Starting a business in South Africa – the right legal advice can make all the difference

November 11, 2022
Commercial Law
Starting a business in South Africa

Starting a business in South Africa can be tremendously exciting and yet daunting at the same time, especially if it’s your first time. Although South Africa is ranked as one of the leading entrepreneurial countries in Africa, very little input is given during our school years to make us aware of what the legal requirements of starting a new business entail. As a result most people rely on family and friends for advice. Sometimes the legal requirements of starting a business are overlooked or misunderstood or, as many an entrepreneur can attest, cash flow is an issue and there simply aren’t extra funds available to seek proper legal advice. Aside from limited cash flow, very little can sink a business faster than ignoring legal and statutory requirements. To this end, we’ve outlined some essential principles and key legal aspects that you should bear in mind as a small business owner in South Africa, to help guide you through the process of starting and growing your new business. We strongly recommend that you seek professional legal advice when in doubt, as sorting out problems afterwards could prove to be difficult and costly.

Market Research, Intellectual Property and Brand Protection

Now that you have your hot new business idea, a good starting point is to conduct thorough market research and test whether your idea is viable. This entails:

  • Identifying your customers
  • Considering the level of competition in the market
  • How potential customers will respond to your product or service
  • Identifying your USPs (Unique Selling Points)

Before you commence trading, check whether your brand is available and if so, register your trade mark. This would not only ensure that you are legally entitled to use the brand but can also stop others from doing so. If you will be using unique technology, it is imperative that your intellectual property (IP) is secure and protected prior to making commercial use.

Funding your business and opening a business bank account

You will need to determine what your financing needs are and how to finance your business for example, how much funding you require and how you will cover the costs of launching and operating your business, whether you will be self-funding or whether you will require an initial loan from a financial institution or an investor.At this stage, it may be worth seeking expert legal advice from a trusted practitioner regarding the legal implications of signing loan documents, suretyships and cessions, as a breach of any of these documents could result in personal liability and potential financial ruin.

Business structure – which is best structure for your business?

The business structure you choose will inevitably impact your legal protections and tax obligations, whether you conduct your business as:

  • A Sole Proprietor or sole trader- a simple structure where you are the only person in your business,
  • Form a Partnership - is where between 2 and 20 partners are operating the business with, each partner contributing to the business be it financial or otherwise, the terms of which are agreed between partners.
  • Private Company (or Pty Ltd) is a legal entity created with separate liability from the owners. This means that the company as an entity is liable for its debts and the owners are not at risk of losing their personal assets, should the company run into financial problems.

It is prudent that once you have chosen your business structure to ensure that all necessary agreements are in place, which would involve obtaining clarity on the rights and responsibilities of the parties involved, how the business will be managed and the manner in which disagreements between the parties will be resolved.

Registering your business with the CIPC

By law, all businesses in South Africa need to be registered with the CIPC. The Companies and Intellectual Property Commission is an agency of the Department of Trade and Industry in South Africa, whose mandate is to assist with the registration of companies and intellectual property rights, which includes designs and copyright, patents and trademarks.

Business Law, regulations, license and permits

As a business owner, it is your responsibility to ensure that you comply with all applicable laws and regulations when starting and conducting your business. There are various legal requirements, which include but are not limited to:

  • Tax obligations – for example,registering for VAT
  • The Protection of Personal Information Act, (POPI) which comes into effect on 1 July 2021
  • Employment laws

It is also important to ensure that you investigate whether or not your specific industry has a regulatory body and if applicable, that you register with that regulatory body. A regulatory body protects customers and those specific industries. Depending on your industry and the location of your business, you will be required to have all the necessary licenses and permits in place to ensure compliance when conducting your business. For instance, should you open a liquor store, you would need to ensure that you have a liquor license in place in order to trade.It is prudent to contact the municipality in which your business operates as the location of your business will also determine whether there are any municipal or zoning requirements that may impact the operation of your business.

Insurance for small business in South Africa

It is prudent business practice to arrange insurance coverage for your business. Certain types of insurance may be compulsory for various types of businesses, whether it is mandatory according to legislation or when your business enters into agreements with customers or landlords. It is recommended that prior to starting your business that you approach a business consultant or legal expert to advise you on all legal requirements to protect both you and your company. We wish you the very best and every success in starting your new business and joining the ranks of entrepreneur! While many late nights and hard work lie ahead, the satisfaction of building your dream as well as the financial rewards and personal freedom that comes with owning your own business makes it all worthwhile. We do caution you not to spend sleepless nights trying to solve complex legal issues on your own or to Google the law – which comes at a huge risk of misunderstanding or misinterpreting it, causing further problems down the line. Rather reach out and contact our expert commercial law team who will provide you with the best practical legal advice relating to your specific needs. Please contact us today to see how we can assist you.