Congratulations, you have decided to pursue your dream of owning your own business! One of the first crucial steps you need to take to make this dream a reality, is to register your new business as a legal entity in South Africa.
To start with the process, you will firstly need to identify the type of company you need to register. Choosing a type of company is what confuses a lot of people – there are so many different types of companies and so many different government organizations of whom you’ve heard – CIPC, SARS, DTI, etc. Running away might sometimes seem like the easier option! Don’t panic and don’t run away – we have set out everything you need to know below so choosing the type of company you need to register is easy.
1. (Pty) Ltd / Proprietary limited company – most common type of registered company in South Africa
Proprietary limited companies are the most frequently and most commonly type of registered company is South Africa. This type of company is also the easiest type of company to register. People prefer this type of company as it “protects” the directors and shareholders – in terms of limited liability, meaning that should the company ever be liquidated, the personal belongings of the shareholders are fully protected (cannot be seized/repossessed) and the personal belongings of directors are also protected (unless it is proven that the directors has managed the company in a reckless manner).
A proprietary limited company can have can have an unlimited amount of directors and shareholders (please note that shares of a proprietary limited company cannot be sold on the JSE, but that does not limit you to sell shares privately. Only public companies can sell shares on the JSE). The names of a proprietary limited company end with the words “Proprietary Limited” or the abbreviation “(Pty) Ltd”.
This type of company usually registers the fastest in South Africa, and you can expect the registration to be completed within 1-2 working days.
2. Non-profit companies (NPC)
Non profit companies are incorporated for public benefit purposes. Non profit companies (NPC’s) should not be confused with NGO’s (Non government organizations) and also not be confused by NPO’s (Non profit organizations).
NPC’s may not be incorporated with the goal to make profits or benefit from profits as directors. Non profit companies does not have shareholders. Examples of non-profit companies include churches, welfare organizations and schools. A non-profit company cannot be registered with less than three directors, and the income, profit and property cannot be distributed to any of the directors, shareholders, members and incorporators.
The names of non-profit companies always ends with the words “Non Profit Company” or the abbreviation “NPC”. The time frame on the registrations usually takes a bit longer than that of proprietary limited companies. You can expect the registration to be completed within 10 working days.
3. Personal liability companies (incorporated companies)
Personal liability companies are perfectly suited for professionals such as auditors, doctors and lawyers as the memorandum of incorporation allows for these professionals to abide by the regulations of certain controlling bodies that would normally not be allowed under the operation of a standard company’s memorandum of incorporation. These types of companies are less common than (Pty) Ltd companies and not usually preferred by non-professionals.
Directors of personal liability companies do not enjoy the same privileges of a proprietary limited company, as directors are jointly liable for all debt to be paid. The names of a personal liability company ends with the word “Incorporated” or the abbreviation “Inc”. These companies take longer to register as the memorandum of incorporation needs to be completed manually, and you can expect the company to be registered within 5 to 10 working days.
4. Public company
A public company is permitted by the memorandum of incorporation to offer shares to the public and allows them to sell shares at the JSE. This type of company can have a minimum of 3 directors. A public company is one of the least frequently commonly registered companies in South Africa and the directors again does not enjoy the same privileges as with proprietary limited companies. The name of this type of company ends with the word “limited” or the abbreviation “Ltd”.
5. State owned company
These companies are fully or partially owned by the South African government. A state owned company are the least frequently / commonly registered by members of the public. The government uses these companies to partake in commercial activities. The name of a state owned company ends with the words “State Owned Company” or the abbreviation “SOC”.
6. External Company
External companies are companies that are carrying on business or non-profit activities within South Africa. These types of companies are required to register within the first 20 days in which they start to carry out activities as either an external non-profit company or as an external company.
7. Close corporation
Close corporations are smaller corporations which are entitled to operate without the strict formalities normally required in the operation of standard corporations. A close corporation does not have directors, they have members. The name of a close corporation ends with the words “Close corporation” or the abbreviation “CC”.
Close corporations can no longer be registered (effective from 1 May 2011), but close corporations currently in existence will still be maintained. You might however decide to convert your close corporation to a proprietary limited company, but proprietary limited companies cannot be converted back to close corporations. There are definitively benefits to the members of a close corporation to convert a Close Corporation to a proprietary limited company.
8. Sole proprietorship
Sole proprietors are individuals who are rendering a service to the public. A sole proprietorship can be described as the simplest form of business. Although sole proprietors can employ workers, the individual can be the only “owner” of the business. There are no directors or shareholders. A sole proprietorship ceases to trade when the owner (individual to whom the proprietorship belongs to) becomes deceased. The “owner” is also personally liable to cover all debts and his personal belongings can also be ceased when he becomes liquidated. Sole proprietors do not have to register their business, but it is not recommended to trade as a sole proprietor for the reasons above.
9. Co-operative
“A very simple definition of a co-operative would be to say it is a business where a group of people get together to voluntary address their common needs’. There are 3 types of co-operatives (primary, secondary and tertiary).
10. Shelf Company
These companies are already registered but are not trading anymore (or have never traded). There are some benefits to purchase a shelf company, including:
- An older registration number might add some credibility to your business
- Certain upgrades might already be in place, such as:
- Tax clearance certificates;
- CSD registrations;
- COID letter of good standing;
- Reputation and customer base;
- Logo’s, company branding;
- Etc
- Once a shelf company is purchased it is available immediately to be used by the new owners
Shelf companies will however be more expensive than registering new (Pty) Ltd companies.
The companies we discussed above are the most commonly type of registered companies in South Africa, we might have not discussed every single type of company 100% in detail, but we trust that the information we have supplied above will give you a decent idea of which type of company it is you should register.
