Back to the basics in South African Corporate law, do I register a business entity, or not?

In terms of South African corporate law compliance, I often face questions whether it is good or bad; or really necessary to register a business i.e. a business entity (such as a private company) from the inception of the business. This, in my view, for many reasons including the fact that the registration of close corporations are no longer possible (since the enactment of the Companies Act 71 of 2008, as amended).

Further, due to the misconceptions regarding cost of running private companies, many business owners rather run their businesses as sole proprietors or as partnerships, unincorporated in terms of law, after starting and sometimes a long period of time thereafter. Thus, there is no distinction between the business and its owners. As the business is not a separate legal entity or person from its owners.

Whilst others, do run their businesses as South African private companies, registered in terms of the Companies Act 71 of 2008 as amended, but without any distinction between shareholders and directors.

 

Whether or not incorporated without the distinction between shareholders and directors (i.e. ownership and management), it is a real issue and often places a proverbial “glass ceiling” on the expansion of the business. Often when expanding, shareholders and directors hope to create this distinction, but then the expansion itself often faces unanticipated challenges, often crippling the entire operation.

 

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