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.

Limited Liability

Shareholders’ liability is limited, they cannot be held accountable for the debt or actions of the private company.

Foreign Ownership

Foreigners and foreign entities can own 100% of the shareholding in South African private companies.

Life Span

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

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.

Flexible

Private companies can work regardless of the size of your business.

Financials

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.

Director’s Liability

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.

Legal requirements

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.

Cost

While incorporating a private company does not need to be expensive, it is more costly and regulated than establishing a Sole Proprietorship.

Public Investment

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.

Public Office

For foreigner wanting to operate a company in South Africa, a local Public Officer is required.

Audits

In most case, private companies require their annual financial statements to be audited.