As the first rule, don’t be intimidated. Untangling all the pros and cons of different company structures, or delving too deeply into tax laws, is enough to make most entrepreneurs feel shaky. However, starting a business in South Africa doesn’t have to be all that complicated.
Here we outline the main steps to follow.
Decide what structure to create
Your main choice when setting up a new business will probably be between operating as a sole proprietorship and creating a private company. Private companies have replaced closed corporations (CCs), which are no longer being registered.
Trading as a sole proprietorship is the simplest. You just start doing business. Although you can choose to register a company name, you don’t have to. The only real requirement is that you keep proper records so you can meet your obligations in terms of paying taxes and complying with employment laws.
A private company differs from a sole proprietorship in these ways:
- it has to be registered
- its name will end with “Proprietary Limited”, or “(Pty) Ltd”
- it has a board with at least one director and one incorporator (these may be the same person)
- it can have multiple shareholders, who jointly own the company
- it has to submit an annual return or, for small companies, an annual accounting review.
Setting up a private company is more complex than trading as yourself but it limits your personal liability for any debts. This makes it less likely (although not impossible) that you could lose your personal assets if the business fails. Operating as a private company may also add more clout to your image, and the company will be easier to sell.
Other types of company structures include public companies, which are allowed to offer shares to the public; personal liability companies, which are like private companies except that the directors explicitly accept personal liability for any company debts; external companies, which operate from outside South Africa; and non-profit companies.
Set up business premises
When you register a private company or open a business bank account, you’ll need to provide your company’s business address.
Finding and setting up the ideal office space for your business is a crucial step and a challenging one. It’s important not to get tied into an expensive, long-term lease for business premises that might prove either too big or too small for your company’s real needs.
Consider The Workspace
The Workspace provides an office space solution for South African entrepreneurs in the form of – secure, professionally appointed office space, with business infrastructure already in place and a range of on-site business services.
When you move into The Workspace, you simply move in – and you can focus on your business straight away. In relation to having to set up traditional office space yourself, the potential cost and time savings are significant. You can also easily move to a larger or smaller office, as your business needs dictate.
Register your company
If you set up a private company in South Africa, you need to register it with the Companies and Intellectual Property Commission (CIPC). You can also choose to register a name for your business with the CIPC.
To register a company, you need to submit two forms – a Memorandum of Incorporation (MoI) and a Notice of Incorporation.
The easiest way to do this is online. Register with the CIPC site as a customer, log in using the credentials you’re assigned, click the On-line transacting button and then choose the relevant options. The cost of incorporating a company is R100.
You can also apply to reserve a name online. You’ll be able to specify up to four names, and you’ll be given the first name that’s not already in use. If none of the names is available, your company will be registered using a number and you can request another name thereafter. The cost is R50 online or R75 if you apply offline.
Open a bank account
If you trade as a sole proprietorship, you don’t need a separate bank account for your business.
To open a business account for a private company, you’ll need to submit the documents incorporating the company and proof of identity for the directors.
Register with SARS
When you register a private company with the CIPC, the South African Revenue Service (SARS) is automatically notified and the company is assigned an income tax number. However, you may need to register for VAT and as an employer.
You need to register with SARS to pay VAT if your business has an annual taxable turnover of more than R1,000,000. You do this using form VAT 101. The application has to be submitted in person and you’ll need to provide proof of identity, as well as your company’s banking details and proof of the company’s business address.
If the company is liable for VAT, it must also appoint a public officer and give SARS this person’s details. As part of the registration process, SARS will physically inspect the company’s premises and interview the public officer.
Registration as an employer
If your company has employees, you need to register with SARS as an employer, using form EMP 101e. This registers your company to pay employee withholding taxes, including PAYE and SITE, and unemployment insurance contributions. A Skills Development Levy, charged at 1% of gross salaries, is also payable.
Register for unemployment insurance
You need to register for unemployment insurance with the Department of Labor, using two forms – UI-8 and UI-19. Once the application is approved, the Department confirms registration using form UI-33.
Register with the Compensation Commissioner
If your company has employees, you need to register with the Compensation Commissioner to comply with the Compensation for Occupational Injuries and Diseases Act. You do this using form W.As.2, which is available from the Department of Labor website.
Once you’ve registered, your company will need to file a W.As.8 form within 30 days before the end of each financial year. It also needs to keep claim forms – WG30, W.As.2 and W.Acl(E) – for use if an employee is injured or becomes ill and it’s necessary to make a claim.
The hard part…
Once you’ve completed the process of setting up a company, it’s time to focus on the hard part – the blood, sweat and tears it takes to make a long-term success of your business. At The Workspace, we’re rooting for you!