We previously looked at the planning and research required for starting a business as well as the importance of setting up a business plan. Now we’ll look at the types of businesses you can start, as well as your legal and tax obligations, and how to go about registering a company if you choose to take that route.
Sole proprietorships, partnerships and private companies
In South Africa, the most common types of businesses to start are a sole proprietorship, a partnership or a private company.
Sole proprietorships and partnerships are similar in that these businesses aren’t separate legal entities, so if the business fails then you could lose your personal property to pay off debts. On the other hand, such businesses are easier to start because there’s no need for you to register the business, apart from the tax requirements covered below.
A private company, on the other hand, needs to be registered and counts as a separate legal entity, which ensures that your assets are completely separate from the business’s assets so they can’t be taken to pay the company’s debt. Other benefits for registering as a private company include the fact that it’s easier to get funding and you can make sure your business’s name isn’t registered by anyone else. Also, a registered business has a lower tax rate than individuals.
There are pros and cons to any of these choices – make sure to do your research and choose the option that will work best for your situation.
The legal stuff
No matter what type of business you decide to start, you will have to register your business with SARS in order to pay the business’ taxes, which means that your business will need a bank account. Having a business bank account will also help you to keep your personal and business transactions separate, which makes your bookkeeping easier.
You don’t have to register for VAT immediately, as it only becomes compulsory once your business’ income is over R1 million a year. However, you have the option of voluntarily registering for VAT once your business earns more than R50,000 a year.
Registering your company
Registering a company sounds pretty serious and onerous, but there’s no need to panic. Let’s break down the process into some simple steps:
You will need to fill in a Notice of Incorporation and Memorandum of Incorporation, which you can download from the CIPC website. You also need a certified copy of your ID and you may also need a power of attorney.
2. Reserving a business name
Companies are registered with the Companies and Intellectual Property Commission (CIPC). Before you apply for a name reservation, check on the CIPC website under ‘Business & IP Search’ to make sure that the name you’ve come up with doesn’t already belong to someone else’s company.
Then you can put in your name reservation application, which costs R50, with up to four name options.
If you haven’t come up with a name yet, it’s also possible for you to register your company without a reserved name.
3. Registering your business
You can register via the CIPC website, at a self-help terminal or some banks. Registering costs between R125 and R475, depending on the type of company.
4. Registering with SARS
Registering your company through the CIPC will automatically register it with SARS. Sole proprietorships and partnerships need to register with SARS within 60 days of starting the business.
Starting a Business series
Part 1: Some of the steps to complete in order to give your business the best start possible.
Part 2: Types of businesses, your legal and tax obligations, and how to register a company
Part 3: Looking at your obligations when your business grows and you need to hire employees.
Part 4: Employing freelancers – what does that mean for you as a business owner?
Part 5: Some of the fees and taxes you need to pay – PAYE and the Skills Development Levy.
Part 6: Your responsibilities as an employer in terms of UIF and the Compensation Fund.