Since 1 May 2011, the Companies and Intellectual Property Registration Office (CIPRO) ceased to exist and was replaced by the Companies and Intellectual Property Commission (CIPC). The New Companies Act came into being at the same time, changing the way business owners register a company.
The Act stipulates that no new close corporations (CC) can be registered, but those registered prior to 1 May can continue to operate as CCs.
South Africa is alive and buzzing with entrepreneurs, possibly because the country’s high unemployment rate is spurring individuals on to start their own businesses.
But going into business blindly can be daunting. Not knowing the necessary procedures and rules of engagement can get problematic and, even more importantly, cost a bit more than a few initial lessons.
Jackie shares some of the most common facts a start-up must know and the questions you should be asking if you intend to start your own business.
Company registration guarantees several legal benefits, one of which is asset protection.
For example, keeping personal assets safe in case of a lawsuit against your company.
“If a company is legally registered, others can’t claim your business name as their own, which is not the case if unregistered”.
Also, registration gives customers an extra reason to put their trust in you.
Registration signals that you take your business seriously. And no one wants to transact with a shady business.
Another benefit is that funding is more easily acquired by registered businesses.
Banks do not give business loans to unregistered companies, as the risks are too high for them.
Similarly, investors will only put money into a business which they feel has great potential.
Not being registered will likely count against you.
Do I have to register for VAT? When do I need to register for VAT?
It isn’t necessary to register for VAT right away. In fact, VAT registration is voluntary if income for a 12-month period exceeds (or is estimated to exceed) R50,000. However, VAT registration is compulsory if income for a 12-month period exceeds (or is estimated to exceed) R1 million.
Should I employ people to work for me and put them on my payroll, or is it smarter to hire contractors?
The answer to this question depends on the employer: in both cases, it will be an expense on your income statement. Think about long term needs for the firm, but there are advantages to either option. If you opt to employ people, these employees are more likely to be loyal to your firm and will generally stay long term. Also, employment builds company and industry knowledge.
With contractors, however, no PAYE submissions to SARS are necessary and you are not liable for workman’s compensation; contractors are helpful in the short term; and contractors allow for savings during slower seasons.
Why must my company have its own bank account?
This is a SARS requirement. A company bank account ensures separation of business and personal transactions for ‘cleaner’ bookkeeping. Moreover, this is a SARS requirement.
What is the best way to keep my bookkeeping up to date and in tow? Do I really need to buy a software package?
Most accountants recommend using accounting software to record transactions and financial position. However, it is not truly necessary if the business is small with only a few transactions per month. “I suggest, therefore, if you really need to save money, use Excel, but there are also some inexpensive options for software out there which come with great time-saving benefits”.
Please note that all companies are required by law to keep their books and maintain records for 7 years.
What tax will I have to pay?
SARS has developed a special tax incentive system which you can apply for a special tax ruling specifically for small businesses where the following tax rate applies for the current tax year ending 2021:
|Taxable income (R)||Rate of tax (R)|
|1 – 83 100||0% of taxable income|
|83 101 – 365 000||7% of taxable income above 83 100|
|365 001 – 550 000||19 733 + 21% of taxable income above 365 000|
|550 001 and above||58 583 + 28% of the amount above 550 000|
It is however vitally important to know that upon registering your company with CIPC your NEW company will automatically be registered for income tax and that your company will have it’s own separate tax number which is separate to your personal tax number.
It is also therefore important to note that once your company has been registered you will no longer require to submit your income tax return via a ITR12 form and provisional tax return on your personal name (if you were trading as a sole proprietor previously to registering with CIPC).
Companies submit their tax on a ITR14 form to SARS.
What tax returns will I need to submit?
- SARS Annual ITR14 submission: Only necessary for companies and CCs, submitted to CIPC;
- PAYE, UIF & SDL: Only if workers are employees of the business, by means of a EMP201 form;
- Provisional tax: Twice a year, after six months and at year-end (advance payment towards yearly income tax);
- VAT: Either by oneself or a professional service provider such as an accountant, by means of a VAT201 form;
Companies are required to compile financial statements annually, these are used to submit your annual return to CIPC.
Other benefits of financial statements:
- Banks and other institutions use your companies financial statements to view your companies performance when apply for a loan of any form such as vehicle finance, credit cards, bank overdraft etc.
- Because financial statements help you to see a snapshot of your company’s financial position, they are decision-making tools. Financial statements show business trends, the rate at which you are collecting receivables, the rate at which you are paying creditors and any cash flow problems.
- You need financial statements to calculate your quarterly state and federal tax obligations.
Financial Institutions are more likely to give out loans to a registered company then a sole proprietor – UNSPOKEN TRUTH!!!
I, Jackie, have had numerous sole proprietor clients come to me trying to apply for a loan at the bank and more often then not, the banks refuse to give sole proprietors or ‘self-employed’ (as they call it) individuals any credit and it does not matter if you have been trading for 20 years already and have R100,000.00 in your bank account, they don’t care, the answer is almost always the same ‘you must be registered’.
If I’m looking for capital, what sort of finance should I apply for?
The answer to this depends on the financial position of your company. For example, you might consider debt finance, which is cheaper, but riskier. Taking on more debt increases the gearing (debt-to-equity ratio) of your company. Companies might struggle to receive future debt finance if they are already highly geared. Also, you must consider that risk stays with business to repay the loan or bond should the business fail. On this flip side, the advantage is ownership retention.
What is workmen’s compensation and must I comply?
Workmen’s compensation is to be paid by employers for each employee (not applicable to contract workers). It is insurance against occupational injury, diseases or even death. As such, all employers need to comply for their employees to make claims in the unfortunate event of injury, disease or death.
This can be done online, once a year. However, be aware that there are a few exclusions on type of employees who qualify.