Companies looking to expand their reach and set up in other countries often find there are differences between how they are used to doing business and how a new jurisdiction operates.
South Africa is one such country that offers great potential for expansion or relocation, but has some rules that need to be considered first. If you do decide to form your next business venture in the country, here are some things to keep in mind.
One of the first things to consider in any new jurisdiction is the type of legal system followed there.
Whilst South Africa is generally considered to be a common law country, it still retains some of its previous Roman-Dutch and other indigenous legal precedents.
However, this hybrid style is being phased out somewhat, as a result of successive colonial governance by the Dutch and English.
Companies from the U.K. will find the South African legal system relatively familiar overall, with only a few changes to what they are used to – some of which we will discuss below.
Private Company Requirements
For companies who wish to form a standard private company in South Africa, the requirements are relatively straightforward.
It is not necessary to have local directors or local shareholders – they can be from anywhere – there is just a requirement to appoint one director upon company registration.
There are no restrictions in terms of shareholders either. However, if appointing foreign shareholders there will be a notation on the share certificate to show it is held by a foreign entity, due to a tax on dividends that get repatriated outside of the country.
Public companies will require a company secretary, but foreign private companies do not. A resident South African will be required to take responsibility for tax matters for a private company though.
The incorporation process is also fairly straightforward in South Africa, taking just three to five days. Registration takes place with the Companies and Intellectual Properties Commission (CIPC) – this authority manages both the companies and the IP registration of the companies. It is therefore possible to create a company and register a website and intellectual property at the same time.
Registration can all be done online, but this requires a South African ID. In this case, a third-party service provider will likely need to assist with the company set-up.
It is relatively easy to incorporate a Private Company; also known as Proprietary Limited Company (Pty Limited) in South Africa. Pty Limited can be established with a minimum of one shareholder and a maximum of fifty shareholders. Corporate entities can also be shareholders of South African Pty Limited. However, corporate directors are no longer permitted.
In comparison to a Public Company, private companies (Pty Limited) have lesser annual compliance obligations, but all companies are expected to file annual accounts and annual returns, irrespective of company size. They are also required to hold a general meeting every year.
If a company has public interest, a certain amount of turnover, a certain number of employees, or a certain amount of debt, they may also be called upon for a company audit to show enhanced compliance.
Broad-Based Black Economic Empowerment (BBBEE)
An interesting feature in South African business is Broad-Based Black Economic Empowerment (BBBEE). This is not a legislative requirement but more of a supply chain driven stipulation.
The legislation was put into place to give more business representation to ethnic black minorities in South Africa.
Points are awarded to companies based on how much local minority representation is present in the ownership, upper management and elsewhere in the business. As the number of points accrue, the company moves up through BBBEE levels to become more competitive. Companies are then eligible to take on government contracts (particularly for technology and computer software) and are seen as preferable to work with as they have a good reputation and are seen to be empowering local black communities.
Certain industries, such as mining, require licensing with meeting a particular level of BBBEE ownership as one of its conditions. Although not a legislative or mandatory requirement, it is becoming more and more popular to see companies voluntarily signing up for BBBEE certification.
This can be challenging for foreign companies if they do not have relationships with locals that can partake in company ownership. This is something that should be considered prior to incorporation, not afterwards, as not being able to meet BBBEE requirements can preclude a company from a lot of business activities in South Africa, and to not be looked upon as favourably as other local companies.
This is especially true for external companies, as their management sits in the country of incorporation, as opposed to locally. To bring in BBBEE ownership, the ownership of the parent company would need to be altered to have representation from ethnic minority groups.
Whilst forming a company is straightforward, BBBEE certification is where companies can require careful thought and planning. To do business, to be competitive and to participate in all tenders, this compliance will have to be met at some point.
Capital and Taxation
Finally, there are no minimum capital requirements to form a company in South Africa, just certain tax components to be aware of.
There is also VAT for supply of goods and services and a requirement to pay employee withholding tax and unemployment insurance for any local employees.
For assistance navigating best business practices, an experienced service provider will be able to help when forming a company in South Africa.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.