Partnership

Companies

Sole Trader

Public company

Private company

This is a kind of business that isowned by one person with the aim

of gaining profits. This personbears all the risks of the business

as a whole. He is the one whomanages and takes all thedecisions. He is the one who

established the business, usuallyusing his own capital.

Advantages

Easy and inexpensivebusiness to startOwner is veryindependentThe owner is in personalcontact with entity’sclientsSupervise the staffcloselytake advantage ofbusiness opportunities.Healthy competitionbetween sole traders Owner gains experiencein all aspects of thebusiness

Capital contributedcannot allowimmediate expansionof the businessA sole trader has anunlimited liabilityMay not be versatileand skilled enough todo everything for theentity.A sole trader has nocontinuity

Limitations V S

keep proper recordsall transactions must be recorded.income statement and balancesheet must be prepared at theend of the financial year.

For income tax purposes, a soletrader must:

Sole Trader Accounting Requirements:

It is a business that can be ownedby two or more but limited to

twenty partners with the goal ofmaking a profit. The agreement

can be written or verbal. Each and every partner must

contribute something in order tobe a partner.

Name of the enterpriseThe names and addresses of the partnersThe nature of the business to be conductedThe total of the capital of partnership andthe proportion to be contributed by eachpartner.The provision in respect of accountingrecords and their maintenanceDetails in respect of profit or losses sharingThe duration of the partnershipDissolution procedures on termination of thepartnership.

Partnership agreement must include:

Advantages Partners bringadditional capital andnew ideasPartners canspecialise in differentsections of theenterpriseIncreased capitalbase and division oflabour between thepartners facilitatesexpansion of theenterprise thereforethe continuity of thebusiness is enhanced.

Jointly and severallyliable for the debts ofthe partnership -runthe risk of losing theirpersonal possession.Do not have muchflexibility in decisionmaking75% of themembership consentto any change inoperationalprocedures.Lack of capitalamount to undertakebig projects mayhinder furtherexpansion.

Disadvatges V S

The partnership must keep proper recordsof its accounting books.The financial statements must be madeavailable to SARS if they are requested fortax purposes.The partnership is taxed and the Partnersare also taxed on their profits.

PartnershipAccounting Requirements:

In South Africa, a company is anentity formed under the provisionsof the Companies Act of 1973 (Act

No 61 of 1973). A company is an association ofpersons with a common goal ofcarrying on a business for thepurpose of making a profit.

Annual its financial statement, which mustinclude the following;An income statement;

A balance sheet;A cash flow statement;Notes to the annual financial statement;An auditor’s report.The annual financial statement must beprepared in accordance with GenerallyAccepted Accounting Practice and mustmeet extensive disclosure requirements.

CompaniesAccounting and disclosure requirements:

Companies in South Africa pay manydifferent taxes, such as:

Normal tax on secondary tax onCompanies (STC). The size and nature of theiroperations make it compulsory forcompanies to register VAT.

CompaniesTax requirements:

A company whose shares may notbe offered to the public for saleand which operates under legal

requirements less strict than thosefor a public company.

A company that has a minimum of twomembers to a maximum of fiftyName of the private company must end withwords Proprietary limited (Pty) Ltd.Shares of the private company are not freelytransferable.Must submit financial statements to theRegistrar on a regular basisMust hold at least one meeting per yearFinancial statements should be audited at theend of each financial yearIt has a legal personalityCan be managed by one director

Private company

Lodge thedocuments withthe Registrar ofCompanies

Submit Articlesof Association

The founders of the company must lodge thedocuments with the Registrar of CompaniesThey will then issue a certificate ofincorporation.If the Registrar is satisfied with all registrationformalities, the company will receive acertificate to commence business.That will be the time the company willcommence its business.

Registrar of Companies

What is article of association? An article of Association regulates theinternal affairs of the company such as:

Meetings and meeting procedures,The rights of shareholders,Borrowing powers of the company,

Power and duties of directors

Submit Articles of Association

A company that can be owned byminimum of seven people who can

sign association clause inmemorandum, but there is no limitto the number of shareholders, the

shareholders are limited by thenumber of shares issued.

Shares of the public company are freely transferable tothe publicName must end with words LtdLimited liability, the shareholders are liable for the debts Must appoint at least two directorsRaises capital by issuing the prospectus (the documentwhich invites the public to buy shares in the company).Company must be liquidated according to the prescribedregulations laid down in the Companies ActDouble taxation

taxed on its profits dividends since it has a legal personality

Must send its annual financial statements to the Registrar,since the affairs of this company are in the public eye.

The characteristics of a Public Company:

It is a document that introducesthe company to the public, in fact it

is the document that invites thepublic to buy shares in the

company, and the prospectus isusually in the form of a very

attractive brochure. It must be setout in such a way that the

prospective investor has a goodidea for future prospectus of theas well as brief description and or

history of the company

A statement that the prospectus has been registeredwith the Registrar of CompanyThe date of registrationThe contents of memorandum and ArticlesThere must a written invitation to purchase sharesIt must deal with shares which are available forpurchase, or offer to secure debenture in thecompanyA written consent of persons who will act asdirectors, including names, addresses and IDnumbersA statement of written consent of the auditor,attorney, banker or broker to the effect that theywill act on behalf of the company.

What should be included in theProspectus?

Advantages Large amounts of capitalcan be raised from thepublic Limited liability Shares are freelytransferable and do notaffect the continuity ofthe companyMay be listed (in SouthAfrica) on JSE.Shareholders areprotected by CompaniesAct Limiting the limitedliabilityShare in the wealth of thecountry’s economyManagement is in thehands of capable andcompetent directors

Complicated andinexpensive to establish.Failure to comply withany of the clauses iscriminal offenceThere is no personalcontact betweenmanagement andshareholdersIf a public companyfails it can have adisastrous effect on theeconomy.

DisadvantagesV S

Document withthe Registrar

Articles ofAssociation andMemorandumof Association

The founders must lodge the document withthe Registrar who will issue a certificate ofIncorporation If the Registrar is satisfied with registrationformalities he/she can issue a certificate tocommence business

Document with the Registrar

It is a document that regulates theexternal affairs of the company

The name of the company with words „Limited‟Ltd at the endThe registered address of the office of thecompanyThe objective of the companyA limited liability of the owner (shareholders)The authorisation of shares The association clause, usually this is the lastclause in the memorandum and it is where thefounders or the promoters of the companymake a formal declaration that they wish toform a company. Their names, addresses andthe number of shares they agree to buy areindicated in the association clause.

Memorandum of Association includes:

Standard IncomeTax on Employees

(SITE) Pay As You Earn

(PAYE)

Value Added Tax(VAT)

Skills DevelopmentLevy (SDL)

VAT is an indirect system oftaxation which was introduced on

29 September 1991. VAT is currently levied at 14% on

the value of all goods and servicessupplied by vendors.

Vendors are suppliers that arerequired to be registered with

SARS for VAT.

Vat the vendor charges tocustomers

Vat the vendor pays to supplier.

A= Calculation of Output Tax1. Standard Rated Supplies R0000 x 14%2. Zero-rated supplies R000 x 0%

Total AB= Calculation of Input Tax1. Standard Rated Supplies R0000 x 14%2. Zero-rated supplies R000 x 0%

Total B1. Input tax on capital goods and services R 00002. Input tax on other goods and services R00003. Adjustments including bad debts R0000

VAT payable (refundable) = Total A-Total B.

The basic framework for calculatingVAT is as follows:

Supply of financial services The supply of residential accommodation in adwelling (dwelling is a place used predominantly asa place of residence or abode of a natural person) The supply by the State or any institution of apublic character of certain education servicesThe supply of road transport for passengers The supply of rail transport for passengersTrade union subscriptions The supply by an association not for gain ofcertain donated goods

VAT Exempt supplies

Supply of crèche or after-school care for children The sale or letting of land outside the Republic The supply of services to members in the course ofmanagement of a sectional title body corporate, ashare block company, and any housingdevelopment scheme for aged persons the supplyof lodging or board and lodging by a localauthority which operates a hostel or boardingestablishment for non-profit purpose The letting of land for the purpose of erecting aresidential dwelling The supply of certain lodging or board and lodgingto employees of an employer.

VAT Exempt supplies

Zero Rated supplies are subject to VAT at 0%. Thefollowing are zero-rated supplies: Goods which are expected Sale of an enterprise or part of an enterprise as agoing-concern Sale of basic foodstuffs Sale of goods to a vendor in a customs controlledare Sale of petrol and diesel The disposal of certain “old” mining andprospecting rights

Zero-rated supplies

Site is taxation on the employee’swhich the employer withholds to

pay it over to SARS. SITE is payableon the first R60, 000 of net

remuneration. If the employeeearns more than R60, 000 of net

remuneration per annum, theemployee is then liable for Pay As

You Earn (PAYE)

Employees’ Tax refers to the tax required to bededucted or withheld by an employer from

remuneration paid or payable to an employee. The amounts so deducted or withheld must be

paid by the employer to SARS on a monthlybasis. The process of deducting or withholding

tax from remuneration as it is earned by anemployee is referred to as Pay-As-You-Earn

(PAYE).An employer who is to registered or required to

register with SARS for PAYE and/or SkillsDevelopment Levy (SDL) purposes, is also

required to register with SARS for the paymentof Unemployment Insurance Fund (UIF)

contributions to SARS.

Organisations with a payroll of +R500kneed to register for Skills Development

Levy. Portion of this levy is given toSector Education and Training Authority(SETA). This money is used for education

and training in the different economicsectors.

Failure to register or comply with theSARS requirements is severe including

penalties and criminal charges.