STARTING A BUSINESS IN 2017: THE PRIVATE COMPANY OPTION

“My best entrepreneurial advice is to start” (Dave Morin, entrepreneur, angel investor, CEO and co-founder of social network Path)

In our last article in the series “Choosing the right legal entity for your business” we looked at the partnership option.  Let’s move on to the private company option, where your business is owned and operated, not by you as an individual or by a group of individuals, but by a “(Pty) Ltd”.

Although CCs (close corporations) still exist, no new ones are registered, so we will not consider them here other than to note that the owners of a CC are “members” not “shareholders”).

What is a private company?

Our law treats a private company as a separate legal entity, a “judicial person” with its own “legal personality”.  It exists in law separately from its managing officials (directors and management employees) and its owners (shareholders).  You can have as many shareholders as you want (the old limit of 50 has fallen away).

Your personal assets are separated from your business risks. In fact the whole concept of modern laws recognising separate “corporate entities” traces its roots back to the idea that entrepreneurship would be encouraged when individuals could limit their trading liability to their own investment in the business.

Like sole traders and partnerships, a company can use a separate “trading as” name like “XYZ Enterprises (Pty) Ltd t/a Plucky Plumbers” perhaps.  But it’s always the actual company that trades, contracts and pays tax.

January Newsletter