Which corporate structure should I use?

The Companies Act 71 of 2008 recognises profit companies and non-profit companies. Within profit companies the categories are the private company, the personal liability company, the public company and the state owned company. For the overwhelming majority of South African businesses the private company is the correct vehicle, and the structuring question is what sits above and beside it rather than which type to choose.

A private company has separate legal personality, its shareholders enjoy limited liability, and its shares are subject to transfer restrictions. Since the 2008 Act there is no requirement for a minimum share capital, no distinction between par value and no par value shares for new companies, and the Memorandum of Incorporation replaced the old memorandum and articles. Using the standard short-form MOI is cheap, and it is also where most later shareholder disputes originate.

The personal liability company, identified by the suffix Incorporated, makes directors and past directors jointly and severally liable with the company for debts incurred during their terms of office. It is used where a professional body requires it. Choosing it in any other circumstance gives away the main benefit of incorporation for no return.

Separating assets from operating risk is the most valuable structuring move available to a growing business. Property, plant, intellectual property and accumulated cash sit in a holding company; the trading activity, staff, contracts and regulatory exposure sit in an operating company that leases or licenses what it needs. The protection depends entirely on the arrangement being real: written agreements, arm's length pricing and genuine separation of bank accounts and records.

Trusts occupy a different role. A trust is a succession and estate planning vehicle, and it works best owning the shares in a trading company rather than trading itself. The Trust Property Control Act 57 of 1988 governs it, trustees owe fiduciary duties, and the Master requires proper appointment and accounting. Trusts that are administered as the founder's personal chequebook are routinely looked through by courts and tax authorities.

Non-profit companies have no shareholders and must apply their income to their stated objects, with Schedule 1 of the Companies Act restricting what the Memorandum of Incorporation may permit. Registration does not by itself create tax exemption. Approval as a public benefit organisation is a separate application, and the ability to issue section 18A receipts for donations is a further step again.

Foreign companies doing business locally must register as an external company within twenty business days of beginning to do so. A branch is quicker to establish, but a locally incorporated subsidiary is usually better where the business will hold licences, employ people, contract with government or participate in tenders, because the subsidiary is a South African juristic person and the branch is not.

Whatever structure you choose, the compliance obligations follow: annual returns, maintenance of the securities register, the beneficial ownership filing, proper director appointments and, above the public interest score thresholds, audit or independent review. We register structures with those obligations set up and diarised, and every corporate structuring engagement is quoted as a fixed fee agreed in writing before work starts.