Introduction
As an entrepreneur, you have dreamed about setting up your own company. The next step is to identify what will be required to ensure a successful business. The Companies Act 71 of 2008 (“The Act”) will guide you when making this decision.
The Act distinguishes between two types of companies, profit companies and non-profit companies. The law then further differentiates between four types of profit companies: a private company, a public company, a state-owned enterprise and lastly, a personal liability company.
Private Company
The private company structure with Property Limited (Pty) Ltd refers to a company that trades for profit. This type of company has a separate juristic entity with rights and duties of its own. Therefore, the shareholders have limited liability. At a minimum, a private company must have one director and one shareholder. However, there are no restrictions on the number of shareholders. Further, a private company may not sell shares to the public or list them on the JSE.
Public Company
A public company is a juristic entity that exists separately from its owners and shareholders and can exist in perpetuity. Further, private companies are deemed to have a legal personality, and therefore, the shareholders of public companies have limited liability. Thus, where such a company liquidates, the shareholder’s loss is limited to the originally vested amounts and will not be held personally liable for debts incurred by the company. A public company must have at least three directors and seven shareholders and may be listed on the JSE. Further, it can freely transfer its shares to any public member and must be audited and must produce audited financial statements. Where a public company intend to vary its constitution, this can only be done by particular as well as a written, special resolution signed by all relevant stakeholders.
Personal Liability Company
A personal liability company is a private company that trades for profit. This company is used by those who wish to make use of some of the entities’ many advantages, such as its perpetual succession and flexible profit distribution. Further, the company makes use of personal liability, which entails that the directors of the company are jointly and severally liable with the company for all contractual debts and liabilities incurred when they held their positions.
Non-Profit Company
A non-profit company refers to a company that is incorporated for public benefit. There must be at least three incorporators and three directors.
State Owned Company
A state-owned entity is defined in the Public Finance Management Act 1 of 1999 as an entity which is a juristic person under the ownership control of the national executive and has been assigned financial and operational authority to carry on a business activity as its principal business, provides goods or services in accordance with ordinary business principles.
Conclusion
Taking the jump and opening a business can be a daunting task. However, this can be made more accessible when you decide on the correct entity to accommodate your business model.
Contact an attorney at SchoemanLaw Inc for your legal needs!
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