Module 2: Opening a Trading Concern 2.1.3 Form s of enterprise
• Sole proprietorship – Where one person owns the business and runs it in their name. It is among the easiest kinds of businesses to start because it doesn’t take a lot of paperwork to become a sole proprietorship. Running a business as a sole proprietorship has fewer reporting requirements, fewer business organisational expenses, simplified tax reporting, and best of all , the freedom to run your business your way. However, being a sole proprietorship will not protect your personal property or assets from business -related lawsuits or obligations.
• Partnership – Where two or more people own the business and run it in their names. While a separate partnership tax return is generally required, business income is reported on the partner’s tax returns. While there are plenty of reasons to form of business as a partnership, forming a general partnership will not protect your personal property or assets from lawsuits or business obligations. There are other types of partnerships, like limited partnerships and limited liability partnerships , that provide some liability protection for its owners.
• LLC – Limited Liability Company – Where one or more people obtain a charter from the state and operate the business in the name of the LLC. The advantage is some limited liability protection afforded by the LLC entity, and that entity survives the original owners. Taxable income and all deductions are passed through to the owner dependent upon their ownership percentages
• Corporation – Where one or more people obtain a charter from the state and operate the business in the name of the corporation. The advantage s are some limited liability protection afforded by the corporate entity, and that entity survives the original owners. Taxes are paid by the corporation on its taxable income.
• Trust – A very unusual, rare form in which to operate a business. A trust can emulate a sole proprietorship, partnership or corporation in operation, depending upon the particulars of the trust instrument. SARS always takes a very serious look at businesses operating as trusts, since they were popular as tax avoidance schemes.
Activity 2.4 Name five forms of ownership.
2.1.4 Size of enterprise
• Micro-enterprises are defined as firms with 1-9 persons employed. • Small enterprises: 10-49. • Medium enterprises: 50-249. • Large enterprises: 250 and more. • The group of small and medium-sized enterprises (SMEs) refers to the size class 10-249.
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