7 Types of Business Structures
The importance of choosing your business structure.
As a business owner, it is important that you decide the type of business structure for your business. Small businesses can choose from different business structures in South Africa. The type of structure you choose will rely on your goals for your company and what is best for its growth. Here are some of the structures;
1. Sole trader.
A business structure that is owned and run by one individual. In practise this means the income of the business is all for the owner, as are the taxes and any liabilities.
2. Partnership.
A partnership is when two or more people jointly own and manage a business. All partners contribute financially to the business, enabling a larger initial investment to support its growth.
3. Private Company (PTY) LTD.
This type of business structure in South Africa does not place any prohibition on foreign shareholding and only requires one shareholder and one director. Private companies are seen as separate legal entities and as such are taxed in their own right and offer the shareholders protection against liabilities.
4. Public Company.
A public company is primarily designed to sell shares to the general public in order to raise capital. Publicly traded companies are defined as public because, unlike Pty Ltd businesses, shareholders can be anyone who purchases stock.
5. Franchise.
A franchise is when a business grants a third party a business licence. This grants you permission to use the company’s name and operating procedures to run the business or sell goods or services.
6. Non-Profit Company.
A non-profit company is formed for some kind of cultural or social activities. With this kind of corporate structure, no stakeholder receives any income.
7. State owned company.
A state-owned could be a company defined as a ‘state-owned enterprise’ in the Public Finance Management Act 1 of 1999 or it could be a company owned by a municipality.
Your needs and the needs of your business will determine which type of business structure will be best for you. You can also switch between types as your business grows.