Legal implications in business

Legal Issues for Small Businesses In South Africa

As the owner of a small business, you have certain legal requirements that your business needs to comply with. These include insurance, licensing, taxation or selecting the correct business structure for your enterprise. Here are some legal implications for owning a small business in South Africa.

Business structure

You will need to choose a business structure before you can start a new business, and each has its own legal implications. The three main structures are as follows:

A sole proprietorship, or sole trader, is a type of enterprise owned and run by one person. There is no legal distinction between the owner and the business entity. The proprietor assumes the risks of the business to the extent of all of his/her assets whether used in the business or not. You do not have to register with the Companies and Intellectual Property Commission (CIPC) but will have to register for Personal Income Tax (PIT) and annually declare your business income to SARS via SARS eFiling.

If you have a few people who want to get into a business together, a partnership can be a great business structure to choose. This structure works as long as everyone contributes to the business operations. It requires certain terms and financial details with a partnership agreement. Each partner is taxed separately according to their share in the profits. This is similar to a sole proprietorship except that a group of owners replace the sole proprietor.

A company business structure means that the business will have separate liability from the owner. This protects you from losing personal assets should the business run into some kind of financial trouble down the road. You must register your company with CIPC and obtain a company registration number.

Trademarks, licensing and registering a business name

It is important for you to do a meticulous online search before selecting your business name. This is so that if that particular name or trademark has already been registered, it would save you from using the same name. It would also prevent you from incurring penalties, like getting a legal injunction to stop using that name.

In South Africa, you can register your business on the CIPC website. Once your official company name is registered, you should consider registering its trading name and logo as a trademark. This will prevent others from registering their company under the same name.

Business insurance

Business insurance helps protect your business in case someone sues you or your business. You should look into getting business insurance that covers basic things such as natural disasters, theft, fire, etc. Having a good business insurance plan will help you reduce financial losses in case of an unfortunate event. 

Before you choose a business insurance plan, be sure to assess what kind of risks your business could face. This will help you choose the correct insurance plan for your business. You should also re-assess your insurance plan every year. This is because as your business grows, so do your liabilities. If you have purchased or replaced equipment for example, it will be necessary to check with your insurance agent if this will affect your coverage.

Understanding tax and legal requirements

All businesses in South Africa are required to register with SARS and get an income tax reference number within 60 days of starting operations. There can be fines and other penalties for businesses that don’t register with SARS.

As a South African business owner, be sure to check the SARS website for a full breakdown of the necessary tax and legal requirements for your business. This will ensure that SARS doesn’t fine your business. It will also decrease the chance of facing any other legal penalties in the future. Ultimately, you as a business owner are responsible for filing tax and making payment to SARS accurately and on time. This is your responsibility regardless of whether or not you have a tax practitioner or someone else handling your tax matters.

Consult with a professional to ensure that you cover your business legally. The Acumen Group is a professional and accredited accountancy company offering a range of accounting, taxation, secretarial, and business management services. Contact The Acumen Group now to work with people who are dedicated to providing quality services and advice to small businesses.