South Africa Company

Legal form: The most common form of business entity in South Africa is the limited liability company. All South African companies are governed by the Companies Act No 61 of 1973 as amended, which was originally based on English company law. The Act prescribes the procedures to be followed to form a private or public company. The Companies Act is administered by the Companies and Intellectual Property Registration Office (CIPRO – formerly the Registrar of Companies), whose offices are in Pretoria. All South African close corporations are governed by the Close Corporations Act, which is also administered by CIPRO. In addition to meeting the requirements of the Companies Act (and/or the Close Corporations Act, where applicable) a business generally has to register with the authorities that regulate VAT, employees tax, provincial and regional services levies, workmen's compensation and the unemployment insurance fund. Companies and individuals must also register for income tax purposes. Business licenses are required for certain activities and are generally easily obtainable from the licensing authorities, subject to compliance with the relevant requirements.Name of the company: The names of companies limited by guarantee must end with the words "Limited (Limited by Guarantee)". The names of public companies must end with the word "Limited", whereas those of private companies must end with the words "(Proprietary) Limited".

Incorporation: Incorporation of a company entails the following steps: reserving a company name, filing the memorandum and articles of association of the company and filing the written consent of auditors to act for the company. A company name must be reserved with and approved by CIPRO. It is advisable to suggest alternative names in case the first name is deemed unsuitable by CIPRO. The memorandum and articles of association must also be filed with CIPRO. The memorandum of association must indicate, among other things the name of the company, the company's main object, although there may be any number of ancillary objects and the amount of authorized share capital (not all of which is required to be issued). Registration of a close corporation (CC) is much simpler and quicker. It does not have a memorandum or articles of association. The only constitutional document required is a founding statement, which must be filed with CIPRO. A private company that meets the requirements of a close corporation may convert to a close corporation, and a close corporation may convert to a private company.

Shareholders and directors: For a private company, the minimum number of shareholders and directors is one (the sole shareholder may also be the sole director), while a public company must have at least seven shareholders (unless it is a wholly-owned subsidiary of another company) and two directors. No residence or nationality restrictions apply to either shareholders or directors. The minimum number of members of a close corporation is one member and the maximum number of members is ten members. Certain disqualifications apply – a juristic person such as a company may for instance not be a member of a close corporation. A close corporation is managed by its members and does not have a separate board of directors.

The share capital: Shares can be in any denomination, and no-par-value shares are permitted. There is no minimum amount of share capital required (other than the requirement that on subscription, each subscriber must subscribe for at least one share), nor is there any prescribed ratio between share capital and borrowings. However, South African companies which are controlled by non-residents and whose "gearing" of borrowings to equity capital is considered by the tax authorities to be excessive will not be allowed to deduct for tax purposes interest and similar amounts paid to the non-resident shareholders on the loan funding provided by them.

Registered office and local agent/secretary: Every company registered in South Africa must have its registered office there. South African resident must be appointed as a public officer of the company to handle income tax matters. The company secretary of a public company must be a South African resident.

Taxation: Most taxes in South Africa are levied by the central Government. The new Constitution gives some taxing powers to the provinces. These mainly involve assessment rates and other taxes based on immovable property. With effect from years of assessment after 1 January 2001, South African residents (as defined in the Income Tax Act) are taxed on their worldwide income, i.e. any income derived by South African residents from outside South Africa will be taxable in South Africa. Some categories of income and income from certain activities outside South Africa can be exempt and credit will be given for foreign taxes paid. Companies are considered to be tax residents, if they are either incorporated or have their place of effective management (the day to day activities involving a level of senior management) in South Africa. Companies are taxed on income at the rate of 30%. Gold-mining companies are taxed according to a special formula. However, due to the secondary tax on companies (see below for further details), which is levied at 12,5% on the net amount of dividends declared by a company, the effective rate is higher than 30%. Small business corporations (namely corporations having an annual turnover of less than R5 million and which meet certain specified requirements) are taxed at the rate of 15% for the first R150 000 of taxable income and at 30% for amounts in excess of R150 000 (exclusive of secondary tax on companies – the effective rate will increase in respect of profits distributed by way of dividend).

Audit and financial returns: In terms of the Companies Act, all companies must keep accounting records in one of the eleven official languages. The accounting records must be such as to fairly present the state of affairs and business of the company and explain the transactions and financial position of the trade or business of the company. In terms of the Companies Act, the directors of every company must prepare annual financial statements and present them to the annual general meeting of the company. The annual financial statements must fairly present the state of affairs of the company as at the financial year-end and its profit or loss for that year in conformity with generally accepted accounting practice (GAAP). Public companies and external companies are required to file a copy of their annual financial statements with the Companies and Intellectual Property Registration Office within six months from the end of their financial year. Private companies are not required to do so, although the Second King Report on Corporate Governance has recommended that the Companies Act be amended to require this. The financial statements of both public and private companies are subject under the Companies Act to an annual audit. Only chartered accountants registered with the Public Accountants and Auditors Board may be appointed as auditors for the purposes of the annual audit. Close corporations are not subject to a compulsory audit. However, the corporation is required to appoint an independent accounting officer, who is responsible for the preparation of the financial statements and who must be a member of one of the recognized professional accounting bodies.

Meetings: The shareholders exercise their powers in general meetings. The annual general meeting must be held within nine months of the financial year-end and not more than fifteen months after the last such meeting.
Time needed for the South Africa company formation: Usually it is 3-4 weeks, but existing 'shelf companies' are available, in order to save time.