4 Types of businesses to Start in South Africa

Say you wake up one morning and decide that TODAY is the day that you finally let that awesome business idea you have loose into the world!

TODAY is the day that you supplement your income!

TODAY is the day that you become your own BOSS!!

Well, if you live in South Africa it might be worthwhile to know the types of business avenues that you can take before starting your business journey.

And in this article, we will be talking about just that, the 4 types of businesses that you can start in South Africa.

Don’t feel like reading? There is a video version.

1. Sole Proprietorship

The first type of business is a Sole Proprietorship also known as a Sole Trader. This business usually has one person running it and is usually not registered with any authoritative body.

Because of this, it is the easiest and most affordable form of business to start, you just find customers and start selling.

The hawkers that you see selling products on the street and freelancers selling services door to door or over the internet are examples of Sole Traders.

Requirements of a Sole Proprietorship

As mentioned before, starting a Sole Proprietorship is fairly easy, you are not required to register it anywhere.

You do however have to let the South African Revenue Service know once you start reaching a certain level of income.

Once the taxable income from your businesses goes above the R87 300 threshold.

This will help SARS know how to tax the additional income that you are getting from your business.

Advantages of a Sole Proprietorship

• Quick and easy to start.
• The most affordable form of business to start.
• Lots of flexibility on running the business.

Disadvantages of a Sole Proprietorship

• Lack of skills to grow the business because it usually has one person running it.
• You are personally liable for any debts or liabilities incurred by the business.

2. Partnership

The second type of business is a partnership and it requires at least two people to be formed.

To form a partnership, You and one or more people or even another entity come together to start a business. You each contribute different resources – skills or finances – towards a goal.

Partnerships can be long-term or short-term depending on the goal that has to be reached.

Requirements of a Partnership

You and your partners have to decide on the resources to be contributed by each partner, the goal of the partnership as well as how profits and losses will be shared amongst the partners.

All of the above is then written down and signed off by each partner in a document called a Partnership Agreement.

This document has to be presented to SARS in order for SARS to be aware of how to tax the income of each partner.

Advantages of a Partnership

• Fairly easy to start, just requires an agreement between the partners.
• Affordable.
• More skills and resources can be contributed to the growth of the business.

Disadvantages of Partnership

• A new partnership always has to be formed whenever a new partner joins.
• If there is a disagreement between partners and one partner decides to leave, the partnership must dissolve and a new one has to be formed with the remaining partners.
• All partners are personally liable for any debts or liabilities incurred by the business.

3. Proprietary Limited Company

The third type of business is a Proprietary Limited Company, also known as a Private Company or PTY LTD in short.

Unlike the first two types of businesses, a Private Company has to be registered with a body within South Africa called the Companies and Intellectual Property Commission (CIPC).

And can have one or more people running it, these people are called Directors.

A lot of people in South Africa prefer starting a Private Company because it is treated as a separate entity from the people running the company.

Requirements of a Private Company

You can register a company at the Companies and Intellectual Property Commission by using a number of different platforms.

• New E-services – www.cipc.co.za / Online Transacting / New E-services.
• BizPortal – www.bizportal.gov.za.
• CIPC Mobile App.
• Self Service Terminal.
• Banks (as part of the company registration process).
• Associated name reservations or names requiring supporting documentation. [email protected].
• e-Services – www.cipc.co.za / Online Transacting / e-Services.

The two most common ways are through the CIPC website which requires you to email some documents or BizPortal which doesn’t require you to email anything.

Registration process:

• Visit https://eservices.cipc.co.za/ or https://bizportal.gov.za.
• Register a profile.
• Reserve a name for your private company (not compulsory). This costs R50.
• Register the company. This costs R125.
• Deposit money into your CIPC account to make the necessary payments.

One incorporator (the person filing the registration) and at least one director (the person who will be running the company) is required to register a company.

If you are using the cipc.co.za website to register, you have to email a certified ID copy (no longer than 3 months) of the incorporator and all the directors of the company.

However, you don’t have to do this when using the BizPortal website because it checks your ID number against the home affairs records.

Advantages of a Private Company

• More directors can be added to the company by simply adding them through the websites mentioned above. Resulting in more skills and other resources to run the business.
• Employees can be hired within the company without having to change or alter the company.
• The owners are not held personally liable for any debts or liabilities incurred by the business.

Disadvantages of a Private Company

• There is a cost involved in incorporating the company.
• Shares cannot be sold to the public.
• There are some legal requirements and regulations to follow.

4. Limited Company

The fourth type of business is a Limited Company, also known as a Public Company, LTD in short.

Like a Private Company, a Public Company has to be registered with the Companies and Intellectual Property Commission.

A Public Company is similar to a Private Company in a number of ways and also has differences, the most glaring difference is the ability to sell shares to the general public.

Requirements of a Public Company

To register a Public Company, you need to have the following

• Minimum of 3 directors and 1 incorporator.
• A company secretary.
• An auditor.
• An audit committee.

The first thing to do is to reserve your Company name, however, this is not compulsory. Reserving a name costs R50. The name can be reserved through a number of platforms:

• New E-services – www.cipc.co.za / Online Transacting / New E-services.
• BizPortal – www.bizportal.gov.za.
• CIPC Mobile App.
• Self Service Terminal.
• Banks (as part of the company registration process).
• Associated name reservations or names requiring supporting documentation. [email protected].
• e-Services – www.cipc.co.za / Online Transacting / e-Services.

A public company can only be registered via email and would cost R425.

Payment is made by depositing money in the CIPC ABSA bank account. This will reflect in your profile.

The following documents have to be emailed to [email protected]:

A. Registration documents

• CoR14.1 (Notice of incorporation)
• CoR14.1A (Notice of Incorporation Initial Directors of the Company)
• CoR14.1 Annexure D (Notice of Incorporation Notice of Company Appointments)
• CoR15.1B (Memorandum of Incorporation)
• CoR14.1C (Notice of Incorporation Notice of Ring Fencing Provisions) – Not compulsory.

Click here for the CoR forms

B. Accompanying documents

• CoR9.4 (if applicable) – Confirmation of notice of name reservation
• Certified ID copies of all incorporators and directors
• Power of attorney (if applicable)
• Certified ID copy of the applicant

Advantages of a Public Company

• More capital can be raised by selling shares to the public.
• The ability to grow into new sectors and markets thanks to more capital from selling shares.
• More credibility than the other types of businesses.

Disadvantages of a Public Company

• Costs a lot more to start than the other three businesses.
• A lot of regulatory requirements.
• You are vulnerable to others taking over your company by owning a majority of shares.

You might also be interested in: Entrepreneur’s Guide to Registering a Company in South Africa 

Conclusion

There are four types of businesses that you can start in South Africa

1. Sole Proprietorship.
2. Partnership.
3. Private Company.
4. Public Company.

These businesses have their advantages and disadvantages and it is up to you to decide which is best for you to start.

Get in touch with us for lead generation and start getting customers to your business.

Sources
https://pixabay.com/
http://www.cipc.co.za/
https://www.taxtim.com/
https://www.sars.gov.za/