Choosing between a sole proprietorship, a Pty Ltd and a partnership is one of the first decisions you make, and it is awkward to change later. The right structure depends on your situation and your plans. Compare the options on four points: liability, tax, admin and credibility.
Sole proprietor
A sole proprietorship needs no registration and no separate entity, files no CIPC annual return and carries little admin. There is no legal separation between you and the business. Its debts are your debts. If it's sued or can't pay, your personal assets, including your house, your car and your savings, are exposed. You're taxed personally on the profit at the individual sliding-scale rates, which are low at low income and rise through the brackets. The profit belongs to you as you earn it.
Private company (Pty Ltd)
A private company (Pty Ltd) is a separate legal person from you. Its debts are generally its own, so limited liability protects your personal assets. It's taxed as a company at 27%, or at the lower Small Business Corporation rates if it qualifies. Profits reach you as a salary, dividends or both. A company carries more admin: CIPC registration, an annual return, a beneficial-ownership filing, company income tax returns (ITR14), provisional tax, and more formal bookkeeping and annual financial statements.
- Liability: your personal assets are generally protected. This is the main reason owners incorporate.
- Tax: the 27% company rate, or, if the company qualifies, SBC rates that start at 0% on the first R95,750 of taxable income for the 2026 tax year (SARS adjusts these annually).
- Credibility: some larger clients, tenders, suppliers and lenders require or prefer a registered company.
- Admin: the CIPC annual return, provisional tax and company filings are compulsory.
Partnership
A partnership is two or more people trading together without forming a company. It is relatively simple to run, and each partner is taxed personally on their share of the profit on the individual sliding scale. Like a sole proprietorship, a partnership has no limited liability. Partners can also be jointly liable for the business's debts, including debts a fellow partner took on without your agreement. A written partnership agreement is essential, and the liability is one reason partnerships incorporate.
In a sole proprietorship or a partnership, your personal assets are at risk for the business's debts. In a Pty Ltd they are generally protected. If the business has staff, contracts, borrowing or stock bought on credit, weigh that protection against the extra admin.
Tax under each structure
Tax is one factor in the decision. A sole proprietor and each partner pay tax on the individual sliding scale, which starts low and rises into the high 30s and 40s as profit grows. A Pty Ltd pays 27% flat, or the SBC bands (0% / 7% / 21% / 27%) if it qualifies. Turnover tax is an elective simplified system for very small businesses with turnover up to R2.3 million (R1 million before the 2026 Budget). It taxes turnover, in bands from 0% to 3%, and ignores profit. At low profit the individual scale can cost less. As profit rises, the company rate, especially with SBC, can cost less.
A freelancer moving from sole proprietor to Pty Ltd
A freelancer trades as a sole proprietor while the business is small. There's no registration, and profit is taxed on the sliding scale. Then profit rises into the higher brackets, a large client will only contract with a registered company, and the business takes on staff and commitments. At that point the limited liability, possible SBC rates and credibility of a Pty Ltd justify its extra admin.
Admin a Pty Ltd has to do
A Pty Ltd has compliance work that a sole proprietor doesn't. It has to file a CIPC annual return each year after its incorporation anniversary and keep a beneficial-ownership record up to date. It pays provisional tax on the IRP6 twice a year, files a company income tax return (ITR14) and prepares annual financial statements. If you draw a salary, it also runs PAYE and files monthly EMP201s. Each obligation is straightforward once it's set up and in the diary. Each one recurs and carries penalties if it's missed, and an accountant can handle them for you. Include this work in your decision.
When to move from sole proprietor to Pty Ltd
These are signs that a sole proprietor should consider moving to a Pty Ltd:
- Your profit has risen to where the individual sliding scale costs more than company rates would.
- You're taking on risk, such as contracts, staff or borrowing, that could fall on your personal assets.
- Larger clients, tenders or lenders want to deal with a registered company.
- You're bringing in a partner or investor and need a structure to share ownership and raise finance.
Choosing the structure for your business
The right structure depends on your profit, the risk you're prepared to carry, who you sell to and your plans for the next two or three years. Choosing well at the start, or switching at the right time, saves money and admin. Moving from sole proprietor to Pty Ltd later is possible and involves a defined process, so plan it in advance. Personal risk and how clients and lenders see you matter as well as the tax rate. Talk to us before you decide, and we'll compare the options using your figures.