Choosing an entity: company, close corporation, trust or sole proprietor?
At a glance
Sole proprietor: Simplest and cheapest, but you are personally liable for everything
Private company (Pty) Ltd: A separate legal person with limited liability — the default for most businesses
Close corporation (CC): A legacy form — new ones cannot be registered, but existing ones continue
Trust: Not a trading vehicle on its own — used for ownership and asset protection
The trade-offs: Liability, tax, cost of compliance, and how you bring in partners or raise money
What it is
"Choosing an entity" means deciding the legal shape of your business. It is not a detail you fix later — the choice decides who is liable if something goes wrong, how you are taxed, and how easily you can add partners or sell the business. Many businesses start as one form and later restructure, and that change is easier if it is planned.
The important point: a company gives you a shield; a sole proprietor does not. The moment you carry real risk, that shield is usually worth the extra compliance.
Who this affects
New businesses
If you are just starting, choose the form that matches the risk and the way you expect to grow — not just what is cheapest to open.
Restructuring businesses
Bringing in a partner, raising investment or separating private and business assets often means moving to a company or trust structure.
Questions to ask first
How much personal risk does the business carry? That decides whether you need limited liability.
Will you bring in partners or investors? Companies and trusts handle this far better than a sole proprietorship.
How do you want to be taxed — as an individual, a company, or a small business corporation?
Do you need to protect personal assets from business creditors?
What ongoing compliance can you realistically keep up with?
How to choose
1. Assess how much personal risk the business carries.
2. Decide whether you will bring in partners or investors.
3. Work out how you want to be taxed.
4. Consider whether you need to protect personal assets.
5. Match all of that to the compliance you can realistically maintain.
Common mistakes
Staying a sole proprietor while carrying liabilities that could take your personal assets.
Choosing a company purely for tax, then failing to keep up the annual returns.
Using a trust to trade directly, instead of to hold ownership.
Registering in the wrong name, then having to redo bank accounts, contracts and tax numbers.
Related
Sources
Companies Act, 2008; Close Corporations Act
Income Tax Act (tax treatment of different entities)
Not sure which structure fits?
We can walk through the liability, tax and compliance trade-offs for your situation.
