DESKTOP RESEARCH - BUSINESS STRUCTURE: SOLE PROPRIETOR
CAS is a sole proprietor. A sole proprietor is not a legal entity, but a business owned and operated by a natural person. The business has no existence separate from the owner who is called the proprietor. The simplified business structure, reduces the administrative burden and cost, but makes the natural person, liable for the financial health of the company.
This structure is widely used by small South African businesses run by individuals. While the personal liability sounds daunting, good governance coupled with sound contracts will mitigate most risks.
Sole proprietor are cost-effective to register and maintain, and fiduciary duties are limited to a single, natural person.
Sole proprietor can employ freelances on limited-time contracts, but cannot employ full-time staff.
It is difficult to raise debt and maintain a significant credit score, due to an unwillingness of financial institutions to accept a sole extensity’s exposure to liability. Companies that look to grow through external financing should not operate as sole proprietors, but rather as LLCss (Setting up a Business, 2011).
Business Structure - Outcome
Benefits of CAS trading as a sole proprietor:
- No legal business registration
- Profits are retained by the sole proprietor
- A sole proprietor is a sole decision-maker
- Less tax and expenses compared to companies
Disadvantages of CAS trading as a sole proprietor:
- Unlimited liability
- Possible credibility issues
- Unfavorable loan rates
- Fewer tax planning opportunities
CAS currently trades as a sole proprietor and will continue as such for the foreseeable future.
References
Corporate Finance Institute (2018). Outsourcing - Learn About the Advantages and Disadvantages. [Online] Corporate Finance Institute. Available at: https://corporatefinanceinstitute.com/resources/knowledge/strategy/outsourcing/ [Accessed 4 Mar. 2022].