If you would like your business to transact in the formal sector, or wish to access government support, you are required to register a company with the Companies and Intellectual Property Commission (CIPC) in South Africa. There are five different types of companies that may be registered with the CIPC in South Africa and it is possible to apply four different company names during each application process.
Types of Companies:
- Private Company – Proprietary Limited or (Pty) Ltd.: this type of company is not state-owned, trades for profit and can exist irrespective of any shareholder change. The company is prohibited to sell shares to the public or listing on the Johannesburg Stock Exchange (JSE), and has restrictions on the transferability of its securities. It is necessary for this type of company to have at least one director and one shareholder but no more are required. It is regarded as a separate juristic entity with rights and duties of its own. This means that the shareholders have limited liability and are therefore, not responsible for the liabilities of the company which poses a lower risk to shareholders. Operational requirements are less stringent for private companies. For example, a company secretary, an audit committee, a social and ethics committee and an appointed auditor are not required under law, although these may be prudent in certain circumstances. For these reasons, these companies are often used by start-ups.
- Public Company – Limited or Ltd.: a public company also trades for profit, and exists separately from its owners and shareholders resulting in limited liability. If the company is liquidated, the shareholders will only lose their initial investment amount and will not be held personally liable. Public companies can freely offer their securities to the general public and can be listed on the JSE, allowing for capital generation. Shareholders can also transfer shares to any member of the public, provided the Memorandum of Incorporation (MOI) does not provide otherwise. A public company must have at least three directors (although more than three are typically required in practice to comply with committee requirements) but there is no minimum number of shareholders required. Public companies are subject to enhanced accountability and transparency requirements due to their public nature. As such, public companies are typically larger companies which have been operating successfully for a number of years.
- Personal Liability Company – Incorporated or Inc.: this type of company refers to a private company that trades for profit and specifically provides in its MOI that it is a personal liability company. It cannot offer securities to the public and must restrict the transferability of its securities. These companies are often used by professional persons (e.g. attorneys, accountants, stockbrokers, engineers, etc.) who wish to utilise some of the entities’ advantages like continuous succession and flexible profit distribution. The principle of personal liability entails that the directors of the company, including past directors, are jointly and severally liable together with the company for all debts and contractual liabilities incurred when holding office. A personal liability company need only have one director.
- State-Owned Company – SOC Ltd.: A state-owned company refers to legal entities that are created and governed by the government to undertake commercial activities for profit. It includes public entities listed in Schedules 2 or 3 or the Public Finance Management Act 1 of 1999 and companies owned by municipalities. Within these state-owned companies, one finds the state-owned enterprises. A state-owned enterprise is an independent body that is either partially or solely owned by the Government of South Africa and is listed under Schedule 2 of the Public Finance Management Act 1 of 1999. State-owned companies generally comply with the provisions relating to public companies (including extended accountability and transparency) but they enjoy certain exemptions from legislation.
- Non-Profit Company – NPC: A non-profit company is incorporated for a public benefit object (e.g. promoting access to education) or relates to one or more cultural or social activities, or communal or group interests. As it does not trade for profit, the income and profit of a non-profit company cannot be distributed to its members, directors or any other related persons. There must be at least three incorporators and three directors, but no requirement for members is stipulated. Other special rules apply to these companies as set out in Schedule 1.
Selecting the appropriate company type is essential to the success of a start-up. To register a company is a simple and inexpensive procedure, however, you will need to file an annual return and pay annual fees irrespective of whether or not the company is trading. Note: Under the new Companies Act of 2008, close corporations can no longer be registered in South Africa.
Register a company name as a Trade Mark:
Registering a company does not provide a monopoly to the actual company name. However, by registering a trade mark for your company name, competitors are prohibited from exploiting that name or any confusingly similar names in relation to the same goods and/or services. In addition, you may also register multiple trade marks for marks related to different product lines, each with their own brand under the same company. This will allow you to protect those names or brands, independently of your company name. Trade marks are registered in terms of the South African Trade Marks Act and are subject to certain requirements. Trade marks may be renewed indefinitely, thereby ensuring the continuity of your brand. Examples of trade marks include business names, product names, logos, slogans, container shapes, etc.
Once a trademark for a company name is registered, it must be renewed every 10 years to stay in force. Provided that you continue renewing your trade mark, your rights to the trade mark may last in perpetuity. Read more about trade marks.