How do I know what company type I am?

These are the common company types in South Africa:

Sole Proprietorship

        A sole proprietorship, which is often referred to as a sole trader, is a business structure that is owned and run by one individual.  It is important to note that with a sole proprietorship there is no separation between the owner and the business structure – the business does not have its own legal entity. In practice this means the income of the business is all for the owner, as are the taxes and any liabilities.

Partnership

        A partnership is akin to a coming together of between 2 and 20 people who contractually agree to operate a profit generating business together. They further agree to split any profits as per their agreement and in proportion to their interests.  In establishing a partnership each partner needs to make a contribution to it and as per a sole proprietorship the partnership is not a separate legal entity, leaving partners generally liable for debts.

Private Companies

        Typically, the choice for most foreigners setting up a business in South Africa. This type of business structure in South Africa does not place any prohibition on foreign shareholding and only requires one shareholder and one director.

        The new Companies Act prohibits a Private Company (Pty Ltd) from offering securities to the public.

        Private companies are seen as separate legal entities and as such are taxed in their own right and offer the shareholders protection against liabilities.

        A Pty Ltd will require reservation of a company name, the completion of a memorandum of incorporation and written consent of the auditors, if any, to act for the company.

Public Companies

        A public company is largely set up to offer shares to the general public for the purpose of capital raising. There is a requirement for a minimum of one shareholder and three directors.  Public companies are known as Ltd companies and have their own legal identity.

Personal Liability Companies

        If a company incorporates under section 8(2)(c) of the Companies Act the terms of its memorandum of incorporation (MOI) state that the directors and past directors are jointly and severally liable, together with the company, for any debts and liabilities of the company, as are or were contracted during their respective periods of office. Typically this means professions such as attorneys and accountants that make use section 8(2)(c) of the Companies Act.

State Owned Companies

        A State owned company is either a company defined as a “state-owned enterprise” in the Public Finance Management Act 1 of 1999 or a company owned by a municipality. The majority of the provisions of a public company will apply to state-owned companies as well.

Non-profit Companies (NPC)

        A non-profit company is incorporated public that is established, as an example, for some form of cultural or social activities or communal / group interests. Income is not distributed to any stakeholder from this type of business structure.

Foreign and External Companies

        External companies are foreign owned companies that are incorporated outside of South Africa but trade in South Africa. There is a requirement for foreign owned companies to register as an external company with the CIPC and they may not offer securities to the South African public. This type of business structure in South Africa is utilized by foreign companies wishing to set up a branch in South Africa.

Difference in Company Structures

        Holding company

o   A legally registered company that has controlling interests in other companies in the form of shares and voting rights

        Subsidiary company

o   A legally registered company with its own company registration number but owned/ controlled by another company.

        Sister companies

o   Two legally registered companies with different company registration numbers belonging to one holding company.

        Division/ business unit

o   Division of a business is one of the parts into which a business, organization or company is divided.  The divisions are distinct parts of that business.  If these divisions are all part of the same company, then that company is legally responsible for all the obligations and debts of the divisions.  A division does not have its own company registration number as it is a business unit within a registered company.