Starting up a business and the law are closely linked. There are many types of business and they all have specific rules in terms of the law. This section provides a simplified overview of the types of business and links to getting them registered with legal bodies.

1. WHAT ARE THE LEGAL MATTERS AFFECTING A NEW BUSINESS?
2. IS YOUR BUSINESS LEGALLY REGISTERED?
3. TAX AND LEGAL LINKS FOR SOLE TRADERS

There are 4 main legal areas to cover when starting your new business:

1. The type of business you will register.

There are a range of different business types including a close corporation or 'CC', a company, a co-operative etc. It is important to find out which business type is going to be most effective for your business.

2. The role of the Department of Labour in any business.

There are certain laws regulating the hiring, management and dismissal of workers. It is important to know the law, be aware of your rights as an employer, as well as the rights of the people you employ.

3. Tax and the South African Revenue Service

Any new business must register for tax purposes in terms of VAT, employees tax and income tax.

4. Trading Licenses

Business that:

• sell meat and perishable foods from business premises
• sell take-ways and perishable foods from the roadside
• operate certain classes of health facilities and entertainment businesses for example: discos and movies

are required to get special Trading Licenses.

When you start a business you need to know what your legal duties and responsibilities are. Every stage in the formation of your new business has different legal requirements. This section provides an overview of different business structures and their corresponding legal requirements.

There are many links on this page to official forms and useful guides.

Business Structure

The type of structure you decide on will define the rules of how your business can be run, how you are taxed and which bodies you need to alert that you are in business. The key to this tricky part is to determine which business type is the appropriate one for your start up needs. You can change the structure later once your business is growing and your needs change. To make the decision on what business type suits you, professional advice from a RED Door manager is essential. With RED Door you can discuss your options; once you make your choice you will add this to your business plan and go to the next step.

What structure suits your start-up needs? There are different advantages to each type of business, so consider them carefully.

These are the different types of businesses:

• Sole Proprietor or Sole Trader
• Partnership
• Close Corporation
• Company
• Non Profit Organisation (NPO)
• Co-operative

• What is a Sole Proprietor or Sole Trader?
• How do I get legally recognised to be a Sole Trader?

What Is a Sole Proprietor or Sole Trader?

• This kind of business is easy to set up.
• It is a good business type for a small business where the owner is the main person doing all the work for the business - You make all the business decisions.
• You can create a legal structure with minimal fuss and the operation of the business is completely in your control.
• You are personally and totally responsible for all the debts and liabilities of the business. All loans taken out for this type of business will be taken out in your name as the owner; therefore you stand to lose everything, including your house, if the business fails.
• It is easy to change this simple business structure later to a different business type, for example, you can change your sole proprietorship to a private company as it grows bigger.
• You generally pay higher tax on profits than a registered company.
• You can decided how to use the profits of the business.
• For some people it is a major advantage to have complete control of the business - You need to assess whether this outweighs any disadvantages for your business.

How Do I Get Legally Recognised To Be a Sole Trader?

To be a legal Sole Trader, you will need to register using forms (some are conveniently online!) to get the services of the following official bodies:

• The South African Revenue Service ( SARS) for tax matters
• Department of Labour for staff matters
• A local Municipality for matters about the business premises
• The Companies and Intellectual Property Registration Office of South Africa(CIPRO) for business name registration, trademark registration and other intellectual property matters.

SARS handles all tax related matters. The SARS 2004 Tax Guide for Small Business gives an overview of the registration processes for a sole proprietor. You will have to register for different things depending on your business, for example if you have employees you will have to complete the Employees Tax form.

As soon as you start a business, you must register your business with your local SARS branch office in order to get an income tax reference number. Depending on other factors such as turnover, payroll amounts, whether you are involved in imports and exports, you might also have to register for other taxes and duties such as VAT, PAYE, Customs and Excise and Skills Development Levy.

You can download the SARS 2004 Tax Guide for Small Business from the SARS website.

The Department of Labour controls:

• Unemployment Insurance Fund
• Compensation for Occupational Injuries and Diseases Act (previously Workmen's Compensation)
• Bargaining Councils.

It is a good idea to read through the Labour Relations Act to get an idea of the labour framework that government has set up.

Your local municipality controls your RSC levies.

CIPRO is an independent body which monitors the registration of business names so that there are as few disputes as possible.

• This is when two or more people decide to carry out a business together; all partners hold equal responsibility for debts that are made.
• The business is easy to set up and subject to minimal laws/regulations.
• The responsibility is shared.
• It is advisable to consult a business lawyer to draw up a written partnership agreement. (This contract is the only need to set up a partnership and can be done without a lawyer - but partners might frequently disagree, so a written AND legally considered agreement is best.)
• A partnership agreement should deal with the following issues:
  - Formation
  - Profit sharing arrangements
  - Salaries
  - Banking arrangements
  - Changes of partners
  - Liquidation
  - Responsibilities of partners

  There is a big advantage in a partnership where experience, finances and expertise are joined together.

  This can allow you to:

  • Get new skills
  • Get new money or capital put into the business
  • Get you help to manage the business if it is growing too big for just you
  • Open a new opportunity for you to manage a business if you were not in that position previously

• A partnership is not allowed more than 20 partners, except in specific instances.
• All partners have to include all income from the partnership in their personal tax returns.

• What is a Close Corporation or a 'CC'?
• How do I get legally recognised as a Close Corporation?

What is a Close Corporation or a "CC"?

• A Close Corporation needs a founding statement to be created.
• It can have a maximum of 10 members who will own and manage it.
• The owners are not personally responsible for the debts.
• It is easy and relatively inexpensive to register compared to registering a company.
• There must be a clear directive for a CC to make money.
• The business has growth potential.
• This type of business is more credible for dealing with suppliers and customers.
• A Close Corporation is a legal entity on its own.
• A Company cannot become a member of a CC, only natural people.
• A Close Corporation is governed by the Close Corporations Act, 69 of 1984.
• Dividends can only be paid if the Close Corporation is both liquid and solvent - only if the assets are MORE than the liabilities, and there is still capacity to pay any due debts.

How Do I Get My Business Legally Recognised as a Close Corporation?

• The Close Corporations Act, 69 of 1984, governs a Close Corporation.
• The CIPRO step by step guide will take you through the registration process.

• What is a public company? And what is a private company?
• What Is Involved in Forming a Public or Private Company?

What is a public company ?

• Shares are offered to the public.
• The word "Limited" appears at the end of the company's name.
• This company is required by law to make certain information known to the public.
• This type of business is normally needs a lot of capital to get started.
• There is a minimum of two directors.

What is a private company?

• With a private company, shares are not offered to the public.
• There is a maximum of 50 and a minimum of 1 shareholder.
• There are some restrictions on the transfer of shares.
• The words "(Proprietary) Limited" or "(Pty) Ltd" will appear at the end of the company's name.
• It does not have to make financial information available to the public.
• There is a minimum of one director.

What Is Involved in Forming a Company?

• Creating a company is a long, complicated, expensive process.
• Double taxation takes place. The company is taxed on profits and dividends taxed in hands of shareholder.
• The owners are not held responsible for the debts of the enterprise.
• Find a step-by-step registration process here on the Cipro website, and be sure to consult a lawyer or attorney to assist with this process.

• What is a Section 21 Company or NPO?
• What Businesses Are Best Suited To Be Registered as Non Profit Organisations?
• How Do I Register My NPO?

What is a Section 21 Company or NPO?

A Nonprofit Organisation is defined as a trust, company or other association of people that is established for a public purpose, and whose income and property is not distributable to its members except as reasonable compensation for services rendered.

NGOs can include voluntary, community, religious and charity organisations. Generally they provide services to various communities, for example: children's feeding schemes, organisations that take care of AIDS orphans, religious organisations. Whatever profit is made after paying operating expenses is used to expand the services of the organisation. These "Companies Not for Gain" are often funded by donations and foreign funding. NGOs are also referred to as "Associations Incorporated under Section 21" as it is Section 21 of the Companies Act which governs this type of structure.

What Businesses Are Best Suited To Be Registered as Non Profit Organisations?

If you have an organisation which intends to promote social development, art, sciences, education, charity, religion, and recreation or any other cultural or social activity or communal group interests then this is the best business format for you.

How Do I Register My NPO?

For a step by step guide on how to register an NGO, click here.

• Co-operate means working together to reach a common goal.
• A co-operative is thus a business that has a purpose in reaching a common goal, be it, to build houses, or grow vegetables for the export market. It has an unconventional method of raising and sharing monies.
• A co-operative operates on seven important principles.

Information to guide you on starting up a co-operative is available here.

• SARS
• Trading Licences
• Business Name
• Regional Services Council (RSC) Levies
• Unemployment Insurance Fund (UIF)
• Occupational Health Registration
• Registration for of a Bargaining Council (BC)
• Trade Mark, Copyright, Patents & Designs

SARS

The South African Revenue Service (SARS) has a easy-to-use website with all relevant forms and guides. As a sole trader you will probably need to complete the provisional tax registration form, a VAT registration form, an employees tax form as well as the income tax registration form

Trading Licences

Some types of business, for example those selling food, or running health or entertainment facilities, need a special trading license before they are legal. The process of registering your business is described here.This publication provides more detail on Trading Licences.

Business Name

When you give your business a name, you need to register the name according to the registration rules. A Sole Trader does not have to register the name but for future use, and to protect your business name, it is worth doing it because then you know the name is exclusively yours. The first place to start is to check that the name of the business is not already in use by another business.

Get all the information about this rewarding process here. A quick link to the name search is here.

Regional Services Council (RSC) Levies

These are levies (costs) charged to your business based on how much income your business makes and the number of staff you employ and their wages.

For more information and municipal contact details, click here.

Unemployment Insurance Fund (UIF)

If you have employees, you are required to make UIF contributions on their behalf. These contributions are partly deducted from the employees' salaries and are partly paid by the employer. Find a summary here on UIF from the perspective of an employer or jump straight to the form where you can register as a commercial employer.

There are special rules protecting domestic workers so they do not fall under the protection of this general UIF. For more about domestic workers and UIF as well as other UIF information, click here.

Occupational Health Registration

Employees and employers are allowed insurance if they are injured in the workplace (in certain circumstances) through the government programme to protect workers and employers in the workplace. Click here, to read more about this.

Registration of a Bargaining Council (BC)

Trade unions and employers' organisations can form bargaining councils. Bargaining councils deal with collective agreements and solve labour disputes, establish various schemes (funds) and can even make proposals on labour policies and laws. To register click for here the form, or read here for more information.

Trade Mark, Copyright, Patents & Designs

Trademarks, copyright, patents, models and designs are all forms of intellectual property. Intellectual property can be any idea, invention or design that is yours originally and officially. That is why it is important to get you idea or invention protected by the special area of law dealing with this. It is called Intellectual Property Law. The law provides usage and control rights to the idea so you can develop it without a competitor coming along and stealing it before you have achieved what you need to with it.

There is information here to help you make sure you protect your copyright, patents and designs.