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Business registration explained

business-registration-explained

Business registration is the process of obtaining legal authorization to conduct business within your chosen jurisdiction. It is a legal obligation of most jurisdictions and ensures that a business is operating under the lawful obligations of its control. There are a number of formalities that must be completed prior to completion of the business registration stage.

The first important stage in business registration is deciding upon which jurisdiction to establish your business in. It is important to consider the financial and economic advantages and disadvantages of setting up business within that jurisdiction. Once the jurisdiction has been chosen, the process of business registration and licensing can then begin.

It is important to submit a range of documentation including certifications and professional references, as well as a detailed outline of the structure of the company. In addition, the company must present a proposed company name that complies with the jurisdiction’s legal requirements, which will be assessed by that jurisdiction’s registrar general.

Business registration is very important as it establishes the business as a legal entity. Without business registration, your company cannot be legally considered and will not be protected under any grievance procedures etc. In addition, it will not be protected by the jurisdiction from any economic, legal or social instability.

Choice of business entity

There are two broad types of companies included under the Companies Act: non-profit companies and profit companies.

Non-profit companies

A company set up for public benefit, or for a purpose relating to cultural or social activities, or communal or group interests, such as religion, sciences, education, arts, charity or recreation. Under the old Act, these were known as Section 21 companies. Non-profit companies are now dealt with in Section 1 to the Act.

Tax and other considerations affect the choice of a particular form of business entity. The most commonly adopted forms of doing business by foreign investors are private companies and branches.

Companies operate on the basis of limited liability. As a general rule, members are not liable for the debts of a company; however, there are exceptions to this rule.

Private companies

Most foreign investors set up as a private company, as they require the least amount of annual formalities.

They must have at least one director and shareholder and membership is restricted to 50. The directors do not need not be South African residents or nationals.

Public companies

Public companies are formed to raise funds by offering shares to the public and there is no limit to the number of shareholders.

External companies

Foreign companies that do business or carry out non-profit activities in South Africa are known as external companies.

Such a company should be reasonably seen as intending to engage in business or non- profit activities in South Africa, though activities such as:

  • being party to one or more employment contracts within South Africa; or
  • engaging in a course or pattern of activities within South Africa over a period of at least six months.

Branches of foreign companies are accorded legal status in South Africa by virtue of their registration as external companies but are not recognised as separate legal entities – except for exchange control purposes.

An external company must register with the Companies and Intellectual Properties Commission within 20 business days after it first begins to conduct business, or non- profit activities, in South Africa.

Domesticated companies

A “domesticated company’ is defined as a foreign company whose registration has been transferred to South Africa and which will thereafter exist as a company in terms of the Companies Act as if it had been originally so incorporated and registered.

For more information on business registration procedures, Contact Us.

Alternatively, if you would like to register a company please see our Company Formation options.

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