Starting a new small business in South Africa?

Any new business venture begins with great enthusiasm from the entrepreneur. However, going hand in hand with starting a business are the regulatory requirements from government in order to do so. While perhaps less engaging than executing a great business plan, these must be complied with to ensure the legality of the business.

Below is a list of requirements that new business owners in South Africa need to look at when starting down the entrepreneurial path. 

Registering your company with the CIPC

For many new businesses, the easiest way to become a legal entity is to set up a private company, also known as a (Pty) Ltd. By ensuring the legal obligations rest with the company, there are fewer personal risks for those starting the company. 

Both for-profit and non-profit companies need to register the company via the Companies and Intellectual Property Commission (CIPC), with the first step being signing up as a CIPC customer. To note, CIPC requires all registered businesses to file an annual return and pay an annual fee in order to remain registered. 

As far as non-legal entities are concerned, the route is open to trade as a sole proprietorship, or a partnership. These do not need to be registered with the CIPC. For more information on the tax requirements of different business entities, please download the South African Revenue Service (SARS) Tax Guide.

BEE status

In order for enterprises to do business with government or certain vendors, Broad-Based Black Economic Empowerment (B-BBEE) certification is required. Basic B-BBEE certificates can be obtained through the CIPC eservices website or certain self-service terminals. If your certification requirements are more complex, the services of a B-BBEE verification agency would need to be obtained. 

Importantly, small businesses are noted as Exempted Micro Enterprises if they have a turnover of less than R10m. These entities simply need to complete an affidavit (to be signed by a Commissioner of Oaths), which can be provided instead of a B-BBEE certificate.

Labour Law

Once your business is growing and you are looking to employ people, it’s important to comply with the labour laws of South Africa. Here the Basic Conditions of Employment Act is the most important piece of legislation. It discusses the particulars of how to act as an employer, with all the do’s and don’ts of hiring and firing, remuneration, and what is considered regular working hours or overtime.

To have a contract of employment in place with each employee is crucial, seeing that it protects both you as the employer and the employee. In such a contract the conditions of employment are outlined, providing more detail about what the employee’s duties are, remuneration, leave and more. An employment contract needs to be dealt with in scrupulous detail, and it is recommended to consult with a legal practice to do so. Reynolds Attorneys can assist in drawing up labour contracts on behalf of employers.

Importantly, as an employer you are responsible for the health and safety of your employees. Here the Occupational Health and Safety Act outlines the most general workplace conditions needed to secure the safety of employees and those visiting the workplace. The Department of Labour has a far more accessible document regarding Health and Safety in the workplace available here.

Talking of which, if you are employing people, then the Department of Labour requires you to register with the Compensation Fund, in the event of injuries and diseases in the workplace.

Intellectual Property

Most businesses get started with a big idea, and its key to look after this idea as it becomes more tangible. There are ways to protect your intellectual property (IP) to ensure it does not get stolen, with the CIPC administering the register of trademarks, as well as looking after patents, designs and copyright in South Africa. They also provide more information on how to enforce your IP rights when you believe infringement might have taken place.

It’s highly recommended that before disclosing your IP to other businesses, you get them to sign a non-disclosure and confidentiality agreement, which obliges them to treat the information as confidential and not use it or sell it on.

And if you are hiring consultants or sub-contractors to build on your idea (such as software developers), it is essential to ensure your contract with them records that you become the sole owner of the IP they build or create for you. Just because you are paying them does not always mean you solely own what they create.

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Protection of Personal Information

Key provisions of the powerful Protection of Personal Information Act (POPIA) started to be enforced on 1 July 2021, granting consumers unprecedented privileges in regard to how businesses deal with, and secure, their data. However, this places the burden firmly on the business owner to ensure that data and privacy breaches do not take place. It is a big responsibility, and when looking at the penalties involved, can be costly when not complied with. 

The Business’ Website

The business’ website will need to record certain terms and conditions in order to comply with the Electronic Communications and Transactions Act, as well as also other terms and conditions or policies that control how the public and potential consumers engage with the business. Examples of these are terms of service, if a consumer actually transacts on the website.  

Tax (and more) with SARS

The old adage of ‘death and taxes’ remain true. Once your company is registered, it will appear on the South African Tax Revenue’s (SARS) radar. New companies need to register with SARS for corporate income tax purposes and to receive an Income Tax reference number. This would require the completion of form IT77 for registration purposes before 60 days. SARS does a good job in providing more information on small business taxes.

Once money is flowing into your account, there are a few more responsibilities. If your company is set for a sales turnover of R1 million or more per year, you would need to register as a VAT vendor, with certain VAT payments due throughout the year.

Importantly, when employing people full time, you must also register with SARS within 21 business days for Employees’ Tax. Through what’s known as Pay-As-You-Earn (PAYE), tax is deducted from an employee’s remuneration and paid to SARS. A guide to registering for PAYE through SARS’s eFiling can be found here.

Similarly, the employer must also register with SARS for payments to the Unemployment Insurance Fund (UIF) to secure employees’ benefits when on maternity leave, or when unemployed or ill.

This article originally published by Reynolds Attorneys