A company is a very effective tool when operating a business and all entrepreneurs / business-people should consider using them.

For the purpose of this article, a “company” refers to a private company unless stated otherwise.

Here are 6 things you should know about companies in South Africa (PART 2 can be found here):

Creating a Company

A company is “incorporated” through a process of registering its particulars with the Companies and Intellectual Property Commission (or CIPC).

GCM Legal can help with this process.

Naming a company.

You can choose almost any name for your company, provided it is not the same or too similar to another already registered company.

Private Companies end in “Proprietary Limited”, which is abbreviated to “(Pty) Ltd”.

Public companies end in “Limited”, which is abbreviated to “Ltd”.

A company is separate from you.

A company is separate from its shareholders and, in the eyes of the Law, is seen as a separate person to you (or separate legal entity).   The company can sue and be sued in its own name and the liabilities of the shareholders are limited to what they invest in the company.

Important documents when forming a Company

A company is incorporated with 2 principle documents; one is mandatory and the other is recommended:

• Memorandum of incorporation (Mandatory)

A Memorandum of incorporation (or “MOI”) is a requirement for incorporating a Company; it is usually a very standard document that complies with the Companies Act of 2008.  It can be personalised but any clause that is inconstant with the Companies Act will be considered void.

• Shareholders Agreement (Recommended)

A Shareholders Agreement is recommended but not mandatory in South Africa Law.  It governs the relationship between the shareholder and how the Company is managed.  It will usually set out the duties and rights of the shareholders and explain the process for the sale of shares in the Company.

GCM Legal can assist with your shareholders’ agreement.

You don’t need a lot of money to start a company

There is no minimum amount required to be allowed to start / incorporate a company in South Africa.  However, there are costs in starting a company (besides operating capital); these costs will vary depending on how fast you what the company ready to operate and if you are going to employ the services of a third party (like GCM Legal) to assist with the incorporated of the company.

Correct number of Directors

A private company in South Africa must have at least one director.

Directors need to be registered with CIPC.  The founding director/s will be named in the MOI; thereafter, in terms of the Companies Act, subsequent directors are appointed using a company resolution where 50% of the shareholders support the appointment.  However, a shareholders agreement will often stipulate who the directors are and how new director will be appointed (e.g. by a greater majority of the shareholders) or how existed director may be removed.

A person may not be eligible to be a director if they have been declared insolvent or found guilty of a trust violation such as fraud, perjury, etc.

A director does not need to be a South African citizen or resident.

DISCLAIMER: THERE ARE MORE CONSIDERATIONS THAN WE CAN COVER IN THIS ARTICLE SO ONLY USE THIS INFORMATION AS A GUIDE.   THIS INFORMATION DOES NOT CONSTITUTE LEGAL ADVICE.  IT IS ALWAYS BEST TO DISCUSS YOUR SITUATION WITH AN ATTORNEY; CONTACT US AT 0861 88 88 35; helpdesk@gcm-legal.com AND THROUGH THE CONTACT FORM ON THIS PAGE.