Can I run two businesses in one company?
There’s a common misperception that a company has to be formed for a particular purpose. This is simply not the case.
The standard short form Memorandum of Incorporation under the Companies Act of 2008 states that “The purposes and powers of the Company are not subject to any restriction, limitation or qualification”.
This means that you could run a hotdog stand, rent out offices, and manufacture light bulbs, all in the same company.
So, you could have –
XYZ(Pty) Ltd trading as ABC (selling hot dogs)
XYZ(Pty) Ltd trading as DEF (flying aero planes)
XYZ(Pty) Ltd trading as HIJ (washing cars)
XYZ(Pty) Ltd trading as KLM (manufacturing light bulbs)
XYZ(Pty) Ltd trading as NOP (offering bookkeeping services)
All in the same company. Note that you do not put (Pty) Ltd after the trading name.
But would that be a wise thing to do?
It depends on risk and tax.
Let’s look at risk first. If you have three businesses in the same company and one of the businesses fails, then the company could find itself in liquidation and bye-bye the other two businesses as well. Not good.
Then how about tax? Start-up businesses rarely make profits from day one. So, if you ran each business in a separate company and two were still making losses whilst one was profitable, the losses would not offset against the profit. The profitable company would pay the full 27% tax on its profits. If, on the other hand, all three businesses were run within the same company, tax would be paid only on the aggregate profit of all three. Much better.
So, which way to go? Generally, start all three in the same company and then consider splitting them out as each grows. There may be other good reasons for the split. I wrote an article on them some time back.