the tax losses must be
Tax losses are deductible only in the hands of the co-operative. A co-operative's assessed loss may not be apportioned to its members. An assessed loss may be carried forward to the
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corporation ceases lost if the company corporate partner to trade for a whole ceases to trade for a will be lost if it financial year. whole financial year. ceases to trade for a year.
Deduction salaries owners
for If a corporation to employs its own members, it will be allowed to deduct salaries paid to them, provided the salaries are reasonable in relation to services rendered.
No stamp duty is Securities Transfer Tax payable when a member's interest is Stamp duties initially acquired or subsequently transferred. Prescribed fees are however payable when the issue and transfer of interests are registered.
A salary paid to a partner is an advance against partnership profits and is not tax deductible in the partnership's hands because it is not a separate taxpayer. The partners are only entitled to a deduction for salaries paid to employees. When shares are Stamp duty no A prescribed fee issued, stamp duty longer applicable. of R100 must be at the rate of 0.25% paid to obtain the is payable on their authority to act as value. New Rules a trustee from the apply from 1 July Master of the 2008. The transfer of Supreme Court. If a company employs its own shareholders, it will be allowed to deduct salaries paid to them, provided the salaries are reasonable in relation to services rendered.
a security includes the transfer, sale, assignment or cession, or other disposal of a security or the cancellation or redemption of a security, but excludes
apportioned between them. An assessed loss may be carried forward and ifs not lost if the trust does not trade in a subsequent tax year. Salaries paid to trustees are beneficiaries in their capacities as employees are tax deductible in the hands of the trust.
next tax year but will be lost if the co-operative ceases to trade for a whole financial year.
Sole proprietors are not paid salaries since they are not employees. Cash taken from the business is not expenditure incurred to procure income and is therefore not tax deductible. Liability for stamp duties or prescribed fees does not arise because a sole proprietor does not issue shares and there is no need for a written agreement, deed, or authority to act.
If a co-operative employs its own members, it will be allowed to deduct salaries paid to them, provided the salaries are reasonable in relation to services rendered.
The same as with a company.
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•
an event that does not result in a change in beneficial ownership of a security; the issue of a security; or the cancellation or redemption of a security if the company that issued the security is being woundup, liquidated or deregistered or its corporate existence is being finally terminated (cancellation exception).
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STT is still levied at 0.25% of the taxable value of the security. In the case of listed securities, the transferee is liable for the STT payable on the transfer, which must be paid through the member or participant holding the security in custody. However, not all listed securities are held by a member or participant in custody. For example, a
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certificated or materialised listed security may be held in custody by its holder. The liability of the transferee of the listed security is clear, but the manner of payment to SARS, which must be made electronically, of the STT on its transfer to the transferee, is not. In the case of unlisted securities, the new, and far-reaching, rule is that the company that issued the transferred security is liable to pay SARS the STT payable for the transfer, but has a statutory right of recovery of the STT from the transferee of the security. On a cancellation or redemption there will be no transferee (or the company may be regarded as the transferee), so the company will pay and bear the STT.
Source: South African Business Entities. A Practical Guide; Third Edition; JL Van Dorsten; Obiter Publishers CC