Compliance for start ups

‍Starting out

It’s a new day and with it comes a new idea. Don’ you love those?

Start a business.

Working on the business plan, you get a sense of accomplishment, joy, and exhilaration. It’s all happening.

You have the idea, you have the will, and you are rearing to go… But wait, it feels like you’re missing something. It can’t be as simple as that, can it?

In short, no.

While the idea (the IP) is the cornerstone of your business plan, there’s a little more that goes into starting a new business.

And it starts with….

Selecting your business structure

In South Africa we have three types of business structures –

1. The sole proprietorship – this is the simplest form of business structures in South Africa. It’s also referred to as a sole trader. This involves a person undertaking a job, such as writing content, for another person. No one else is involved. There’s no need to create a formal business structure or select a formal company name. It’s just a person operating as such, in their own name, and getting paid for their services and/or product. The person is the business, and no new entity is established. However, the one downfall here is that there is no separation between the person and the business, which could mean that if things go awry, creditors can recover debt from items and assets that belong to the sole proprietor.  
2. The partnership – just as it sounds – 2 or more people coming together and contractually agreeing to operate a business together. Profits are split as agreed and in proportion to their interests. When forming the partnership, each partner contributes to the partnership. Just like the sole proprietor, there’s no separation between the partnership and the partners, meaning that creditors can recover debt from the partners themselves.
3. The company – one of the more popular selections for start-ups. The company is a separate legal entity to the shareholders (or owners) of the company which, in turn, means that creditors would not be able to recover debts from the shareholders themselves. The company will be made up of one or more shareholders (as owners) and one or more directors (as managers of the business). Shareholders and directors can be the same people. A company must be registered with the Companies and Intellectual Property Commission (CIPC) are registered with the CIPC. Importantly, each year an annual return must be submitted to CIPC in order to verify that the company is still trading. It’s also important to remember that under The Companies Act 71 of 2008 at Section 8, there are two types of companies – namely profit companies and non-profit companies. Section 8(2) sets out that a profit company is— 

“(a) a state-owned company; or (b) a private company if— (i) it is not a state-owned company; and (ii) its Memorandum of Incorporation— (aa) prohibits it from offering any of its securities to the public; and (bb) restricts the transferability of its securities; (c) a personal liability company if— (i) it meets the criteria for a private company; and (ii) its Memorandum of Incorporation states that it is a personal liability company; or (d) a public company, in any other case”.

Register your Business with CIPC

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.

For sole proprietors and informal traders, it’s not necessary to register with CIPC. But it is mandatory for companies.

Once you have selected your business structure, it’s time to get a little creative. You need to select your business name. There should be two criteria here –

1. Choose a name that accurately reflects your business, the idea, and the culture, and
2. Make sure that the name is not already registered by another business.

You can check business names and register your business name on bizportal.

You will need to register your business, its name, address, and director details by completing the necessary registration forms, and paying the registration fee. This can all be done on the CIPC website.

It’s easy, just follow the steps.

Register your Business with SARS

Regardless of the size of your business, you also need to register with the South African Revenue Service (SARS). In fact, it doesn’t matter if you are a sole proprietor, a partnership, or a company, you need to pay tax on your earnings. Sole proprietors and partners will need to register as provisional taxpayers. This ensures that your business meets certain statutory and regulatory requirements.

As an aside, if you registered a company with CIPC, you will automatically be registered as a taxpayer with SARS. You will then be required to register within 60 days of starting a business for an income tax reference number by completing a IT77 form, at any SARS office or alternatively online.

If you expect your business to have a turnover of more than R1 million per annum, you will also need to register as a VAT vendor. You can also do this online on the SARS website by submitting form VAT101.

Register your Business for PAYE and SDL

If you intend on hiring employees, especially those who earn more than R40 000 per annum, you will need to register your business for Pay as You Earn (PAYE) tax. In addition, if your payroll is more than R500, 000 a month, you will have to register for payment of the Skills Development Levy (SDL).

• Wait. What’s the SDL all about?

According to SARS, “the SDL is a levy imposed to encourage learning and development in South Africa and is determined by an employer’s salary bill.

The funds are to be used to develop and improve skills of employees”.

In order to do this, simply complete an EMP101 form online or at any SARS office. This includes sections for contributions to the Unemployment Insurance Fund (UIF) and payment of the SDL.

Register your Business with the Unemployment Insurance Fund

As a matter of course, all businesses must register their employees for unemployment insurance. According to SARS –

You are required by law to register with the Unemployment Insurance Fund (UIF) and contribute towards the fund if you have employed people for more than 24 hours per month.

The monthly contribution for UIF is two percent of your worker's gross salary per month. You must deduct one percent of your worker's gross salary per month and you as the employer contributes one percent.

Ensure compliance with other provisions

You will also need to ensure that you comply with various labour laws including the Basic Conditions of Employment Act 75 of 1997 (BCEA),and the Labour Relations Act 66 of 1995 (LRA).

In addition, if you have hired employees, you will be required to register your full-time employees with the Department of Labour. This is mandatory in terms of the Compensation for Occupational Injuries and Diseases Act 130 of 1993 (COIDA).

Another important provision – in South Africa – are the employment equity laws in the form of the Employment Equity Act 55 of 1998 (EEA). The EEA specifically seeks to –

“promote the constitutional right of equality and the exercise of true democracy; eliminate unfair discrimination in employment; ensure the implementation of employment equity to redress the effects of discrimination; achieve a diverse workforce broadly representative of our people”.

All businesses in South Africa are also required under the Occupational Health and Safety Act 85 of 1993 (OHS) to ensure that they create a healthy, safe, and prepared working environment for all their employees within the workplace. This includes occupational safety, occupational health, and occupational welfare, which are all interlinked and tied together in the management systems. This is in fact the main requirement under the OHS.

There are different OHS regulations, with some regulations related to all industries such as the General Safety Regulation, and others that apply to specific industries only. It’s therefore important that businesses understand which regulations are specific to them and ensure that they comply accordingly.

There’s a lot to consider and a lot to take in. You will want to do it right the first time, especially when starting out. We therefore urge you to seek professional advice on the best way to go about structuring your business and in ensuring that you comply with all the regulations and provisions that you are required to.

If you have any questions about the information we have set out above or have a personal issue which you want to discuss with us, please don’t hesitate to contact us at NVDB Attorneys. 

We are a law firm that considers honesty to be core to our business. We are a law firm that will provide you with clear advice and smart strategies - always keeping your best interests at heart!

(Sources used and to whom we give thanks – The Small Business Site; Fresh Books; Western Cape Government; Trade Logistics; SARS and About Health Services).