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Sole proprietor or company: which is right for a home business?

Most home businesses in South Africa start with no registration at all, as sole proprietors. A company costs more to run but protects the household better. Here is how the forms differ, and when it is worth registering a company.

This guide explains the law in general terms. It is not advice on your own business.

The main business forms

• Sole proprietor. You run the business in your own name or a trading name. You and the business are the same person in law. You do not register with the CIPC; you declare the income to SARS.
• Partnership. Two or more people run a business together and share the profits and losses. There is no registration, but a written partnership agreement is essential.
• Private company, (Pty) Ltd. A separate legal person, owned by shareholders and managed by directors. One person can be both. It is registered with the CIPC.
• Co-operative. A business owned and run democratically by its members.
• Non-profit company. It uses its income for a public or community purpose. It is not for a business meant to earn the owner an income.

Liability: who pays if the business cannot?

This is the biggest difference.

A sole proprietor, and the partners in a partnership, have unlimited liability. If the business owes money that it cannot pay, creditors can claim from the owner's personal possessions: savings, a car, even a house. A partner can be liable for debts that the other partner ran up.

A company gives limited liability: in general, the company's debts are the company's. But the protection has gaps. If you sign a personal surety for a company debt, trade recklessly, or leave certain tax debts unpaid, creditors can still reach you.

How to compare the forms

Compare them on seven points:

1. cost;
2. paperwork;
3. liability;
4. tax;
5. banking;
6. what your customers require;
7. what happens to the business if you stop.

How to register a company

You register a private company with the CIPC, directly or through BizPortal. The book's 2026 figure is about R125, or R175 with a company name. Use only the official websites. You do not need to pay an agent.

What a company must do every year

A company brings duties that a sole proprietor does not have:

• file annual returns and beneficial ownership information with the CIPC;
• keep company records, and keep the company's money separate from your own;
• file its own tax returns;
• report changes, such as a new director or address.

When to register a company

Start simple. Register a company when one of these calls for it:

• a customer or a contract requires a registered company;
• you need credit in the business's name;
• the work carries a risk of large claims;
• you take on a partner;
• the business is growing.

Whatever form you choose, put any business partnership in writing.

This guide is based on Chapter 3 of Starting a Small Business from Home, which compares the forms side by side.