Legal aspects of starting a small business in South Africa
Entrepreneurship, now more than ever, is seen as a huge potential to addressing poverty and unemployment in our country. Ranked as one of the leading entrepreneurial nations in Africa, South Africa has a rich heritage in small business innovation. Government, tertiary institutions and the private sector are developing stronger programmes to support the development of small businesses and entrepreneurs.
With this positive growth and support in the sector, many people may consider starting their own business. While funding is, of course, a primary consideration, as important is an understanding of compliance and legal requirements of managing your small business.
Research, plan ahead and carefully vet your service providers, as falling behind or not complying with legal and statutory regulation can quickly sink a business. Here are the key legal aspects you need to be aware of as a small businesses owner.
All businesses need to be registered with The Companies and Intellectual Property Commission (CIPC). The CIPC is an agency of the Department of Trade and Industry in South Africa, assisting with the registration of companies and intellectual property rights (trademarks, patents, designs and copyright).
The type of business you choose will depend on the structure of your business. These are the options:
Sole Proprietor - a simple structure, also referred to as a sole trader, suitable where you are the only person in your business, trading as yourself.
Partnership - is where you are operating the business with between two and twenty partners, with each contributing to the business - the terms of which can be agreed between the partners, whether they be financial or otherwise.
Company or Pty LTD - where a legal entity is created with a separate liability from he owner/s. This is a popular option because the debts of a company generally belong to the company, and the owners are not at risk of losing their personal assets should the company run into financial trouble.
All Pty LTD’s need to be registered with The Companies and Intellectual Property Commission (CIPC). The CIPC is an agency of the Department of Trade and Industry in South Africa, assisting with the registration of companies and intellectual property rights (trademarks, patents, designs and copyright).
Legal advice should be sought before you elect the type of entity as each one has pros and cons and different legal requirements.
Protecting your Intellectual Property (IP)
Trademarks, Patents, Designs and Copyright form part of your company’s IP. These are administered by the CIPC. IP can be quite broad spanning any of your original ideas, inventions or artistic creations, so it’s best to discuss this with us as part of your registration process.
It’s best to speak to your tax practitioner about the requirements for registering your business with SARS as well as other regulatory and statutory requirements. You need to register your business with the South African Revenue Services (SARS) regardless of its size. In the case of a Company or Pty Ltd, your business is automatically registered with SARS when registered with the CIPC. A guide to the different tax compliance regulations can be found here.
For your employees
If you’re going to be employing full time staff, these are the basic tax and legal requirements:
The Department of Labour requires that your employees are registered in compliance with the Compensation for Occupational Injuries and Diseases Act (COIDA) to safeguard their health and safety rights while at work.
Unemployment Insurance Fund (UIF) benefits covers staff when they are on maternity leave or off work due to prolonged illness. You can register free via uFiling.
Pay As You Earn (PAYE) is required for staff members earning over R40 000 annually.
A Skills Development Levy (SDL) is required if your annual payroll exceeds R500 000.
Speak to your local Council
There may be municipal by-laws in the area where your business will operate affecting how your business operates. Regulation differs dependant on the type of business you’re starting, for example there may be noise, hygiene, operational or trading related legal considerations that are important to be aware of during the planning stages of your business.
It can seem as if there is quite a bit of admin related to getting your business off the ground, but once you know what is required, and have systems in place to manage all the legal and compliance aspects, it’s fairly straightforward to manage.
If you’re thinking of starting a business and need guidance on any of these points, you’re welcome to contact us.