Where to start with a new business?

Louis has been dreaming of starting his own business for years, but could never find a suitable premise to take this step. Now a suitable shop premise has become available at the ideal location and it seems as if Louis’s dreams could become a reality. Louis’s finances are in order and he also identified a possible partner to start the business with him. The light is green, but Louis is unsure as to where he must start and what needs to be done legally in to start his business venture. Let’s have a look at some of his main obligations.

Firstly, it is important for Louis to understand that is not child’s play running a business and that a proper business plan in terms of which he will approach his business is required. A business plan will also be important when he applies for financing or if he wants to attract another business partner. He also has to obtain certainty about the content of the proposed lease agreement in respect of the premise and determine what renewal options are available. A bank account is also necessary for the operation of a business and such a bank account should be opened as soon as Louis has decided on the nature of the business entity.

The next step is to find out whether there are any licences or permits that are required for the operation of the business. Certain types of businesses that involve the sale of alcohol, food, health care, fresh products, gambling, etc. need a license in order to trade legally. It is important to identify these requirements at an early stage and to submit the necessary applications because no trading can take place without these licences.

Louis also has to reflect on the correct type of entity for his business. There are various options and his choice can have important consequences for himself as well as the business. The most important business entity options to consider are the following:

Sole proprietor (1 owner)

This option, as indicated by the name, may be relevant when Louis wishes to trade in his own name. He can still make use of a business name, but the business is established in Louis as a person and not as a separate legal entity. This is the simplest form of business and it does not require much to commence. The income of the sole proprietor is deemed to be the personal income of the business owner and the owner is taxed in his personal name. The biggest risk for this form of business is that when the business fails, the business owner will have full responsibility for all the liabilities of the business and creditors will be able to seize the personal assets of the owner. This form of business cannot involve any further partners, but employees may be appointed. Options available for financing will depend on the extent to which the owner will qualify personally for financing.

A private company

A private company is deemed to be a separate legal entity which exists independently from its members and its rights and obligations are that of its own. The entity is treated as a separate taxpayer. The owners of a private company are its shareholders and the company is managed by its directors. The shareholders can also be directors (managers) of the business, but they need not be. The benefits of a private company includes the limited liability of the shareholders in respect of the liabilities of the company as well as continuity and relative ease in which the business can be transferred as the business is not linked to the owners but to the entity itself. The establishment, management and functioning of the company is regulated by the Companies Act of 2008 which makes the management of this form of entity more complicated and expensive in comparison to the abovementioned entities.

The decision with regards to the right type of business structure is one that should not be made without legal and tax advice. Implications regarding the number of owners, financing, administration costs, business continuity and insolvency are also aspects that need to be discussed before you make your decision.

As soon as Louis has decided on the appropriate entity, he must investigate the following tax obligations (this may vary depending on the entity):

  • Register with the Receiver of Revenue for the payment of income tax, employees’ tax and also skills development levies with regards to employees.
  • Louis should also register for VAT.

Louis’ business may also qualify for certain tax benefits which the Receiver avails for qualifying small businesses, making a thorough investigation of his tax obligations a worthwhile effort.

Employees are an important asset for each business. Should Louis appoint employees, it is not only important to provide a safe working environment for his employees but Louis must also make provision for accidents and injuries which may occur in the course of their work obligations. Louis must register with the Compensation Fund (“Fund”) so that his employees can enjoy protection in the event of any injuries while on duty. The owner, regardless of the size of his business, is legally obliged to register with and pay annual fees to the Fund.

Louis must also register with the Unemployment Insurance Fund (“UIF”). When an employee is dismissed or is unable to perform his work obligations because of pregnancy or illness, the UIF serves as a temporary refuge for employees. All employees that work more than 24 hours per week must contribute to the UIF. Employees and their employers each respectively pay 1% of the value of the employee’s salary to the UIF. It is the responsibility of the employer to deduct the employees’ contribution to the UIF from his salary and pay such over to the UIF.

Furthermore, Louis is obliged to draft employment agreements for all his employees which clearly outline the terms and the conditions of their employment. Louis must monthly provide payslips to his employees and see to it that all deductions from their salaries are dealt with validly in accordance with labour laws.

As soon as Louis has decided on his entity form, complied with the necessary registration obligations and sorted out his employees, it is important for him to start thinking about the marketing of his business. Louis feels that by designing a logo for his business which is unique and different his business can make an immediate impact in the market. He may thus wish to consider registering his logo and business name as a trademark to enable him to protect his trade name and also enable future franchising of his business.

The above are some of the key points to be considered in order to start a small business. This can be a complex process with associated costs, but it is important that the correct steps are taken in order to avoid future complications. At Stroh Coetzee Inc, we can assist you with expert advice, before you start your new business venture. Contact us on info@strohcoetzee.com or 013-2826845 for a consultation.

Chris Coetzee


Chris Coetzee obtained the degrees BA(Cum Laude) and LLB(Cum Laude) from the North West University(then Potchefstroom University for Chistian Higher Education), during 1988 and 1990 respectively.

He was admitted as an attorney in 1994. In 1996 he was also admitted as a conveyancer.During 1999, Chris was appointed as a Notary Public. He is admitted to appear in the High Court of South Africa.

Chris is Managing Director at the firm, and mainly concentrates on Property Law, Commercial Law and High Court Litigation.

He is a long-standing member of the Law Society of the Northern Provinces( now the LPC)