Legal Factors To Consider When Starting A Business In South Africa

Aleshia van der Ploeg of VDP Legal states that there are various legalities that you will need to consider when starting your own business.

Below is a simple checklist of factors:

1. In which legal entity will you house your business?

Your business entity will depend very much on the nature and size of your business and should suit your specific needs. You will need to choose between:

– A sole proprietorship.
– A partnership.
– A company.
– Note that new close corporations (CC’s) may no longer be created in South Africa.

Depending on which legal entity you choose, and should you have a business partner, you may also need to consider if you will need an agreement to regulate your business relationship. A partnership agreement, for instance, sets out the framework for each partner’s obligations and settling the conflicts, disagreements and other difficult-to-resolve issues that naturally occur in nearly every business relationship.

A shareholders agreement is a private document between the shareholders of the company and generally not publicly available. A shareholders agreement may therefore still be highly relevant where shareholders wish to regulate certain matters of the company on a private basis. Such matters may include for example arrangements regarding the buying and selling of shares, valuation of share price, etc.

2. Other agreements relevant to your business

In order to run your business effectively, you may need to consider putting certain agreements in place such as:

  • Service level agreements (mostly applicable in the IT industry): this is a useful tool to manage the relationship and performance of a service provider.
  • Supply agreements: if your suppliers’ performance fails and negatively impacts your business, it is important that you can rely on the provisions of an enforceable written contract to remedy their breach.
  • Lease agreements: this agreement regulates the terms and conditions between a lessee and lessor, for the lessee to rent a commercial property.
  • Non-disclosure agreements: if confidentiality is required, such an agreement is advisable prior to entering into the main agreement.
  • Joint venture agreements: where two or more businesses agree to work together for a single business transaction, this agreement will regulate and set out obligations and duties of the parties.

3.  Labour laws 

As soon as you start to employ people, you will need to consider the relevant labour laws applicable to your business. It is advisable to have certain company policies and procedures in place – policies and procedures establish the rules of conduct within a business, outlining the responsibilities of both employees and employers.

You may also want to consider concluding formal employment contracts with your employees in order to minimise disputes. In certain cases, a Restraint of trade agreement may be advisable. This is an agreement between an employer and an employee, or a provision in an employment contract that restricts an employee from entering into employment with a competitor of the employer, or establishing a business in competition with the employer, for a specified period in a specified geographical area, following termination of employment.

4. Statutory and regulatory requirements 

You may need to register for income tax, PAYE, UIF, VAT, Skills Development Levy (SDL) and Workmen’s compensation. Your accountant or auditor should advise you in this regard. Businesses with annual taxable turnover of more than R1,000,000 must register for VAT. According to the Unemployment Insurance Act and the Unemployment Insurance Contributions Act, all employees working more than 24 hours per month must be registered with the UIF. The employer is liable for the registration of the employees.

Generally speaking, if your total annual salary bill for the company exceeds R250,000 then you need to register for SDL and pay the levy each month. According to the Compensation for Occupational Injuries and Diseases Act 130/1993 amended in 1997, the employer is responsible for registering employees with the Compensation Fund. Every company that employs one or more persons must register with this fund.

Certain types of businesses will require a permit or licence to operate. Examples include food, liquor, gambling and erotic businesses.

VDP LEGAL
+27836565823
aleshia@vdplegal.co.za
www.vdplegal.co.za