Forms of Ownership

he new Companies Act 2008, effective since 1 April 2011, has replaced the previous Companies Act of 1973. The new Act classifies any business as either profit or non-profit. [View it in English or Afrikaans.]

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1.1 Non-profit

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A non-profit organisation (NPO) has to comply with the NPO act. An NPO is defined, in terms of section 1 of the NPO Act, as a trust, company or other association of persons established for a public purpose and of which its income and property are not distributable to its members or office bearers except as reasonable compensation for services rendered. Nongovernmental organisations (NGOs) and community based organisations (CBOs) are collectively known as nonprofit organisations (NPOs). In some instances, NPOs are also referred to as Civil Society Organisations (CSO).
More simply put, a NPO is an organization that uses surplus revenues to achieve its goals, rather than to distribute them as profit or dividends.

South Africa has an Association for Non-Profit Organisations, with more than 500 registered NPOs.

A well-known example of a NPO is the National Lottery (LOTTO).

1.2 Profit

1.2.1 Sole Proprietorshipexternal image images?q=tbn:ANd9GcS_rnbPkOpRn6viiK2CY-rhVqzI0eWeFzu8rIlWW1DO1LZpxQ269g

A sole proprietor is also known as a sole trader, as you simply start trading as yourself. For example, you could fix people's cars for which they pay you. You are running a business, but there is no need to create a company name or structure. This is the simplest form of business and requires virtually no effort to set up and get going. You do need to inform the tax man of your extra income, although this will often be offset by business expenses. The biggest risk for this structure is that if the business fails, your creditors can take all your assets: your house, your car, your furniture – everything to recover the money you owe them, because you are the business. You cannot have partners as a sole proprietor, only employees.

In summary, this structure means you are the business and no new entity is created. The new Act allows you to trade in your personal name, but if you start the business now and want to have a trading name like “A plus plumbers” or “ABC Consulting”, then this name will have to be registered with the CIPC.

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1.2.2 Partnership

A partnership consists of a group of people who agree to combine their capital, labour and resources towards some common goal, which is usually profit. As with a sole proprietorship, the members are personally liable for any debts incurred by the partnership. Mutual trust between members is therefore of utmost importance in any partnership.

1.2.3 Close Corporation

This form of business has been discontinued and is no longer an option if you are only starting now. CC’s that existed before 2011 can continue to exist, but nor more are being registered.

1.2.4 Companies

This is the most likely structure for entrepreneurs who want to have the advantages of running their business as a company. Essentially a new entity (think of it as an imaginary ‘person’) is created and named, called a company. The company can be either private or public (differences are indicated below).

This entity is separate from you personally. It will have the owners (shareholders) which may be one or more persons who own the company and the managers (directors) who run the company. Sometimes these are the same people, but not necessarily.
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These companies are registered with and each year an annual return must be submitted to them to ensure you are still trading. Smaller companies will require an annual accounting review to be done by an accountant, which is a much simpler and cheaper version of an audit.

Starting a company is entails much higher costs than other forms of businesses, but when a company is large, these costs may be offset by tax benefits and the possibility of securing low-cost capital in the form of shares and bonds.

Other advantages of trading as a company is that it gives you a more professional image and being reviewed by an accountant can help ensure that you are running things properly and following the law – particularly when it comes to certain taxes. You are also able to have other companies or similar legal structures that are share holders of your company. It allows several people to get together and share in the ownership of a business and makes it easier to sell portions or all of it to future buyers. There is also the element that the debts of a company generally belong to the said company. So if things go wrong and you haven’t traded recklessly, you only lose your investment and not your private assets too. Private Company

The name of a private company has the words "(Pty) Ltd" (Propriety Limited) attached at the end, indicative of the limited liability of the shareholders. A private company needs at least one director, and can have between 1 - 50 shareholders. Public Company

Public companies have only "Ltd" (Limited) attached at the end of its name. There is no limit to the amount of shareholders a public company may have. Under the new Companies Act, a public company is required to submit an independently reviewed audit of its financial statements each year.

1.3 Table summarizing different forms of ownership

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Whatever your structure you need to be aware that the Government will still require you to register for income tax, VAT, UIF, COID, PAYE and to apply for certain licenses depending on your industry, your size and whether you are employing staff.

Here is a video presentation of the richest people in the world this year, and all are successful business owners.