The Companies Act 71 of 2008, as amended by Act 3 of 2011, governs the formation of companies in South Africa. The most basic categorization is the division between companies for profit and non-profit companies.
Sub divisions of South African companies
Companies for profit can further be sub-divided into: state-owned companies, private companies, personal liability companies and public companies. The unifying characteristic of all private companies is that they are intended to generate financial returns for shareholders. Beyond that, each has the following basic unique characteristics:
- State-owned companies are owned by an organ or a division of state. The name is followed by the letters “SOC”;
- Private companies are incorporated by one or more persons, must have at least one director and may not offer its securities (shares or debentures) to members of the public. Once registered, private companies have “(Proprietary) Limited” or (Pty) Ltd. after their name.
- Personal liability companies are incorporated by one or more persons and must have a minimum of one director. Directors of these companies (whether past or present) are jointly and severally liable for any debts and liabilities incurred by the company. These company types are registered by professionals such as accountants, engineers and lawyers. Once registered, the entity’s name is followed by “Inc.” or “Incorporated”.
- Public companies are allowed to offer their shares to the public. Management of these companies is entrusted to a board of directors. Once registered, the company’s name is followed by “Limited” or “Ltd.”.
Non-profit companies are incorporated for the benefit of the public. A minimum of three persons are required to incorporate and there are no securities to transfer to the public. Contrary to popular belief, non-profit companies may generate a profit, but these profits may not be distributed to shareholders, not even after the company is closed down.
South African Small Business options
Over-and-above the above business types, prospective business owners can also choose from close corporations (provided the close corporation was registered before 1 May 2011 as close corporations fell away under the most recent Companies Act), business trusts, unincorporated partnerships and joint ventures and sole proprietorships.
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