– Summary
The South African company system is well developed and regulated. This article discusses the advantages and disadvantages of Private Companies.
In this article, we will deal with PRIVATE COMPANIES … that end in “proprietary Limited” or “(Pty) Ltd”.
The South African company system is well developed and formally regulated; the governing body for companies is the Companies and Intellectual Properties Commission (CIPC) and all businesses are governed by the Companies Act (2008).
Other articles will deal with:
Advantages and disadvantages are the best way to determine if a private company best suits you.
ADVANTAGES OF PRIVATE COMPANIES |
DISADVANTAGES OF PRIVATE COMPANIES |
Separate Legal EntityA private company is treated as a separate legal entity, separate from its owners (or “Shareholders”) with separate Tax obligations. Limited LiabilityShareholders’ liability is limited, they cannot be held accountable for the debt or actions of the private company. Foreign OwnershipForeigners and foreign entities can own 100% of the shareholding in South African private companies. Life SpanPrivate companies last indefinitely and can continue even after its owners died. Sale of OwnershipTransfer of ownership can be achieved with little regulation, although it is advisable to conclude written sale of shares agreement; the transfer of shares must be recorded by issuing of new shares certificates, which is normally done by the companies’ auditors. There are, however, regulations on the sale of shares to the public (people that are not already shareholders ManagementManagement can be done efficiently and is regulated in the event of confusion; however, it is advisable to conclude a formal shareholders agreement to avoid any confusion. FlexiblePrivate companies can work regardless of the size of your business. FinancialsThere is no required to file their annual financial statements with the Registrar of Companies; therefore, annual financial statements of private companies are not available to the public. |
Director’s LiabilityDirectors can be held personally liable for the debts and actions of a private company. However, for a director to be liable it must be proved that they were aware and/or played a part in running the business in a reckless or fraudulent manner. Legal requirementsPrivate companies are subject to many legal requirements and regulations which can be onerous (however, this can also be an advantage as it creates certainty). Access to CreditThe risk of loss is high for a financial institution funding a private company. Therefore, financial institutions apply more restrictions to private companies versus personal loans. CostWhile incorporating a private company does not need to be expensive, it is more costly and regulated than establishing a Sole Proprietorship. Public InvestmentThere are regulations in selling shares to people than are not already shareholders unless a shareholders agreement provides to the contrary (however, this can also be an advantage). A private company cannot be listed on the stock exchange. Public OfficeFor foreigner wanting to operate a company in South Africa, a local Public Officer is required. AuditsIn most case, private companies require their annual financial statements to be audited. |
Generally, a private company is an excellent way to conduct business in South Africa; however, all undertakings are different and therefore it is advisable to discuss the best business structure with an attorney.
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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.
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