Hey Freelance Friends!

South Africa has exactly one bureaucratic process that works the way it is advertised, which is becoming a business owner by doing nothing at all.

The moment you invoice someone for work, you are a sole proprietor, with no form, no queue and nobody asking you to come back on Thursday with a certified copy of your certified copy.

Somewhere along the way the idea took hold that you must register a company before you are allowed to freelance, and it is an idea that registration agents have been very happy to leave alone. This edition covers what you actually need, what a company adds, what it costs when you do it yourself, and a three-question test for working out whether you need one yet.

A sole proprietor is a person trading under their own name, or a trading name, with no separate legal entity, and in South Africa that does not require registration with CIPC at all. Guides to registering a business in South Africa treat the sole proprietorship as the simplest structure, one you are in by default when you start trading. You are taxed personally, on your income, through your own SARS return, and your business and your personal finances are legally the same thing. Platforms accept this: as we found when we looked at Makro and Takealot, both take sole proprietors, so the marketplace you are eyeing probably does not need a company either.

That is the free option and for many freelancers it is also the right one, at least to begin with. The catch is that you are personally liable for what the business owes, which is a small concern when your business is a laptop and a Canva subscription and a bigger one if you start taking on stock, staff or contracts with penalties attached.

A private company is a separate legal entity, which means it can own things, sign contracts and owe money in its own name, and you, as director, are not (in most circumstances) personally on the hook for its debts. The CIPC registration fee is around R175 when you register yourself through its online platform, which is a long way from what a registration agent will add on top for pushing the same buttons. Registration also brings duties: an annual return, filing of beneficial ownership information, a separate set of books and a separate company tax return, so the cost of a company is mostly paid in admin rather than in rand.

There is one more honest line to draw. Whether a company saves you tax depends on how much profit you make, and the answer changes as your income does, so a tax practitioner is the right person to ask before you register on the assumption it will.

A company becomes worth the paperwork in a few specific situations. The first is when a client, a tender or a funder explicitly asks for a registered company, which large corporates and public bodies often do. The second is when your work carries real liability, such as physical products, advice people act on, or contracts with penalty clauses. The third is when you plan to bring in a partner or staff and want a clean structure for ownership. If none of those apply today, the sensible move is to stay a sole proprietor and revisit the question when one of them does.

Our three-question test is simple. Does anybody who pays you require a company? Could a mistake in your work cost more than you have? Are you earning enough that tax structure is worth a conversation with a practitioner? Three noes mean stay put.

Registration agents will offer to do this for you at a markup, and if your time is worth more than their fee they are perfectly fine to use. Just make sure you are paying for convenience and know that the government route exists and is open to you.

Run the three-question test and write down the answers. If you are staying a sole proprietor, set up a separate folder for income and expenses, because that habit is the one that matters regardless of structure. If the test says register, set aside an evening, gather your ID and your three name options, and do it through the official platform yourself.

— The Profreelance Crew

P.S. If you have registered a company yourself and have a tip about the process that no guide mentions, reply and tell us. We will pass the best ones on.