What are the Legal Requirements to Start a Business in South Africa?
Are you looking into starting a new business in South Africa? New business ventures require entrepreneurs to comply with certain legal obligations of running a small business. Depending on the type of business, there are certain financial regulations, tax obligations and other employment laws to be aware of.
To help, we have put together a guide with eight tips to follow for startups. You’ll be able to make sure your new business is complying with the relevant legal responsibilities so you can focus on what matters most.
In this article, we’ll cover:
Legal Requirements To Start a Business in South Africa
You might have the best business idea, but in order to get your startup off the ground you’re going to have to comply with certain legal requirements. Here is everything that you need to know for starting and operating a new business in South Africa.
Choosing a Business Structure
This is going to be one of the first things you decide on and in South Africa, the type of business structure will depend on the type of business. In this case, there are three different options available to you as an entrepreneur.
- A sole proprietor - This is one of the most simple business structures to start and it’s commonly referred to as a sole trader. It can be the perfect option if you’re going to be the only person running your business and you want to trade as yourself. However, there can be some risks since there’s no legal separation between you and the business.
- A partnership - Do you have a friend or a colleague that you wanted to go into business with? If you do, a partnership can be a great business structure to choose. It can also be a partnership with more than one other person, as long as everyone contributes to the business operations. It just requires you to outline certain terms and financial details with a partnership agreement.
- A company - A company business structure means that the business will have separate liability from you as the owner or operator. Depending on the type of business you conduct this can be a good option to choose. It protects from losing personal assets should the business run into some kind of financial trouble down the road.
Registering Your Business Name
After you decide on a business structure, the next step is to register your business name. Try and choose a name that reflects your brand and make sure that it isn’t already being used by another business.
In South Africa, there are a few different ways to register a business name. The first way is by registering online on the Companies and Intellectual Property Commission (CIPC) website. As well, you can register through a bank if that’s easier, which includes the First National Bank and Nedbank.
Registering for Statutory Requirements
There are some certain statutory requirements you’ll need to follow when you first start operating your business.
The CIPC is an agency in South Africa that’s part of the Department of Trade and Industry. Its general purpose is to assist businesses with registration and any intellectual property rights. These can range from designs, copyright, patents and trademarks.
Regardless of business size, you also need to register with the South African Revenue Service (SARS). This ensures your business meets certain statutory and regulatory requirements. If you’re a company structure, your business automatically gets registered with SARS when you register your business name with CIPC.
Registering with SARS also provides you with an income tax reference number and it’s mandatory within 60 days of starting your business. As well, if your turnover is, or is expected to be, more than R1 million per year then you must register for Value Added Tax (VAT). You can also do this online on the SARS website by submitting form VAT101.
Understanding Tax and Legal Requirements
Operating a business comes with a lot of responsibility, especially if you have employees who work for you. You must register for Pay As You Earn (PAYE) if any employees earn over R40 000 per year. As well, you will need to obtain a Skills Development Levy (SDL) if your payroll exceeds R500 000 annually.
Make sure that you check the SARS website for a full breakdown of the necessary tax and legal requirements for your business. It ensures you don’t receive any fines or other consequences in the future for not doing it properly. This way, you can focus on operating and growing your business.
Protecting Your Business with Insurance
This can often get overlooked by first time business owners, but protecting yourself with business insurance can be very important. Look into getting insurance that covers basic things such as natural disasters, theft and fire. Also, make sure that the policy includes legal liability.
Business insurance helps protect you in case someone sues you or your business. Take a look into some policies that also cover both product liability and public liability as this can protect you even more.
Opening a Business Bank Account
Most businesses are required to open a business bank account in South Africa. However, before you do make sure to check with your bank ahead of time to know exactly which documents they will need from you. In most cases, you can expect to need the following:
- Valid ID for the business owner and anyone else that will be a signatory on the account
- Proof of address for the business, which can be a utility bill, or in the case of a sole proprietor, the owner’s address
- Three months of business statements are often required
- Proof of CIPC registration
Consult with a Professional
To get even more assistance when starting your business it can be helpful to consult with a professional to ensure you know the relevant legal responsibilities. Consider scheduling meetings to discuss details with an accountant or a lawyer.
This way, you can ask any questions and make sure that you’re covered both financially and legally. It will help make sure you’re not caught off guard in the future with any unexpected situations you weren’t prepared for.
A business professional has the experience to be able to offer input, guidance and strategic insights, which can also be helpful.
Do You Have to Register Your Business?
All businesses in South Africa are required to register with SARS and get an income tax reference number within 60 days of starting operations. There can be fines and other penalties for businesses that don’t register with SARS.
Make sure that you follow all the necessary rules so your business doesn’t run into trouble and you can focus on operations.
Starting a new business is an exciting time and you might have had a great idea for years. You could be starting as a sole trader or going into business with a friend as a partnership. But regardless of the type of business you do or the structure you choose, there are certain requirements to know about.
Use the eight tips outlined in this guide to ensure your business gets off to a good start and you have all the relevant information you need. You’ll be much more aware of the certain tax requirements and statutory requirements outlined by CIPC and SARS.
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