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Private companies

A private company is a separate legal entity and has to be incorporated and registered with CIPC.

Private companies have share capital which means that the shareholders can be the same as or different from the directors.

Because a company is a separate legal entity, it has a perpetual lifespan and directors do not necessarily take liability for the debts of the company.

The Companies Act of 2008 makes various provisions for companies of different sizes.

These provisions include that certain companies must be audited and other not.

It also states that some companies can internally compile their own annual financial statements whereas other are not allowed to.

Incorporating and managing a company is a formal though effective way to run a business.

Starting out as a sole proprietor is a good start, but as your business grows it is advisable to incorporate a company.

You can incorporate one of three different types of companies :

  • Proprietary Limited (normal private company)
  • Limited (public or listed company)
  • Incorporated (directors take responsibility for the debts of the company)

Companies also have certain advantages and disadvantages:

Advantages :

  • You may appear a bit more professional.
  • Better tax planning opportunities.
  • The assets and liabilities of companies are separate from the owners’ personal assets. This means that if the business goes bankrupt, creditors can only claim assets owned by the company and not the owner’s personal assets.  If however the owner signed surety in his/her personal capacity, debt collectors can claim personal assets.
  • The lifespan of the business is perpetual.
  • The transfer of ownership is easy – you simply sell your shares in the company.
  • It is easy to change the directors of a company.
  • It is easier to raise capital and to expand.

Disadvantages :

  • Expensive and complicated to set up.
  • You have to file an annual return with CIPC each year.
  • You also have to prepare annual financial statements, signed by an accountant, which need to be filed with SARS every year.
  • Accountancy fees are generally more expensive because you have to adhere to certain minimum standards.
  • Depending on the size and shareholding of the company, it may need to be audited.
  • In some limited instances directors may be personally liable for debts of the company (this would however be very difficult to prove).

SOURCES :

Cronje & Cronje

Business Partners