By: Jehoshaphat John Njau 11 April 2022
The COVID-19 pandemic has triggered one of the worst jobs crises in South Arica since the financial crisis of 2008 and 2009. There is a real danger that the crisis will continue to increase poverty and widen the already existing inequalities in South Africa.
There is a need as a country, now more than ever, to rethink on income generation mechanisms in ways that will stop the growing jobs crisis that is turning into a social – political crisis as evidenced in July 2021.
We believe a strong private sector will be instrumental in the recovery and reconstruction of the South African economy through establishments of stable and flourishing companies that are geared towards jobs creation.
The concept of a company finds its origin in the earliest days of human history, when people cooperated and traded to create wealth and gain through barter, trade and other forms of trade for example farmers would exchange mealies for potatoes. In short, people conducted business in personal capacity.
With all sorts of scientific discoveries and technological advances, new wealth was generated through trade and the old concept of business done on private capacity became a problem as it became risky to take upon oneself the liabilities associated with a large-scale trade coupled with high investments and high return proposition.
This growing risk gave rise to the concept of a company, which is fictitious invented entity created by individuals that gets into business and succeeds or fails independently from its owners. The owners of a company would have a right to the assets and to the management of the company and when the company has several owners, their relative rights would be determined according to their share.
In South Africa, company law is regulated in terms of the Companies Act No 71 of 2008 (The Act) and the common law.
What to Consider before deciding on a type of a company / business venture
- The type of industry / business activity;
- The capital required to commence the business;
- The source of capital (debt or equity);
- The number of people to be involved in the business;
- The extent of the people’s involvement;
- Tax implications; and
- The objectives of the business.
Types of Companies in South Africa / business enterprises
The South African company law recognises a range of companies, with a primary distinction drawn between profit companies and non-profit companies.
This article focuses on profit companies. Profit companies are incorporated with the sole objective of generating profit for their shareholders.
There are four types of profit companies:
- A public company;
- This is a profit company that offers its shares to the public. It can be listed on a stock exchange. For example: Vodacom, MTN and Standard Bank.
- A private company;
- It’s a profit company with restrictions on offering of its shares to the public as well as transferability of its shares.
- This is by far the most popular and widely-used option because of its less stringent requirements i.e the director and shareholders of a private company can be one and the same person.
- A personal liability company (INC); and
- This is a profit company used mainly by professionals such as doctors, attorneys and stockbrokers.
- The directors of personal liability companies are jointly and severally liable together with the company for all contractual debts and liabilities incurred during their terms of office.
- A state - owned enterprise (SOC).
- This is a profit company that is a national government business enterprise.
- SOCs are either listed as a public entity in Schedule 2 or 3 of the Public Finance Management Act or is owned by a municipality.
- The objective of a SOC is to provide goods or services in accordance with ordinary business principles outside the National Revenue Fund. Examples of SOC: South African Airways, Eskom, Telkom, PRASA and Post Office.
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