Your business and the law
1. The business as legal entity
Your business will be subject to a number of legal requirements in order for it to operate formally. Some of the most important considerations will be explained below.
Sole proprietor, partnerships and companies are by far the most common business structures in South Africa, more information is provided one them below.
- Sole Proprietor
Also known as a sole trader. It is simply where you start trading as yourself. For example, you could fix peoples cars for which they pay you. You are running a business, but there is no need to create a company name or structure. This is the simplest form of business and requires small effort to set up. You will need to notify the South African Revenue Service (SARS) of your resulting extra income, although this can also be offset by business expenses. The biggest risk for this structure is that if the business fails, your creditors can recover the debt from assets belonging directly to you.
So in summary this structure means you are the business and no new entity is created. You may trade in your personal name, but if you start the business and want to have a different trading name like “AJ Consulting”, then this name will have to be registered with the Companies and Intellectual Property Commission (CIPC) at www.cipc.co.za.
A partnership represents a number of people coming together, between 2 and 20 and contractually agreeing to operate a business together. They further agree to split any profits as per their agreement and in proportion to their interests.
In establishing a partnership each partner needs to make a contribution to it and as per a sole proprietorship the partnership is not a separate legal entity, leaving partners generally liable for debts. (i.e. jointly and severally).
Also known as a Pty Ltd. This is the most popular structure for entrepreneurs in South Africa. Essentially a company represents a new legal entity which is created and separate liability from the individual owner. It will have the owners (shareholders) which may be one or more persons who own the company and the managers (directors) who run the company, which may be the same people.
These companies are registered with the CIPC, and each year an annual return must be submitted to them to verify that the company is still trading. Smaller companies will require an annual accounting review undertaken by an accountant.
The advantage of trading as a company is that:
- It gives you a more professional image.
- Review by an accountant can help ensure that you are running things properly and following the law.
- Ability to have other companies or similar legal structures that are shareholders of your company.
- Allows several people to get together and share in the ownership of a business and makes it easier to sell portions or all of it to future buyers.
- Debts of a company generally belong to the company, implying your personal assets are safe.
2. Statutory requirements to register a business
Whatever your structure you need to be aware that the Government will still require you to register your business, register for income tax, VAT, UIF, COID, PAYE and to apply for certain licenses depending on your industry, your size and whether you are employing staff.
- Register Your Business
If you're setting up a private company ((Pty) Ltd), you need to register your company as a legal entity. All the information you require can be found on the CIPC website (www.CIPC.co.za).’
- Register with the SARS
Whether you're running a sole proprietorship, a partnership or a private company, you have to be registered with SARS. If you registered a company with the CIPC, you will automatically be registered as a tax payer with SARS. Sole proprietors or partners need to register as provisional tax payers directly. When you start a business, you will be required to register within 60 days of starting a business for an income tax reference number by completing a IT77 form, either at any SARS office or online.
- Register as a VAT Vendor
If your turnover is or is expected to fall within the R1 million a year or more range, you will need to register as a VAT (Value Added Tax) vendor. This is done by completing and submitting a VAT101 Form, which is available at SARS offices
- Register for PAYE
If your business intends to employ one or more staff members who earn over R40,000 per year, you have to register your company for PAYE (Pay As You Earn) tax contributions. In addition, if your payroll is more than R500, 000 a month, you will have to register for payment of the Skills Development Levy (SDL).
In order to do this, simply complete an EMP101 Form at any SARS office. This includes sections for contributions to the Unemployment Insurance Fund (UIF) and payment of the SDL.
For more information on the SARS required registrations please contact them at 0800-00-72-77 or visit www.sars.gov.za.
- Register with the Department of Labour
All business entities that employ one or more full-time employees will be required to register with the Department of Labour. This is mandatory in terms of the Compensation for Occupational Injuries and Diseases Act (COIDA).
Here's how to register in terms of COIDA:
- Complete and submit the WAs2 Form at the office of the Compensation Commissioner
- Once registration has been completed, you will be sent the following additional forms to complete:
- WAs8, which must be filed within 30 days of your financial year-end, and which must balance with your COIDA account
- WAs6a, which details the assessment of the Commissioner for premiums payable, less any amounts that may have been paid in advance
- WG30, WAs2 and WAc1(E), are claims forms that must be kept in a safe place for use if and when necessary
If you want further information about COIDA, the registration process, and the obligations of companies in relation to the Act, visit the Department of Labour's web site www.labour.gov.za
- Register with the Unemployment Insurance Fund (UIF)
All employers must register their employees for unemployment insurance, which can be done on Form UF8 at any SARS office, or online. They should also obtain copies of Form UI-19, which is required to register new employees when they join the company.
You will receive a copy of Form U133 to confirm your registration. Thereafter, UIF payments must be made monthly, either directly to the UIF or together with PAYE and the Skills Development Levy (if applicable).
Contact the Unemployment Insurance Fund (UIF) -
021 941 7000
3. Municipal compliance
There are also municipal by-laws in the respective local area where your business intends operating which need to be considered. Local authorities regulate issues such as zoning, noise levels, hygiene etc. and will have an impact on your business depending on which industry you plan to operate in. For example, you will probably need permissions to run a noisy manufacturing operation, and health certificate for operating a food preparation business. Different local municipalities have varying by-laws and therefore varying guidelines for compliance. Always contact your local municipality in the planning stages of your business to see what their requirements may be. Many have local economic development sections which would be able to assist you.