How to form a Company

how to form a COMPANY

DOWNLOAD A COPY OF our BROCHURE, which sets out in detail the requirements to form a company, as well as QUESTIONNAIRE to assist you: CH LEGAL CONSULTING – STARTING A COMPANY

What is a Company

Companies are regulated by the Companies Act, 2008 (http://www.cipc.co.za/files/2413/9452/7679/CompaniesAct71_2008.pdf) and common law. A fundamental feature of a company is that it is a juristic person independent from its shareholders and directors. This means that the company itself enters into contracts, can sue and be sued, can own assets and can contract with third parties.

A juristic person has perpetual succession, which means that the continued existence of the person does not depend on the continued membership of any member. A member holds a  personal right in the company, which entitles them to vote, receive a dividend and share in the proceeds in the event of liquidation.  One of the most important features, is that of “limited liability”.

In the case of a company (unlike a partnership), the members are not liable for the debts of the company in the ordinary course of business. The exception to this rule is where a member signs as surety for a debt, or in the case of a director, where there is reckless and fraudulent trading.

WHAT IS THE BENEFIT OF FORMING A COMPANY

There are several benefits in forming a company. Two benefits are:

  1. Limited liability. In the case of other forms of businesses, owners share in the losses of the business and are held personally liable.  In the case of a company, the company is liable to its creditors. As mentioned above, owners will be liable in instances where they signed as a surety or in the case of directors, where there is fraudulent or reckless trading.
  2. Perpetual succession: If an owner dies or sells out, the company continues. In the case of a partnership, if a partner dies, a partnership (subject to some exceptions), would automatically terminate.

ARE THERE OTHER FORMS OF BUSINESSES?

Yes. In South Africa you also have the option of a partnership and a public company.

IS IT DIFFICULT TO FORM A COMPANY

No. A company can either be incorporated from scratch or a shelf company can be purchased. It’s inexpensive and easy to form.

ARE THERE RISKS

Yes. As with all business. Every owner needs to  consider several factors, these include inter alia:  (1). Regulatory Compliance – licenses, Tax, BEE & Labour Law; (2). Lawsuits; (3). Financial Loss – default  by  customers;  (4).  Theft  of  Intellectual Property; (5). Unlawful disclosure of confidential information;   (6).   Unforeseen   circumstances   – political uncertainty/ strikes/ war/ exchange rates/ water shortages/ land reform; and (7). Cyber risks.

HOW TO ENSURE YOUR SUCCESS – know your risks and prevent or mitigate as far as possible. How – Have your contracts in place, have favourable contract terms, back to back contracts or additional insurance policies. CH Legal provides risk mitigation and prevention solutions.

HOW TO FORM A COMPANY

As a company needs to be registered in the Company’s office – CIPC (http://www.cipc.co.za/), the Memorandum of incorporation is also registered.   This means that the MOI is a public document and is open to the public.

When structuring a deal, although we cannot contract out of legislation, owners of businesses prefer to keep their contract dealings private, to the extent possible. Therefore, where alterable provisions can be amended, eg intellectual property, funding by shareholders, a shareholders agreement will be signed.

Process to form a company

  1. Reserve name
  2. Amendment of standard MOI
  3. Register amendment in Companies Office
  4. Shareholders Agreement (if applicable)
  5. Change of registered office
  6. Change of location of company records
  7. Change of directors
  8. Change of  auditor,  audit  committee  or company secretary
  9. Change of year end
  10. Issue share certificates
  11. Registers members names in the share register

NEED TO CONSIDER:

  1. Companies Act (Shareholders Agreement & Rights & Duties of Parties)
  2. Employment Contracts & Labour Law
  3. Income Tax Act
  4. VAT Act
  5. Industry applicable laws & Licences
  6. Business Terms & Conditions with customers (prevent customer defaults)
  7. Suppliers agreements and KPIS
  8. Intellectual property
  9. Confidential Information
  10. Cyber Risks
  11. Insurance
  12. Regulatory Compliance (BEE, Anti-bribery)

ANSWER THE QUESTIONNAIRE

WHAT DO YOU AGREE ON IN YOUR MOI OR SHAREHOLDERS AGREEMENT?

SEE THE BROCHURE ATTACHED

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