Getting your business registered [2006]
- Date : (2006-01-04)
- Author : SAIE
Getting your business registered
When you start your business you need to interact with the rest of the world as your business, not only as yourself. There are a range of different types of business registrations and there will be at least one that is perfectly suited to you.
Sole Proprietor
If you do nothing, you are automatically recognised as a Sole Trader or Sole Proprietor. This means that you are an individual running a business in your own name or under a trade name.
The business and personal assets of the owner are considered to be one, therefore (not a separate legal entity) and the owner is personally responsible for any debts incurred by the business. All loans taken out for this type of business are taken out in the owner’s name, therefore the owner stands to lose everything, including his private estate if the business fails. All profits are due to the owner in his/her personal capacity. If you want to set up a more formal structure to your business, you have an number of options.
You can set up…. a Partnership or Joint Venture, a Close Corporation, or a Private Company
What is a partnership or joint venture?
• This is when two or more people decide to conduct a business together; all partners bear equal responsibility for debts incurred.
• It is advisable to consult a legal expert to draw up a written partnership agreement, this contract is the only requirement needed to set up a partnership and could be done without a lawyer. If you use a lawyer, it could cost you upwards of R 3000 for the agreement.
• A partnership agreement should deal with issues such as: the formation of the partnership, profit sharing arrangements, salaries, banking arrangements and other responsibilities of partners.
• A partnership is usually not allowed more than 20 partners When is it a good idea to form a partnership or a joint venture?
• To get access to certain skills that another person can provide.
• To get additional capital that your business may need.
• The business is growing and you can’t manage the business on your own.
• When a person may be retiring and is looking for someone to manage the business on his or her behalf so that he or she can become a "sleeping partner."
What is a close corporation (CC)?
• A Close Corporation is a form of business ownership that allows a small group of people to be its members (it does not have shareholders!). It is well suited to a small business as it is less expensive than a private company to run. (You do not need to have audited accounts)
• A close corporation is founded by means of a founding statement and cannot exceed 10 members who own and manage the cc. Their interests in the cc (similar to shares in a company) must always add up to 100% and be expressed as a percentage.
• The close corporation is a legal entity on its own and must be profit making in its intentions.
• Dividends (a share of the profit) can only be paid out if the close corporation’s assets exceed its liabilities after the payout and the business can still pay debts when they fall due.
How to set up a Close Corporation
If you do everything yourself, it will cost less than R 1500. If you get a lawyer or accountant to do it for you it will probably cost you more than R 3000 but the process will be much easier!
Here are the steps:
• Complete the "Application for Reservation of Name or Translated Form or Shortened Form" (CK7). (It can be purchased at most stationery stores) This must be submitted in duplicate to The Registrar of Companies and Close corporations, PO Box 429, Pretoria 0001, Tel (012) 310 9791. Payment of R50 is required.
• Once you receive confirmation, submit the "Founding Statement" (CK1), in duplicate to the Registrar. All members must sign the founding statement. Payment of R120 is required.
• You can start your business after you receive your Registered Founding Statement. The name of the corporation must be followed by the abbreviation CC and all members’ names must be printed at the bottom of letterheads.
• A close corporation does not need to have an association agreement, but is recommended as it binds members and regulates the internal relationships between members. A lawyer will charge from R 3000 upwards for this or you can follow the model set out in the amended CC Act, No 17 of 1990. It lays down the voting powers, payments (dividends), members rights and duties, meetings, remuneration, benefits, obligations and the extent to which the cc will indemnify members from expenditure incurred for or on its behalf.
• The accounting officer is required to submit reliable annual financial records, which agree with the accounting records.
• Once the cc has been formed the Receiver of Revenue will ask for the name of your public officer, whose duty is to submit the annual tax returns to the Receiver.
When is it right to set up a private company?
A private company is a more formal business registration. The business now has between a minimum of 1 and a maximum of 50 shareholders, but shares are not offered to the public.
• There are some restrictions on the transfer of shares.
• The company now needs to be formally audited each year.
• There is a minimum of one director.
• Shareholders are not liable for the debts of the company.
• As in the case of the close corporation the company has "perpetual succession" (indefinite life-span), which means the business can continue even if the members die.
Forming a company
• It is recommended that you consult a registered accountant or an attorney. You will need to pay around R 5000 to register a company. You will also need to pay anything from R 5000 upwards to draw up a Shareholders agreement.
• The memorandum and articles of association have to be registered at the Registrar of Companies and Close Corporations, PO Box 429, Pretoria 0001, Tel (012) 310 9791. The forms are obtainable at any stationer dealing with statutory documents. Most attorneys and auditors have these forms on computer.
