When you start a new business, you have to register your company. During the registration process, you need to state what kind of company your business is. Your business can be a public company, a cooperative, or a private company. Private companies are some of the most common and popular companies in South Africa.
A private company is a type of company structure. A business structure outlines the legal structure of the company. It also influences the day-to-day operations of the business.
As a new business owner, it’s important to know what this type of business is, as well as what the tax benefits and business structures are.
In this article, we look at what a private company is and what it means to register your business as a private company.
What is a Private Company?
A private company is a type of business that is a separate legal entity from its shareholders and directors. Previously in South Africa, these companies were known as close corporations. Such an institution is easily identified by the Pty Ltd at the end of the company name.
Some examples of these entities include:
- Happy Pay
- African Rainbow Capital
- Transnet
- Airlink
Advantages and Disadvantages of a Private Company
Like any other type of company, there are advantages and disadvantages. Some of the key advantages of a private company:
- Limited personal liability of company directors for company debts.
- Provides a positive and professional image to the business for customers and potential investors.
- Has various tax benefits.
- Seamless transfer of ownership when needed.
- Easy to raise capital by issuing new shares, taking out loans or issuing bonds.
- The company typically runs uninterrupted even if there is a change in shareholders.
While the benefits of a private company are many, it also has its own disadvantages. Some of the disadvantages include:
- They are subject to many disadvantages.
- They require at least one director.
- These businesses cannot offer shares to the public and cannot be listed on the stock exchange.
- A minimum of two shareholders are needed for a meeting, except if the private company is a one-person company.
- They must have their annual statements audited with some exceptions outlined in the Companies Act.
Regulatory and Legal Requirements for Registering a Private Company
Like any other type of company, you need to register a private company. All types of companies in South Africa are registered with the Companies and Intellectual Property Commission (CIPC).
When registering with the CIPC, you need to register the following:
- Name reservation.
- Draft of the company’s memorandum of incorporation (MOI).
Additionally, you will need to submit all necessary documents to the CIPC. Documents include:
- Name reservation confirmation letter.
- Signed COR 15.1A form.
- Certified copy of your South African ID.
- Completed Power of Attorney form (if you are acting as a representative or proxy).
Ownership Structure for a Pty Ltd
Private companies are required to have at least one director and one incorporator. The director and incorporator can be the same person. In private companies, the word ‘person’ includes a juristic entity so, a legal entity or a trust can be the incorporator of a new company.
Another structure shows that most of them are owner-managed and typically have a small number of directors.
All businesses that fall under this category must have a Memorandum of Incorporation (MOI). The MOI sets out the rules which have been agreed upon by the shareholders for the management and maintenance.
Private companies may be registered with a standard or customised MOI. Standard MOIs are provided by law and are integrated into the company registration process.
A custom MOI allows the shareholders of a private company to impose certain conditions or waive certain requirements such as an audit requirement. In this case, the custom MOI must be attached to the application and may require the assistance of a legally qualified person or anyone with company secretarial knowledge.
The MOI is also the outline for a private company’s authorised share capital. This refers to the number of shares authorised. The share number is set during the registration process and is seen on the incorporation certificate which is available from the CIPC.
Tax Obligations and Laws for Private Companies
In South Africa, each kind of company has certain tax laws which are relevant to it. For private companies, the relevant tax laws include:
Corporate Tax
Private companies are required to pay Corporate Income Tax on their profits twice a year.
PAYE, UIF and SDL
If you choose to open a business that falls under this category, you must register for employee tax with the South African Revenue Services (SARS). This includes the Unemployment Insurance Fund (UIF), Pay-as-you-earn (PAYE) and Skills Development Levy (SDL).
VAT
Private companies with a turnover of more than R 1 million in any consecutive 12-month period must register for VAT. Businesses with a turnover of more than R 50 000 in the past 12-month period may choose to register voluntarily.
These are some of the factors which make up a private company. If you are looking to start a new company, a private company might be the best for you. Additionally, if you are looking to start a business which you can pass down to your children, private companies are the way to go.
