Tuesday 1st of October 2019
During the transitional period in South Africa for the past twenty years, great emphasis has been
...placed on the need for establishing small busines...
During the transitional period in South Africa for the past twenty years, great emphasis has been placed on the need for establishing small businesses and the practice of sole proprietorship. South Africa has been successful in the development of a well regulated and structured company doctrine, under the auspices of the Companies Act No 71 of 2008. This regulation, administered by the Companies and Intellectual Properties Commission has the responsibility of governing all South African business entities.
Promulgated in 2009, the new Companies Act has been in effect since May 2011 and was instrumental in the complete rewriting of South African law.
It was designed to be innovative and update the law in alignment with leading international business practices. In the process, care was taken to improve the perception of business-friendliness and restructuring for greater efficiency and effectiveness. This was intended for greater compatibility with other governmental legislation, such as the Promotion of Access to Information Act. Further details and statistics are available at The Companies Act, No 71 of 2008 – An explanatory guide, published by the Department of Trade and Industry.
The significantly improved, user-friendly and less prescriptive factors of this Act, are calculated to encourage and stimulate general entrepreneurship, in particular, sole proprietorship enterprises. This in turn should motivate economic and employment growth, with the flexibility available for companies to change certain requirements, according to their particular circumstances. An example of this would be that smaller, adaptable companies would have less demanding responsibilities than larger and public companies, regarding corporate governance and financial reporting.
A small business entity known as “Closed Corporations (CCs)” was provided for in South African law, before the Companies Act 71 of 2008 came into effect on 01 May 2011. Although “CCs” are no longer created, those existing will continue operating until their conversion into company status. It should be noted that foreigners, considering investment in South Africa by establishing a new business, or investing in an existing business, must apply for a business permit. The applicant will be required to make a prescribed financial capital investment to Home Affair South africa.
South African business entities
Within the South African Companies Act, there are two recognised business entities; profit-earning and non-profit earning companies! In the case of the former, the foremost methods of conducting business in the country are:
It is legal for a sole proprietor to employ the use of a trade or business name, other than their legal name. In many jurisdictions, regulations are established that enable the actual owner of a business name to be ascertained. Legislation in the USA requires that a request for”doing business” is filed with the local authorities. The United Kingdom demands that the name of a business owner is displayed on business stationery, in business emails and at business premises, among other requirements. Within terms adopted and implemented in recent South African legislation, it is stated that trade names used by sole proprietors must now be registered.
Taxation and other related issues can influence the selection of a specific business entity. The most favoured methods of conducting business adopted by foreign investors are; private companies and branches, as the least amount of annual formalities are required. In the case of Private Companies, there must be at least one appointed director and shareholder, with membership restricted to 50 persons. It is not required for the board of directors to contain South African nationals or residents. Companies operate on the basis of limited liability, with the general rule being, members are not liable for the debts of a company, but there are exceptions to this ruling.
Public Companies are formed to raise funds from shares offered to the public; there is not a limitation to the number of shareholders permitted. In the instance of foreign based companies conducting business or non-profit activities in South Africa, they are known as, external companies. This type of entity is generally viewed as having intentions to engage in business or non- profit activities in South Africa, by way of;
Branches of foreign based countries are granted legal status in South Africa, because of their registration as “external companies”, but they do not have recognition as separate legal entities, with the exception of exchange control purposes. The external company is required to register with the Companies and Intellectual Properties Commission, within 20 business days, following it starting to conduct business or non- profit activities, in South Africa; reference:.
A foreign company, with a registration transferred to South Africa and which will thereafter exist as a company in terms of the Companies Act as if it had been originally so incorporated and registered, is regarded as a “domesticated company”.
Sole proprietorship
The Sole Proprietor National Database® (SPND®) is a certification and registration of Sole Proprietors in South Africa, designed for the purpose of formalising and summarising, various key factors of Sole Proprietorship; for example, trade names and income tax registration, business purposes, with contact details for the purpose of convenient presentation and verification of given information. For banking institutions, clients and other involved third parties, they may request that their Sole Proprietor client or service provider, emails their secure Sole Proprietor Certificate®, for verification purposes.
While a Sole Proprietorship is generally regarded as the most convenient method of conducting independent business, there is not a requirement for it to be registered as a legal entity. This business option is available for a single owner entity, regardless of whether employees are utilised for various activities. A sole proprietorship is suitable for professionals in private practice, hospitality trade operatives, and other small business entities.
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