So, you’ve started your own business — maybe you’re consulting, selling a product, or turning a side hustle into something more. Naturally, the first question that comes up is:
“Should I register a company with CIPC?”
You’ve probably been told that you have to. But that’s not entirely true — and in some cases, it’s actually better not to.
Let’s unpack the difference between operating as a sole proprietor versus registering a Pty Ltd company, and when each option makes the most sense.
1. What Is a Sole Proprietor?
A sole proprietor is someone who runs a business in their own name, without registering a separate legal entity.
There’s no need to register with CIPC. You can trade under your name or a trading name (e.g. “John Doe t/a John’s Solutions”) and simply register with SARS for income tax purposes.
Advantages:
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Easy and low-cost to start
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Minimal admin and no CIPC filings
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Taxed under your personal income tax bracket
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You keep full control of your business
Disadvantages:
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No separation between you and the business
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You carry full personal liability for business debts or legal issues
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Harder to raise funding or apply for tenders
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Less credibility when dealing with larger clients
2. What Is a Pty Ltd Company?
A Private Company (Pty Ltd) is a separate legal entity registered with CIPC. It can own assets, enter into contracts, sue and be sued — all separately from you, the business owner.
Advantages:
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Limited liability protection — your personal assets are shielded
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More professional and credible (especially for tenders, leases, or suppliers)
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Easier to raise funding or add shareholders
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You can pay yourself a salary, claim company expenses, and optimise tax
Disadvantages:
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More admin: CIPC annual returns, accounting records, tax submissions
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You must comply with Companies Act regulations and SARS requirements
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You can’t use business funds as your personal money — they belong to the company
3. But What If I Take Money Out of the Company?
This is where it gets tricky — and where many small business owners go wrong.
If you’ve registered a company, the money your business earns belongs to the company, not you. To legally get paid, you have three options:
Salary
You register for PAYE and pay yourself as an employee of the company. This is tax-deductible for the business, and you’ll receive an IRP5 at year-end.
Director’s Fees
You pay yourself fees as a director. Still subject to PAYE, but more flexible than a salary.
Dividends
You declare dividends to shareholders. The company pays Dividends Tax (20%), and this is not deductible as an expense.
Simply transferring money from the business account to your own personal account, without formal structure or accounting, can land you in hot water with SARS or trigger director liability issues.
4. The Risk Factor: Why It Matters
As a Sole Proprietor:
You’re personally liable for everything. If your business goes into debt, gets sued, or signs a lease — you’re responsible. There’s no legal separation between you and the business.
As a Company:
You have limited liability — which means your personal assets are protected as long as you manage the company correctly. But if you trade recklessly, mismanage funds, or don’t meet compliance obligations, directors can still be held personally liable.
5. When Should You Stay a Sole Proprietor?
You might not need to register a company (yet) if:
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You’re testing a business idea
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Revenue is low (under R500,000 per year)
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You work as a freelancer or consultant
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You have no employees, office lease, or high-risk contracts
It’s simple, cost-effective, and keeps admin to a minimum while you focus on growth.
6. When Should You Register a Company?
Consider registering a company if:
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Revenue is growing (especially over R1 million/year)
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You want to bring on partners or investors
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You’re signing lease agreements or hiring staff
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You’re applying for tenders or funding
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You need to protect personal assets from business risk
It’s a clear signal that you’re building something scalable and sustainable — not just operating informally.
7. Bonus Tip: Turnover Tax
If your annual turnover is under R1 million, you may qualify for Turnover Tax — a simplified tax regime offered by SARS for micro businesses.
It reduces your tax compliance burden and can apply to both sole proprietors and registered companies. Worth looking into if you’re just starting out.
8. Final Thoughts
There’s no one-size-fits-all answer. Whether you stay a sole proprietor or register a company depends on your income level, risk exposure, business goals, and appetite for admin.
- Start lean. Test the waters and grow your client base.
- Incorporate when it makes sense. Don’t register a company just because someone said you should.
- Get advice early. The wrong setup can cost you more in tax, admin, or compliance headaches down the road.
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