Small business reference guide

Legally successful: your guide to legal-compliance for your business!

You’ve finally saved enough cash, you’ve secured the perfect location and you’ve even got a fancy office chair. In essence, you’re on your way to being a successful entrepreneur. But have you navigated the maze of legal work that is required to ensure that your budding business is operating legally? Fear not, you’re in good company. South Africa provides a dynamic environment for hundreds of thousands of thriving small businesses – and with our handy guide, your business is sure to be one them.

•    How to register a small business?

There are many options regarding the registration process for a small business. Entrepreneurs can self-register via the Companies and Intellectual Property Commission (CIPC) – formerly called CIPRO – which also offers online and postal registration. This process is the most cost-effective; however, the registration process can be time-consuming and difficult to navigate alone.

You’ve finally saved enough cash, you’ve secured the perfect location and you’ve even got a fancy office chair. But have you navigated the maze of legal work that is required?

Alternatively, entrepreneurs can register via a third-party company like Company Worx or Swiftreg, which both offer a variety of services, including the opening of a company bank account (Company Worx). Predictably, registering via a third-party company can be expensive, but the process is relatively easy and quick, and one is assured of an error-free registration.

•    Navigating the tax maze 

The tax requirements for small businesses are dependent on the type of business entity: sole proprietorship, partnership or private company.

If you choose a sole proprietorship, you do not need to register your business for tax because there is no legal distinction between you and the business. However, the income from the business must be included in your own tax return.

Similar to a sole proprietorship, if you choose a partnership there is no separate legal identity for your business. Each partner is taxed personally according to their share of the profits.

If you choose a private company, the company must be registered for tax as it is a separate legal entity. 

SARS requires provisional tax for businesses because it spreads the tax payment over the tax year, thereby preventing a large lump-sum payment. Provisional tax is not a separate tax – it is simply a method of paying your income tax during the tax year.

•    Background checks on your employees

Background checks are not legally required, but they do give you peace of mind when hiring new staff members. This is especially true if your new staff members are going to interact with clients, or manage your business in your absence.

Although costly in the short term, background checks can potentially protect your business from the long-term negative implications of hiring the wrong person. However, it is important to remember that all background checks require the consent of the candidate.

Background checks to consider:

  • credit check
  • qualification check
  • criminal check
  • ID verification
  • driver’s licence and PDP licence check.

If you are unsure about the value of a background check, it is advisable that you use an application form when hiring new staff members. This form gives you the opportunity to ask if the candidate has a criminal record, without having a potentially uncomfortable conversation. However, it must be noted that there are legal limitations to the questions that can be asked on an application form.

UIF and ‘U’

In order to comply with labour legislation in South Africa, all employers who have staff working 24 or more hours a month must register with the Unemployment Insurance Fund (UIF).

For UIF registration, there are four different options:

  • registering via email
  • registering via the telephone
  • registering at your closest labour centre
  • sending the required forms by post.

Once registered, the contribution that you must deduct from a staff member’s pay is 1% of their total earnings, excluding commission. In addition to the 1% deducted from the staff member, the business owner (that’s you!) also contributes 1% for every staff member. The total contribution paid to the UIF is therefore 2%.

•    Is your business correctly zoned?

For those new to the term ‘zoning’, this refers to property zoning. Property zoning is determined in town planning schemes, which designate possible land use, floor area and coverage, parking provisions and building lines.

If you are operating your business from an area previously designated for residential use and you intend to receive clients, suppliers and employees at this space, then it is advisable to consult a lawyer about a zoning application. The application process is lengthy and complicated, therefore a lawyer is recommended. For more information regarding zoning, consult your local municipality.

This article is for information purposes only and is not intended to provide – and should not be relied on for – tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before making any business decisions.