Business in South Africa

Types of business structures

Business in South Africa

The Companies Act introduced some changes in the accepted company structures. As of 2008 Closed Corporations can no longer be founded.

The Companies Act 2008 specifies the following business structures:

Sole Proprietor - this is the simplest business structure and the easiest to set up. A sole proprietor (sole trader) trades under their own name, so to get the company going you simply must inform the tax authorities of the source of extra income.

There is no separation between the proprietor’s own assets and liabilities and those of the company, and any change in the company’s assets affects the personal accounts of the sole proprietor. They also hold all responsibility for any possible business debts.

A sole proprietor can’t have partners, only employees. If a sole trader chooses to operate under a trade name or a they are required to file a “trade name certificate” in the city or province where their company is located.

Private company (Pty) Limited - this structure is founded and managed by just one director. It is a separate legal entity and must be registered as a separate tax entity. A private company is owned by shareholders. It should be stated in the name of the company that it is “Proprietary”(Pty) or “Limited” (Ltd).

Personal Liability Companies (Inc.) - these structures can be held jointly by both current and previous directors. They are also held responsible for all possible liabilities that occurred during their time at the position. This entity is mostly used for companies of doctors, lawyers or accountants.

Public Companies (Ltd.) - these companies issue shares and are often listed on a stock exchanges. They are managed by a Board of Directors. Public companies are responsible to shareholders.

Non-profit companies (NPC) - they are created to serve a public benefit purpose. The income of these companies can not be distributed to its founders, members, directors etc., except for reasonable compensation for their services.

The name of a the company must end with “NPC”. At least three founders must complete and sign the Memorandum of Incorporation (MOI). The company must have a minimum of three directors. A slightly different Companies Act applies to non-profit companies.

All of the assets and income of a NPC should be used to support and finance its stated objectives, as set out in its (MOI).

State Owned Companies (SOC) - these companies are owned either by the State or by a municipality. Most of the arrangements for settling a public company apply to state owned companies.

Foreign and External Companies - these are companies that started outside of South Africa. These companies are generally not allowed to offer securities to the South African public. This is possible only if the company follows specific outlines from the Companies Act.

Further reading

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Other comments

  • Bonganiarthur, 10 April 2012 Reply

    Not accurate

    Please read the Companies Act of 2008, section 8 and section 23 to get a better understanding of the various categories of companies.