In this post, we take you through the most important elements of setting up as a private company (Pty) Ltd in South Africa.
What is a company?
A company is its own legal entity and is separate from the individuals that run the business. The company is registered as a taxpayer, has its own rights and duties, and its own liabilities. It also has its own ‘life’ — shareholders may change, but the company will remain the same.
What are the requirements of registering a company?
As company, you and your business are regarded as separate entities which means you will need to register your company with the Companies and Intellectual Property Commission (CIPC).
To register your company, you will need a unique name, one director and one shareholder (these are usually the same person for a small business – you) along with certified identity copies . It is worth doing some research on the name you want before you set up and doing the following basic checks:
Google it – what comes up when you do, are there other businesses using it?
Check its availability on CIPC (your accountant can do this check for you)
Once you are happy with these then you can set it up yourself or ask your accountant to set it up for you.
Your company and SARS
In the eyes of SARS, the private company and the individual are treated as a separate legal entity.
If you are starting out and need to register as a company, you will first have to register your company with Company and Intellectual Property Commission (CIPC) where an automatic tax number will be generated for you. This tax number will be used on E-filing to register your company as a taxpayer.
Other considerations will be registering for PAYE if you intend to run payroll to pay directors/employees, VAT if you wish to register voluntarily or will exceed the VAT threshold and dividend tax if you will be drawing dividends from the company.
Pros and Cons of the Private Company Set Up
Some of the advantages of a private company is that it has business continuity, the shareholders have limited liability meaning they are generally not responsible for the liabilities of the company and its easier to raise capital and to expand the business.
The disadvantages of trading as a company are that companies are subject to a lot of legal requirements. It is also more difficult and expensive to establish and operate than other forms of ownership such as a sole proprietorship or partnership.
Key finance management tips for Companies:
To make sure your business remains afloat, pay your operating expenses first. After you have paid your operating expenses, you can take what you have left over from your business earnings in that given month and break things out into percentages. Consider the following:
Emergency fund: 10%. Ideally, you want to have at least 6 months of business expenses available in this account to help weather a business decline
Profits: 10%. You should have plans to make distributions to yourself (and employees) as a bonus every year.
Estimated taxes: 30%. This way you are not overwhelmed with figuring out how to come up with funds to pay a large tax bill.
Reinvestment: 20%. Put this amount back into your business to put toward operating expenses, new projects, marketing, branding, and other business needs to keep your business growing.
Your salary: 30%. This percentage is just a guideline. Be sure to take into consideration how well your business is doing to determine when and how much to take as a salary.
Need assistance with setting up your company or with managing your monthly or yearly accounting, tax and bookkeeping? Contact us
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