Buying a Franchise
or a
New Business

Starting a business from scratch is definitely more challenging than buying a franchise!

Why?

By buying a franchise under the umbrella of an established franchisor, using his trademark and operating principles which is already tested and proven, ensures that you are insulated from the mistakes many entrepreneurs make in the start-up phase.

Remember that Thatch Reed Ceilings has already done all of this:

• It operates under a registered trademark

• No need to do any market research as it is already a proven product

• No need to be concerned about what stationary, website, logo to use as this is all taken care of

• Even your HR issues such as UIF, Tax etc is thought of

We basically supply you with all you need to just open your doors.

The only aspect that you will need to take care of is under what legal entity you will be running your company.

The legal structure of your company is of high importance as it could either be a hindrance or an advantage. It all depends on what your specific requirement is and then which entity you choose. The entities that you can choose from are:

• Sole Partnership - 1 Owner

• Partnership - 2 to 20

• Closed Corporation 1 to 10

• Private Company - 1 to 50

• Trust - no limits

It is important that your company can continue to operate should you pass away. So, choose an entity that allow this. Example. If you have a sole partnership, then the business will die with you and your assets can only be transferred after your debts are paid in full.

A partnership solidify upon the death of any one of the partners. A private company and a closed corporation are  entities separate from the personal estates of their owners. These entities therefore offer you continuity of your company after your death. 

Only a private company, closed corporation and a trust will allow you to sell your company as an entity. With the sole proprietorships and partnerships you will only be able to sell the company assets.

Running a company as a sole proprietorship will cost nothing extra because of the legal entity, whereas using a private company as legal entity will be on the other end of the cost scale.

The different legal entities are taxed differently. A sole proprietorship and partner are taxed according to the individual income tax scales. Currently between 18% and 40%. A private company and a closed corporation are taxed at a flat rate of 30%. On any amount declared as a dividend, secondary tax on companies at 12,5% will be levied. A trust is taxed at a flat rate of 40%. This can change from time to time according to the South African Revenue Services.

The owner of a private company or closed corporation can also be an employee of that particular legal entity. He can therefore be paid a salary as well as receive employee benefits like a car allowance, this opens the way for the optimal tax structure for a company owner. The different legal entities are also treated differently for capital gains tax purposes.

The question every owner must ask is what will happen to my personal assets if my company goes insolvent? In the case of a sole proprietorship or partnership the company owner’s personal estate is always at risk. In other words if the company goes insolvent his personal assets will be sold to pay his creditors.

If you trade as a closed corporation, private company or trust, your company and your personal assets are separated. In the event of your company going insolvent your personal assets will be protected, provided that you did not sign surety in your personal capacity for the debts of your company.

What if you need finance: A sole proprietorship, a partnership and a trust can only raise finance from outside the business in the form of a loan. A closed corporation can sell an interest in the business to a financier and in the same way can a private company sell shares in the company to a financier. The latter two business entities therefore provides more options for financing the business.

Financial institutions such as Std Bank, Absa, FNB have a range of products and services with regards to starting a business as well as finance for buying a franchise. They have clear guidelines of what you need to look out for when buying a franchise as well as offering you assistance in drawing up a business plan.