Types of business
The legislation in South Africa that governs the registration of business entities is the Companies Act (Act 61 of 1973). Companies are registered with the Companies and Intellectual Property Registration Office (CIPRO).Under South African law, there are several possible company structures to be considered when applying for the business permit. They are as follows
- Sole proprietor
- Close corporation
- Private company (Pty Ltd)
- Public company
- Business trust
- Non-profit organisations
This is sometimes referred to as a “sole trader”. It is an option that is available to persons who trade as themselves. An example would be a plumber who works from home. It is probably the most “traditional” method of operating a business. However, there are certain important aspects of sole proprietorship that need to be taken into account. You still need to declare your business revenue to the South African Revenue Service (SARS). Also, because you yourself are the business, you are liable for the debts of the business. This means that if the business is failing, your creditors can attach your personal assets such as your house and your car. As a sole proprietor, you cannot have business partners. You can only have employees.
A partnership is essentially similar to a sole proprietorship, except that it consists of more than one person. Within the partnership, agreements can be made contractually as to who is liable for what debts and how revenue is to be deployed in the business. An example of a partnership would be a firm of attorneys.
A closed corporation is often referred to by the abbreviation “CC”. It only costs a few hundred rands to register a CC, and registration can be relatively quick. A CC typically has a registered name (registered with CIPRO) and a “trading as” name, which is what the public sees. A CC is owned by its members. It may have only one member, or several, each with a percentage stake in the business.
A CC is a separate legal entity. This means that business liabilities cannot be assigned to the members, unless reckless or fraudulent trading activities have taken place, or money is owed to SARS. A CC can therefore own assets and receive revenues.
CCs are being phased out, so if you are considering starting a business in South Africa, it may be worth your while to investigate other options.
A private company is sometimes to referred to by the abbreviation “Pty Ltd”. It costs more to register a Pty Ltd than a CC. Also, unlike a CC, the financial statements of a Pty Ltd have to be audited on an annual basis. A Pty Ltd can have many more shareholders than a CC, and its shares can also be traded on the Johannesburg Stock Exchange (the JSE). A Pty Ltd can have subsidiary companies and divisions.