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 Entity
A private company is treated as a separate legal entity, separate from its owners (or “Shareholders”) with separate Tax obligations.
Shareholders’ liability is limited, they cannot be held accountable for the debt or actions of the private company.
Foreigners and foreign entities can own 100% of the shareholding in South African private companies.
Private companies last indefinitely and can continue even after its owners died.
Sale of Ownership
Transfer 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
Management 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.
Private companies can work regardless of the size of your business.
There 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.
Directors 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.
Private 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 Credit
The 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.
While incorporating a private company does not need to be expensive, it is more costly and regulated than establishing a Sole Proprietorship.
There 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.
For foreigner wanting to operate a company in South Africa, a local Public Officer is required.
In 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.
Get a Shareholders Agreement now
Use iLawyer.co.za to make a Shareholders Agreement document today. iLawyer.co.za is an online automatic Legal Document builder that allows you to make quality legal documents in minutes at low prices.
If you have a company or if you are starting a company you should have a Shareholders Agreement.
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; email@example.com AND THROUGH THE CONTACT FORM ON THIS PAGE.
Related News Articles
“Does a Witness need to sign this document?”, is a common question. GCM Legal discusses when witnesses are necessary and when they are not.
Does your business have a Letterhead? Did you know that Letterheads are required to have certain information in terms of South African Law?
Can minority shareholders force the majority to act in a certain way? Appraisal rights can be used to achieve this in certain circumstances.