Starting a business is exciting and while most founders focus on sales & marketing, there is a plethora of legal requirements that must be met to ensure compliance and protection for your business. Understanding these requirements is crucial for long-term success and avoiding legal pitfalls. This blog post outlines the primary regulatory requirements that start-up founders should be thinking about.
The first step for any start-up in South Africa is to select a business structure. Each business structure has its own set of pros and cons:
If you select a Pty Ltd or NPC as your form of business, then the business needs to be registered with the Companies and Intellectual Property Commission (CIPC). Registration involves choosing a company name, submitting an application form and uploading supporting documents such as the identity documents of the director/s and paying the required fee. Once registered, the business receives its founding documents including its registration number, which is essential for all further legal and financial transactions.
Shortly after registration, you will need to file the beneficial ownership of the company. If you register a Pty Ltd and there is more than one owner (shareholder), then it is also highly beneficial to put a shareholders’ agreement in place to regulate your roles, responsibilities, profit sharing, dispute resolution and share disposal arrangements. Failing to put an agreement in place can increase the risk of disputes arising between shareholders, especially once the company starts making money.
There is a requirement to keep your CIPC records updated in respect of changes to directors, addresses, beneficial owners and memorandum of incorporation updates. There is also a requirement to file an annual return with CIPC.
Once registered, the business must register for tax with the South African Revenue Service (SARS). This includes appointing a representative in respect of all tax affairs with SARS, obtaining an Income Tax Reference Number, registering for Value-Added Tax (VAT) if the business's annual turnover exceeds R1 million or if you wish to claim back all VAT on goods and services acquired, and complying with Pay-As-You-Earn (PAYE) obligations if the business employs staff. It is a good idea to retain an accountant to assist with your SARS and CIPC filings, preparation of annual financial statements and payroll processing.
Start-ups that employ staff must comply with South Africa’s labour laws, which are designed to protect employees' rights and promote fair labour practices. The Basic Conditions of Employment Act (BCEA) requires that you put in place an employment contract with all employees including a job description, working hours, remuneration, notice period for termination, leave entitlement etc. The BCEA also dictates the minimum requirements for compliance with labour laws such as giving employees 15 working days of annual leave.
Businesses that provide goods or services to consumers must comply with the Consumer Protection Act (CPA). Businesses must ensure that their products and services meet acceptable standards of quality and safety. Consumers must be provided with sufficient information to make informed choices about products and services. Misleading advertising, unfair contract terms, and other unfair business practices are prohibited. It is imperative that your terms and conditions are drafted in compliance with the CPA.
Protecting intellectual property (IP) is essential for start-ups to safeguard their innovations and brand identity. South African law provides for the protection of trademarks, copyrights and patents, some of which require registration with CIPC.
Registering a trademark with CIPC provides legal protection for the business's name, logo, and other brand elements. Obtaining a patent will protect new inventions and innovations, granting the patent holder exclusive rights to use and commercialize the invention.
To protect their interests and comply with regulatory requirements, start-ups should put in place various legal documents and templates. Depending on the type of business, these could include:
Certain businesses are required to obtain special permits or licenses to trade. For example, any business that sells foodstuffs, liquor or goods defined as ‘medicine’ will need to apply for licensing to ensure that they are safe for public consumption. The provisions of certain services will also require licensing, such as financial services. In addition to licensing, regulations may place additional requirements on your ability to trade. Product labelling is regulated to ensure that consumers are aware of ingredients, expiry dates and manufacturing information, for example. Before commencing trade in any regulated industry, it is important to retain legal counsel to assess your compliance obligations.
Navigating the regulatory landscape is a critical aspect of establishing and running a successful start-up in South Africa. By ensuring compliance with the relevant laws and regulations, businesses can avoid legal issues and focus on growth and innovation. It is advisable for start-up founders to seek legal advice and stay informed about changes in legislation to maintain compliance and achieve long-term success.