In the excitement of starting a new business, business owners often put all their focus and energy on revenue generation and ensuring profitability for their company, and overlook the legal and compliance aspects.
There is, however, a long list of laws and tax that all businesses need to adhere to. This includes legal issues that owners deal with in the day-to-day running of their business, such as reviewing contracts to protect their business, handling supplier or contractor disputes, internet security breaches, product liability issues, employee theft, tax audits, employee confidentiality concerns, and threats of customer lawsuits.
The long list of laws and regulations that business owners need to comply with places a heavy administrative burden on new businesses. This has been shown to hinder the growth of SMEs in the country, the Small Business Project, shows that on average, small businesses in the country spend between four and six percent of turnover on compliance with regulatory demands.
Despite the challenges they face, it’s compulsory for business owners to meet all their legal requirements. The consequences of non-compliance with applicable laws include criminal charges, hefty fines, loss of opportunities and reputational damage, according to LexisNexis.
Below is an in depth guide to help business owners to meet all relevant legal and regulatory responsibilities.
The ownership structure you choose for your business is important as it determines the legal requirements for your businesses.
There are 5 currently legal entities that entrepreneurs can choose from, including:
Each of the various types of businesses has “varying degrees of responsibilities such as reporting, compliance, tax positions or exposure to liability in personal capacity”
Access the full guide: Entrepreneurs! Your Annual Legal Guide is Here
Compliance refers to the process of making sure that enterprises operate in conformity with the established laws, regulations, and legislation of that country. In South Africa all businesses are governed by the Companies Act, No 71 of 2008, and registered by the Companies and Intellectual Properties Commission (CIPC).
Running a compliant business not only keeps businesses out of trouble with the law and the tax man,it also opens up you to many opportunities. For example, shareholders, potential investors and funders will require that you have a compliant business if they are to consider your business for any funding or investment opportunities. This is also true if you plan to apply for any government tenders or supplier enterprise development programme.
The most common compliance requirements for new businesses include: registration with the CIPC; registration with the South African Revenue Service (SARS) for income tax, VAT, UIF, COID, PAYE. Your business also needs to be registered with the Department of Labour which is responsible for matters relating to employment, unemployment insurance and occupational health and safety.
Additional regulations and legislations that businesses need to adhere to are industry registration (depending on the industry that you operate in) and licensing and permits. There are also specific certifications that your business needs to operate depending on your industry or sector, the services or products you sell, your location and the type of business you are operating.
Find: The Top Company Registration Service Providers In South Africa
To fully comply with the law your business needs to be in possession of all the necessary business licences or permits or registrations required before trading in South Africa.
Certain businesses need a licence to operate in South Africa and may not begin trading before the licences have been issued, this includes businesses that make or sell perishable foods (restaurants, bakers, food manufacturers, accommodation establishments, etc.) health services providers (gyms, spas, etc.), and places that provide entertainment-related activities (gambling halls, nightclubs etc.).
Businesses in the food service sector have additional regulations they must adhere to such as health and safety permits, licences for the selling of liquor and tobacco as well as zoning permits to operate in certain locations.
Finally, it’s the business owners’ responsibility to find out what licences or permissions they require for their operations and to contact the appropriate government to apply for the required registration.
Access the full guide: Business Licences in South Africa
The three types of taxes that small businesses pay are turnover tax, employee taxes (PAYE, UIF and SDL) and VAT (value-added tax).
To ensure that taxes claimed and paid by your firm are correct, all businesses must maintain accurate financial records throughout each year of assessment such as bank statements, sales invoices, credit notes, suppliers invoices and payroll records.
Accurate record keeping not only improves your accuracy when submitting your tax returns but it can also help with forecasting should you need to issue a payment to SARS.
It’s important to note that records should not only be kept during the course of the tax year for filing purposes, but you are also required to keep these records.
SARS introduced turnover tax, which is a simplified tax system, to make it easier for micro businesses to meet their tax obligations. Only small businesses with a turnover of less than R1 million per annum can qualify for turnover tax. This system applies to:
This tax system works off the taxable turnover of a business. According to SARS, the turnover tax rate for micro-businesses is:
Turnover (R) Rate Of Tax (R)
0 – 335 000 0%
335 001 – 500 000 1% of each R1 above 335 000
500 001 – 750 000 1650 + 2% of the amount above 500 000
750 001 and above 6650 + 3% of the amount above 750 000
Companies that register with SARS stand to benefit in a number of ways, including being eligible for tax deductions.
Elize Giese, head of investments for FNB Business shares the following ideas that can help business owners to save on taxes.
Read the full article: Your Guide to Small Business Tax
It’s important that business owners educate themselves on tax compliance, including tax rates, rules, filing deadlines and penalties in their industries.
Businesses that expect to generate turnover that exceeds R1 million in a 12-month period need to register as a VAT vendor.
If your small business is required to or has chosen to, register for VAT, you will need to submit VAT returns and payments every four months. These returns are due on the last days of June, October, and February.
Small businesses that are registered as a VAT vendor are required to charge VAT on all of the goods and services they sell to their customers. Although, certain goods are zero-rated, or exempt from VAT. The VAT charge, or output tax, is 15% of your goods and services sale price.
Registering for VAT has an advantage, businesses are entitled to claim input tax on all of the goods or services rendered by the business.
To register for small business VAT, you will need to supply the following documents:
Access the full VAT guide: Small Business Vat Registration
A part of running a small business is ensuring that you comply with relevant employment laws and tax.
Below are the labour legislation and tax requirements that businesses must comply with:
Other payroll administrative tasks include managing monthly employee tax submissions (PAYE, UIF, tax certifications) and other annual reconciliations, as well as statutory deductions and generation of compliance reports.
To help business owners, an automated solution can calculate the complex formulas for the various statutory deductions and generate compliance reports.
Contracts are important in a business as they outline expectations for contracting parties and “provide a degree of protection should things not go according to plan”, explains attorney and CEO of Britain Renecke, Cézanne Britain in the article ‘Legal Advice for Handling Contracts‘.
Renecke continues, “a contract sets the ground rules for entrepreneurs doing business with others – and vice versa. A contract is clear in specifying the terms of engagement between the parties involved when it comes to what’s expected (the responsibilities and duties for each party), and it also sets out the consequences that may occur should your dealings (or relationship) go awry.”
Find: The Top Commercial Law Services Providers In South Africa
The types of contracts that entrepreneurs will typically enter into during the course of running their small and growing businesses include: shareholders’ agreements, letters of appointment and employment contracts, a lease agreement for business premises, insurance agreements and financial and service contracts.
Additionally, there are contracts that protect the business’s proprietary information such as non-disclosure or confidentiality agreements, as well as standard terms and conditions with suppliers or service providers.
Business owners are urged to make all agreements with third parties in writing, whether they are giving or receiving services or products, delivering a service or providing a service, or both.
Read more: Legal Advice For Handling Contracts
Businesses can protect their intellectual property by registering your patents, copyrights and trademarks with the Companies and Intellectual Property Commission. (/).
Read the full article: How to Protect Your Intellectual Property
There are three ways business owners can protect their intellectual property – copyright, patent or a trademark.
Patents and trade have to be registered with CIPC to take effect. Copyright is secured automatically with the creation of an original work.
Compliance with South Africa’s PoPIA (Protection of Personal Information Act) is a legal requirement for all businesses in South Africa. The legislation, which came into effect on 1 July 2021, requires all organisations to protect their customers’ data and privacy.
The Act requires that “personal information is kept safely by organisations who collect it, not sold to third parties, not lost and not used or held for longer than was originally necessary.”
Business owners that fail to comply with the act face potential business-crippling fines.
Businesses are required to comply with the Consumer Protection Act as a supplier and are offered protection as consumers. The Act aims to promote a fair, accessible and sustainable marketplace for consumer products and services and for that purpose to establish national norms and standards.
The Act affects all aspects relating to consumer protection and business practices relating to products and services, such as quality, fair pricing, dealing with returns and refunds, and complaints process and remedies.