Need Help? Call Us   011 465 7078

Why Formalising Your Business Structure Is So Important

By Precious Mvulane

We’re working our way through the seven steps to getting your business finances 100% in order – as laid out in the Essential Finance Handbook For Entrepreneurs.  The first step was about setting goals.  The second step is selecting an appropriate structure for your business.

Many entrepreneurs choose not to create a formal business structure when starting out. It may be fear of the unknown or even fear of the process and paperwork. There are significant advantages of setting up with the right structure… Click To Tweet

Here are just a few things to consider:

  1. Having an identity

A properly structured company is likely to be taken more seriously when being considered as a supplier or service provider. 

  1. Attracting more business

Having a formal structure and name gives your business credibilityand can attract bigger and better clients and investors.

  1. Limiting your liability

Making your business a separate entity doesn’t absolve you of responsibility if things go wrong but it can limit your liability.  As a sole proprieter, you are personally liable for any debt you create.

  1. Reaping the tax benefits

There is a significant difference between personal and business tax rates and you can setup far more favourable tax rates for your business

  1. Allowing for growth

You get funding for the business whereas sole proprietors have to make use of their own capital to grow their business

  1. Keeping the business going

As a sole trader, the business ceases to exist when you pass away.  The same thing happens in a partnership if one partner leaves.  A formalised business structure effectively takes on a life of it’s own and will continue to exist with or without you.

  1. Separating assets

It is possible to distinguish what is owned by the business and whatyou own in a formal business structure.  This can get very complicated for sole proprietors.

  1. Involving more people

There is no limit to the number of shareholders you can have in your business and there is much more flexibility as these can be natural people, other companies or legal persons such as trusts.

Going it alone might not be your best bet!

Spread the word

Leave a Reply

Close Menu