What is a private company?
In South Africa, a private company is a separate legal entity, maintaining a separate life from its owners (shareholders) and entitled to its own rights and required to perform its own duties according to the Companies Act (Act 71 of 2008), hereafter referred to as the Act.
The Act defines a private company as a profit company that is not a public company, a personal liability company, or a state-owned company.
In addition, the Act states in section 8 (2) (b) that a private company’s Memorandum of Incorporation (MOI) must:
- prohibit the company from offering any of its securities[1] to the public, and
- restrict the transferability of its securities.
How do I start a private company?[2]
A private company, according to the Companies and Intellectual Property Commission (CIPC), is ‘the most common and simplest form of company to be registered.’
The name of the private company
Regarding the name of a private company, the CIPC mentions that in terms of the Act, a private company may be registered with or without a company name. When a company is registered without a reserved name, its registration number automatically becomes the company name with (South Africa) as the suffix. (Accentuations are by the article writer.) Apparently, this is the quickest way to register a company.
Further information about the reservation of a name for a company is fully described on the website of the CIPC. A list with all the available platforms for name reservations is also supplied.
Section 11 (3) (c) of the Act requires that the name of a private company must end with the expression ‘Proprietary Limited’ or its abbreviation ‘(Pty) Ltd.’.
Who is allowed to incorporate a private company?
One person, or more than, one may incorporate a private company. A person who incorporates a company is called an incorporator. The word ‘person’ also includes a juristic entity, meaning that a legal entity or trust may act as an incorporator of a private company.
The Memorandum of Incorporation (MOI)
Section 13 (1) (a) of the Act expresses that a company may be incorporated by one person, or more than one, ‘by completing and each signing in person or by proxy, a Memorandum of Incorporation:
- in the prescribed form, or
- in a form unique to the company.’
Standard Memorandum of Incorporation (MOI)
CIPC refers to the form mentioned first in section 13, as a standard MOI, which is available on CIPC’s website.
The prescribed form for a standard MOI is commonly referred to as Form CoR 15.1A.
A standard MOI comprises 4 articles, covering the following subjects:
- Article 1: Incorporation and nature of the company.
- Article 2: Securities of the company.
Includes arrangements and regulations about shares.
- Article 3: Shareholders and meetings.
- Article 4: Directors and officers.
A private company with a standard MOI may be registered online on the CIPC website, CIPC Mobile App, at a self-service terminal, or through a collaborating bank, such as Standard Bank.
Customised Memorandum of Incorporation (MOI)
The form described as ‘unique to the company’ in section 13, is referred to as a customised MOI.
A customised MOI, also called a non-standard MOI, allows the shareholders of a private company to impose certain conditions or wave certain requirements, such as an audit requirement.
The incorporator of a private company with a customised MOI is required to complete and submit a form, referred to as CoR 15.1B.
Contrarily to private companies with standard MOIs, private companies with non-standard MOIs can only be registered manually by e-mailing the completed Cor 15.1B form to the CIPC.
Notice of Incorporation
In addition to the lodging of the MOI, a private company is required to submit a Notice of Incorporation together with the prescribed fee. (Section 13 (2) of the Act.)
The Notice of Incorporation comprises, inter alia, the following information:
- Name of company.
- Date of incorporation.
- Date of financial year-end.
- Type of company.
- Registered address.
- Whether the registration number will be the company name.
- Number of directors.
- The registered address (main office).
- The reserved name as well as four names to be checked by the CIPC.
- The reservation number.
Supporting documents
The following supporting documents are required to complete the registration process:
- Certified copy of applicant’s identification document.
- Certified copies of the identity documents or passports of the directors and incorporators.
- The name confirmation certificate (CoR 9.4) if a name for the company was reserved before the filing of incorporation documents.
- If an incorporator is a juristic person (trust or company), a certified copy of the ID document of the duly authorised representative as well as a power of attorney is compulsory.
- If another person is authorised to incorporate the company and sign the related documents on behalf of the incorporator(s), a certified copy of the ID document of the person and a power of attorney are required.
Some other aspects concerning private companies
Capital requirements
There are no minimum capital requirements for a South African private company.
Shares and shareholders
Shares are to be issued in terms of the Act and the company’s Memorandum of Incorporation.
Prior the Companies Act (Act 71 of 2008), the number of shareholders was restricted to a maximum of 50. This restriction was withdrawn within the Act of 2008.
A minimum of one shareholder is required whose details are to be filed with the CIPC.
The voting rights of the shareholders must be determined by the MOI of the company.
There is no requirement that any of the shareholders of a private company must be residents in South Africa.
Directors
According to section 66 (2) (a) of the Act, the board of directors of a private company must comprise at least one director.
Section 67 (1) of the Act regulates that each incorporator of a company is a first director of the company and serves until sufficient other directors to satisfy the minimum requirements of the Act, or the company’s Memorandum of Incorporation, have been first appointed or first elected.
Accountability requirements and audits
A private company is not obliged to comply with the enhanced and extended accountability requirements set out in chapter 3 of the Act, except to the extent that the company’s MOI provides otherwise (section 34 (2) of the Act).
A private company is required to have its financial statements audited only to the extent contemplated in section 34 (2) or as otherwise required by the Act. Therefore, not all private companies are required to have their financial statements audited.
Tax liabilities
According to the law, a private company is treated as a separate legal entity and is required to register as a taxpayer in its own right.
A private company is subjected to Corporate Income Tax (CIT) of 28% and Capital Gains Tax (CGT) of 22.4%.
[1] Accentuations in citations from the Companies Act are from the article writer.
[2] Content in this subject was mainly sourced from the Companies and Intellectual Property Commission (CIPC).
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