Setting up a South African business requires you to look at the various options for Company Formation. Depending on the visa type you are looking to apply for, the options for incorporating your business a sole proprietorship or forming a Closed Corporation or a Pty Ltd.
The structure you decide upon can have a profound effect on your future operations and therefore the company formation options requires the business owner to consider a number of options and professional advice should always be sort to ensure informed decision making.
Below we provide some useful information on company formation in South Africa.
Information of the three most popular types of business structures (sole proprietorships, close corporations and private companies) are detailed in these web pages. Please note that should you require a Section 21 company (non profit company) or are setting up a company which has foreign ownership, the decision and advice process is extremely complex. In this instance it is more essential than ever to seek professional advice.
The sole proprietorship is the simplest and most common form of business, conducted by a single individual owner (the “sole proprietor”). This option is only available where a life partner or spousal visa is held and an endorsement is being applied for to allow the holder to run a business.
Sole proprietors can conduct business under their own name by simply doing business, for example, as “Jane Jones”. A sole proprietor can also do business under a trade name such as “Jane’s Jet Skis” or “Supreme Skis”.
A sole proprietorship has no limited liability for the owner, and it is therefore important to note that the business owner’s liability includes his own personal assets.
Net profit of the sole proprietorship is viewed as personal income of the business owner and taxed in his personal name according to the income tax tables of South African Income Tax Law.
If a sole proprietor operates under a trade name or fictitious name, the sole proprietor is usually required to file a form (a “trade name certificate”) in the city / province where the business is located.
A sole proprietorship may have employees and is permitted to carry on most types of businesses.
What is a close corporation?
A close corporation (CC) is similar to a private company as it is a legal entity with its own legal personality, perpetual succession and a tax payer in its own right. The owners of a close corporation are called members. Membership is restricted to natural persons and, under certain conditions, to trusts. Such members do not hold shares but have a member’s interest in the entity. This member’s interest is expressed as a percentage. The minimum number of members is 1 and the maximum number of members allowed is 10. From a taxation perspective, the close corporation is treated in a similar manner as a company. This is a common form of business entity for smaller businesses.
CC’s replaced by new type of Pty Ltd
During 2011 the option to establish a new CC was withdrawn. That said there are a few shelf CC’s (second hand ones) that are still available currently but these are proving harder and harder to source. Purchasers of an existing business may also find that the entity is a CC as existing ones are able to continue to trade. In reality must new set ups, if not all will now be as Pty Ltd’s.
More information is available here at company formation » Closed Corporations
Private Company ((Pty) Limited)
This business entity is treated by law as a separate legal entity and has to register as a tax payer in its own right. It has a separate life from its owners and is required by the Companies Act No 61 of 1973 to perform rights and duties of its own. The owners of a private company are shareholders. A company may not have an interest in a close corporation. The Act restricts the number of shareholders in a private company to a maximum number of 50. The rights and obligations of the shareholders vis-a-vis each other and vis-a-vis the company are set out in a shareholders agreement. The name of a private company must end with the words ‘(Proprietary) Limited’ or ‘(Pty) Ltd’.