Business Start-up: Registering your business
Ok, so now you have made the decision to go solo! No more working for a boss for you. You have decided on the widget you are going to sell or you have streamlined the service you are going to offer and now you need to get started. You’ve decided on the name of the company and now you have to get it legal! One of the first things that you need to do is register your company.
Registering your Company
You have 3 different options here. A sole prop, a Closed Corporation or a Company.
The Sole Proprietor
The first one, a Sole Proprietor, is the easiest and the one where your personal assets are most at risk. For a Sole Proprietor all you really have to do is open up a bank account. For example: Jane Doe T/A (trading as) ABS Consulting. Done and finished!
The Closed Corporation
The Closed Corporation or CC takes a bit more time, effort and money. There are legal implications that you need to take into account. A CC is ideal for a small business that does not need a complicated legal structure. A CC can have one member, or if you decide to work with partners, it can have up to 10 members. It is a separate legal entity from its owners; however it is still a simple legal form that needs to be completed and submitted.
A CC provides a limited liability to its members, except in the case where the members indulge in fraudulent and/or reckless business practices. Instead of shares, the members hold an interest in the business and these are held as a percentage. They are easy to form as well as easy to dissolve.
A CC is required by law to keep proper accounting records and to prepare an annual financial statement, but it is not required to have an audit. The financial statement must be reviewed and signed off by a professional accounting officer.
A CC is a separate Taxable Entity and as such enjoys some of the tax benefits that are not available to individuals. In terms of the Tax Act, a CC is considered to be a company and therefore it will be taxed at the company tax rate that is payable on taxable income.
A CC provides a more stable business life than a Sole Proprietor. The ownership of the Business is easily transferable. The profits remaining after tax may be distributed to its members by way of a dividend. A CC is a provisional taxpayer – this means that it will have to make provisional tax payments. The members of a CC must also register as provisional taxpayers.
Some of the disadvantages of a CC are, but not limited to:
• A CC may not own shares in another company or CC.
• It is subject to more regulations than a Sole Proprietor or a partnership.
• It is more expensive to organise than a Sole Proprietor or a partnership.
• It is limited to 10 members.
To register a CC, you need to reserve a name. The name cannot resemble the name of any other company or CC and the Registrar must consider it acceptable. A CK7 form must be completed in duplicate and submitted to the Registrar, together with a CK1 form, together with the prescribed fee.
A letter of consent and appointment by the Accounting Officer will also be required as will certified copies of all the member’s identity documents and those of the Accounting Officer.
The Registrar will assign a registration number to the CC and will notify you of this number. This is your evidence that you have complied with all the requirements for registration. Your documentation must be kept safe – it is your proof of registration and must be available for inspection by any person.
It is suggested that the registration be handled by an Accredited Accountant as this will ensure that the documents are correctly completed and submitted.
Companies have more administrative formalities and/or statutory requirements than a CC. The tax implications for a private company are the same as those for a CC.
A Company offers, but is not limited to the following benefits:
• It is a legal entity separate from its shareholders; The members have a limited liability, which means that they cannot be called upon to contribute to the debts of the company limited by share capital.
• There is perpetual succession. This means that the company will continue to exist even if the individual members change.
The registration process and incorporation are complicated. A Private Company has but is not limited to the following criteria:
• It may have up to 50 members
• It must have at least 1 Director
• Members and/or Shareholders can transfer shares freely, unless they are restricted by the Articles of Association.
• Shareholders have the right to elect directors at the AGM
• Directors may exercise their powers through the Memorandum and Articles of Association.
Consult a specialist who deals with company registration as it is a complicated process. You will need to register the Memorandum & Articles of Association. The Registrar will issue a Certificate of Incorporation. This proves that you have satisfied all the requirements of the Act.
To register a Company you must reserve the name on a CM5. Various other forms need to be completed and submitted. These are, but not limited to:
• Application for Registration = CM7
• Notice of Company’s registered office = CM22
• Appointment of Directors = CM29
• Share transfers = CM42
The Articles of Association govern the internal affairs and management of the Company whereas the Memorandum relates to the external characteristics of the Company, therefore the Articles deal with matters such as shares, share certificates, transfer of shares, and so on.
For further information, please contact Nikki Viljoen on 083 702 8849 or email@example.com
Latest posts by Small Business Forum (see all)
- SBF 2018 Overview - October 18, 2017
- Summary of Small Business Forum Breakfast – 12 October 2017 - October 13, 2017
- In the Elevator - February 28, 2013