# Regulatory Compliance Category > Tax Forum >  Converting a CC to a sole proprietor

## bantersaurus

Hi All,

I have had a CC registered and running for 2 years. After many different people telling me different things, I am still at a loss as what is the best option for my CC for tax implications etc.

After alot of research and meetings, I have noticed that the costs of keeping a CC's taxes up to date is very pricey in comparison to what the CC actually earns at the moment. (less than 10K profits per year so far, but growing bigger each year) So I have decided to change to a Sole Proprietor.

What do I have to do to do this?

I presume I must de-register with CIPRO?
Is there anywhere I need to register as a Sole Proprietor?
I need to open a bank account as a Sole Proprietor?
As I do my own personal tax, Can I do my own TAX filing's etc for the Sole Proprietor and not have to pay someone a fortune to do it?
Will I need to complete my CC's 2010 tax year and annual return and then do the sole Proprietor tax for 2011? or could I change to Sole proprietor now and do the 2010 tax as a S.P?
Do you have submit Annual Financial Statements as a S.P?

Any and all advice is appreciated as I am new to this and just want the best and cheapest option

Thanking you in advance

B

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## Dave A

The operational word is probably more "transfer" than "convert." 

Essentially you could buy the business as a going concern (effectively you become the holder of all the assets and liabilities in your personal name), or you could buy the fixed assets and wind up the company. 

In either instance make sure the creditors get paid to avoid complications. If you transfer assets to yourself as a member and happen to stiff a creditor, they've got pretty strong legal grounds to claim fraud.

Some assets (such as vehicles, particularly still under finance) might not be so easy to simply transfer.

From a tax point of view, your and the cc are different taxable entities. You will both be required to submit all the relevant returns for the 2011 tax year.

From a trade earnings point of view, the switch is not a big deal. There could be some capital effects though depending on what the situation of the cc is.

The fewer assets, debtors and creditors the easier this all will be. If the cc has lots of assets and liabilities, we probably should discuss whether this conversion is really in your best interests.

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## bantersaurus

also, and i know this might be sneaky, but could I do the following:

De-register my CC. 'Back date' or 'Pretend' that the SP has been active from beginning of 2010 tax season and go forth as if no one is the wiser? (as there is no registration of a S.P. and i do not have a full time bookeeper/accountant - there should be no trace of it until i submit the 2010 tax and annual return?)

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## bantersaurus

"_The fewer assets, debtors and creditors the easier this all will be._"

Thanks Dave,

to put it simply: I do graphic design, the only asset is a laptop, which i bought on a personal level and 'loaned' it to the CC.

I have no staff, no overhead, no liabilites, no creditors and I do not take a salary out the cc (I am the only member with 100%)

so its actually all tax related issues?

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## Dave A

Pretty much down to pushing the paperwork through and it's done  :Wink:

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## BusFact

Pretty much what Dave has said. Remember that a Sole prop is not a different type of company, instead it is *you*. You are the business.

So in your very simple case...




> Hi All,
> So I have decided to change to a Sole Proprietor.
> 
> What do I have to do to do this?
> 
> I presume I must de-register with CIPRO?
> Is there anywhere I need to register as a Sole Proprietor?
> I need to open a bank account as a Sole Proprietor?
> As I do my own personal tax, Can I do my own TAX filing's etc for the Sole Proprietor and not have to pay someone a fortune to do it?
> ...


Yes you will need to lquidate and de-register with CIPRO. You have already registered as a sole prop - its called a birth certificate  :Smile:  . You probably already have a bank account in your personal name. You could use that or open another in your trading name as well. Choice is yours.

Yes you can do your own tax returns. You can also do your own cc tax returns. I don't see what advantage you would get by back dating the transfer. Whichever way you do it, just make sure you don't cheat the tax man. Pay him whats due to him. Its not worth the risk.

As a SP you will have financial statements for the business. You need to know your income and your expenses to calculate tax. However you can do it on a piece of paper or spreadsheet. No need for fancy accounts like Anglo American.

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## bantersaurus

Thanks Busfact and ForumSA - this is so helpfull: 2 queries though -

_"Yes you can do your own tax returns. You can also do your own cc tax returns. I don't see what advantage you would get by back dating the transfer. Whichever way you do it, just make sure you don't cheat the tax man. Pay him whats due to him. Its not worth the risk."_

Since I have not filed my 2010 Tax return and financial statements for the CC, could I just rather not file it. De-register with CIPRO and carry on as a S.P. skipping the 2010 tax season completely and officially commence with the SP as of the 2011 tax year? (since I only have a turnover of R6000.00 for the 2010 season - which I know I wont need to pay any tax on and I don't need to bother with claiming anything either) I don't have a bookkeeper or anything so in theory there should be no trace or record of my 2010 tax year (not that I am trying to skip paying tax, I just don't want to pay someone R3000.00 for financial statements of a CC that is closing)

and then:

_"As a SP you will have financial statements for the business. You need to know your income and your expenses to calculate tax. However you can do it on a piece of paper or spreadsheet. No need for fancy accounts like Anglo American."_

where and how do i submit Financial statements for a SP?

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## Dave A

You might want to bear in mind any invoices you've issued. All it takes is for someone to issue an IT3a or have a PAYE audit and if you've filed a nil return - expect an audit and penalties.

Is it really worth the risk for a day's effort to sort out the paperwork?

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## BusFact

You may well get away with skipping the tax year, but then again you might get found out and have some inconvenience. I don't think it would be too serious either way. Personally I prefer to keep it above board.

SARS will still be expecting you to submit the cc tax returns for last year, but you could probably get away with not having your accounts done by an accountant.




> where and how do i submit Financial statements for a SP?


You don't. They are for your personal information only. You would just need to put any relevant information on your personal tax return. Remember this "business" income is now the same as your personal income.

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## ramonthomas

This is an interesting discussion because I've been thinking the same thing. However, I keep seeing the benefit of separating my risk with my CC as the overriding benefit of keeping it. My main trade is training. 

What is the dangers of running your business as a CC vs sole proprietor?

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## BusFact

A cc has now been replaced by a company (pty), but they are essentially the same thing.

A sole prop is the simplest and cheapest method, but if things go wrong, you are responsible for all debts. You can't bring in partners and if you opt to employ people or register for VAT then it can be complicated from a sole prop point of view. When it comes to selling, it reduces your options too.

A company costs more to run in terms of registration fees, annual returns and an accountant to review your books. The benefits are some (not total) protection from some creditors in the event of things going wrong. Its possible to bring in partners to share in the owning and running of the business. You have the flexibility of owning and/or running the business if you to choose to do so. You have the option of selling the company and not the business, which is sometimes a simpler option. VAT numbers and PAYE numbers go with the business and don't remain your responsability if the comapny is sold.

Essentially if your business is to remain small along the lines of a hobby, side line income or a single person income, for the forseeable future then a sole prop is probably the way to go.

If you have big plans and expect growth, to employ persons, import and export, and eventually sell for a huge profit, then the company is the route to follow.

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## CLIVE-TRIANGLE

Some really strange thinking in this thread....

For 2013, a cc or pty that is a SBC, which is what is being discussed here, has the following tax structure:
R1 - R63,556  - no tax
R63,557 - R350,000 7% 
So the first R350,000 = R20,051 tax, effective rate is less than 6%

A natural person with that income will have an effective rate of about 23%, or R80,000

A SP can no longer "trade as", you need a defensive name registered at CIPC, and then you still have to style yourself as John Abram Smith, Trading As Acme Graphics...

Unless you are in a very niche market, SP is at the bottom of credibility rankings.

A cc and it's member accounts for at least 6 tax returns per year. For an SP obviously half that.

Absolutely no personal liability protection versus a wee bit in a cc or pty

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