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A new venture can be thrilling, but hold the champagne for a sec… because there are a few legal boxes that need ticking before the smooth sailing begins.
Some businesses require more legal prep than others, some a little less. So, in the interests of finding a middle ground, we asked attorney and conveyancer Wendy Mvinjelwa for the nine legal matters most companies need to address before opening their doors for business. Notebooks out, let’s begin…
1/ Naming and registering your business
This is the most exciting part of being an entrepreneur – well, other than all the profit you’ll be raking in (wink). A business name can have a big impact on the actual business’s success, and specifically how your consumers engage with the brand. As far as marketing is concerned, a clear, recognisable, memorable name will always be first prize.
“How a name can be helpful in your marketing is best illustrated by how people refer to cool drink as Coca Cola or toothpaste as Colgate,” says Wendy. Just make sure the name you choose hasn’t already been taken. “Conduct a thorough trademarks search to ensure your business name doesn’t lead you to some costly litigation later that is easily avoidable from inception.”
2/ The legal structure of your business
The Companies Act is comprehensive, providing for start-ups and more complex business structures. An experienced attorney will help you choose a suitable legal structure for your business. Options include a sole proprietorship, partnership, (Pty) Ltd, public company or franchise.
Ultimately, the structure you choose will depend on what best serves your business needs and how you plan to expand, if at all. Once you’ve decided on the type of business entity, the next step is to register with the Companies and Intellectual Property Commission (CIPC) and South African Revenue Services (SARS) as a taxpayer.
3/ SARS registration
Whether you’re trading as a legal entity or personally, you need to be aware of the tax implications and register as a taxpayer. “When your business taxes are separate from your personal taxes, it might assist you when creditors attempt to recover funds from your business in the future,” says Wendy. “It may serve as proof that a separate legal personality exists – unless you personally held yourself liable by providing security.”
When your business is incorporated, it’s automatically assigned an income tax number; then you merely submit the required documents to SARS to finalise the registration process.
Sole proprietorships are taxed on profits in an individual capacity. In a partnership, each partner is taxed on their share of taxable profits in an individual capacity, because a partnership isn’t registered separately for income tax purposes.
You’ll find all the info you need on the SARS website and it’s always a good idea to chat to a tax practitioner for guidance.
4/ Licenses and zoning laws
For some businesses, an extra requirement for registration with CIPC and SARS involves getting mandatory business licenses prior to the commencement of business activity. The number of licenses for the business will depend on the kind of establishment you’re creating. You may need to comply with the following requirements: zoning, health, safety (particularly in cases where there is a fire). Your local authority should be able to guide you on the licenses you need.
Your starting point is the Compensation for Occupational Injuries and Diseases Act (COIDA), which ensures there is some financial compensation or medical coverage for employees in the case of injuries (or diseases) sustained at work.
Every business should also consider employer’s liability insurance to avoid paying out of pocket when an employee suffers a job-related injury or illness. This type of insurance pays additional compensation over and above workers’ compensation benefits and workers’ compensation provided by COIDA.
You might also want to consider public liability insurance or professional indemnity insurance, which covers the employer and the employees for potential liabilities to third parties. Your banker should be able to assist with advice around the right insurance for your business.
6/ Health and safety laws
As a business owner and employer, you are required by law to provide and maintain, as far as reasonable and practical, a work environment that is safe and without risk to the health of the employees as a minimum standard.
In terms of the Occupational Health and Safety Act, Act 85 of 1993, the employer is obligated to have a health and safety policy in place. While it isn’t compulsory for all businesses, you as the employer still have to inform (preferably in writing) employees and contractors of work-related risks and dangers and how they could be prevented.
7/ Confidentiality and non-disclosure agreements
As a business, you are constantly negotiating and collaborating with third parties, exposing yourself and employees to releasing sensitive information about the business. This is where non-disclosure agreements (NDAs) and confidentiality agreements come in.
A confidentiality agreement is necessary when a higher degree of secrecy is required, while an NDA stops the employees and third parties from disclosing info about your business, clients and operations to the public.
While they might seem similar, the confidentiality agreement requires the other person to be more proactive about keeping the information secret. But both types of agreements instil a degree of trust, which is helpful when negotiating.
8/ Protection of personal information
The Protection of Personal Information Act is aimed at protecting people by regulating how personal information about them should be collected, used and destroyed. It also gives effect to peoples’ right to privacy as enshrined by the Constitution, which can stop theft of people’s money or identity.
9/ Lastly, align yourself with an experienced attorney and banker
This list is certainly not exhaustive – you’ll still need to consider labour laws when employing people. But at least you’ve laid the groundwork for a legally sound business. Note: Due to the unique needs of every biz, it’s best to consult with an attorney, banker and other professionals in your industry. Okay, now you can start shaking up that old champagne bottle…