Registering a CC

Hi Syph0n
I had to make a similar decision about a year ago and wanted to run straight into registering a CC. After talking to a tax consultant, he pointed out to me that he thinks it's an overkill for me as a single person with no dependants and actually quite a low-key business with a small likelihood of getting sued by anyone in my business capacity. And, anyway, if the claimants can prove that I, as the sole member of the CC, had been negligent, I can be liable anyway, despite the apparent limited liability of a CC.

Also, keep in mind that CCs are slowly being phases out and it looks that they won't be around anymore in SA by 2011.

It's not an easy decision to make and will depend on your type of business and the risks that you take on.

Oh yes, and I also don't need to make any debt. I know many people prefer a CC in case they get into a situation where they can't pay their creditors anymore.

Keep in mind that my answer is a bit of a simplification and that there's no harm in talking to a good tax guy/small business legal expert for the finer details.
 
Thanks BarefootBillionaire. To be honest, given the replies, I can't see the point in any individual going with the CC. Does the income affect it at all? Ie; is there a limit to how much one can recieve operating as a CC before you have to 'upgrade' and register? Still a bit unsure regarding the banking stuff though.
 
Hi, No, there's no limit after which you have to register a CC. My dad has a low-margin high-turnover business with a turnover of several million per year and he's been a sole trader for 15 years now.

Once you're in the 40% top tax bracket (maybe you are already) you may want to look at the potential tax benefits of a CC. You pay only 28% tax on the net profit of your CC and 10% on any dividends that you declare to the members (like yourself). As a sole trader, you have a minimum tax threshold, as well as tiered tax layers, as I'm sure you're aware. So, in the 40% tax bracket until about R900 000 - R1m you don't actually pay 40% of your total earnings, but rather somewhere between 32% and 38%.

It's only when you start earning R900 000+, that you can start benefiting from the CC's separate 10% dividend tax, by not declaring all of the profit as a dividend to yourself, but re-investing it in the business and - I guess - in a way delaying the tax to future profitable years.

As far as the banking is concerned, there's nothing that obliges you to open a business account (the fees are so much more expensive than one of the capped fee personal bank accounts around), although it's good practice and highly to have a separate bank account for all your bank transactions. Otherwise keeping track of your accounting records will turn into a nightmare.

I've got a Standard Bank business account registered in my business name, as I don't make many transactions and they're almost always via internet, the cheapest way to bank - as I'm sure you're aware. I don't think Standard Bank is the cheapest, but I'm very happy with their service here in Cape Town - it's like having a personal banker.
 
Bottom line about the bank account: If you're a sole trader, you can open a personal or a business account, but be prepared for pressure from the bank to open a business one (slightly higher fees and no capped option available yet that I'm aware of).

As a sole trader you choose any name you want for your bank account. They usually check whether they have any accounts on record in the same or a similar name. If they do, and that business operate in the same market as you, you may want to change your name to avoid confusion. From a legal perspective, you as the individual is the bank accountholder and they're not really that fussed about which name you choose for the business. It's really a no-fuss event with no legal implications - as a sole trader.

From a branding perspective, your business name is of course very important, and you may want to consider trademarking it (costs about R3 600 through lawyers). Much cheaper if you do it yourself, but I gave up trying to figure out CIPRO's trademarking process on my own. Very user-unfriendly website - the last time I checked.
 
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