CIPC: A Deeper Look At How It All Works – Part 1/3

Welcome back to another DID YOU KNOW? chapter where we breakdown everything business and finance simply for SMEs to understand.  In today’s topic, we focus on all things CIPC, how it works, where it comes from, and how to navigate it (eService portal).  Now let me set the tone for this week’s article – it’s all about your close relationship with CIPC going forward if you wish to become a legal business entity. We have pubilshed Part 2 & Part 3 if you wish to read the three part miniseries in sequence, but back to this chapter.

History

The 2008 Companies Act came into effect on 1 May 2011,.  The CIPC was created from the merger of Companies and Intellectual Property Registration Office (CIPRO) and the Office of Company and Intellectual Property Enforcement (OCIPE). The first months of operation were marked by inefficiency, poor service, and large backlogs as the organisation struggled to overcome the legacy of its dysfunctional predecessor CIPRO.

In April 2013 it was described as “groaning under its own burden of registration under the Companies Act” and suffering from “administrative failures”.  In September 2014 the CIPC’s new website, intended to automate several routine administrative processes, was criticised as dysfunctional followed by revelations that the site had no security measures to protect confidential client information.

Functionality 

• Registration of Companies, Co-operatives, and Intellectual Property Rights
  • Trademarks
  • Patents
  • Copyright
• To disclose Information on its business registers and the maintenance thereof
• To promote education and awareness of Company & Intellectual Property Law

We will begin by explaining the company registration function of CIPC in greater depth, giving you a deeper understanding of how it all works now that we have given you a brief history of CIPC. First of all, let’s talk about the different registration types for your business and which one you should choose:

Sole Proprietorship: the simplest and most common form of business conducted by a single individual (the “Sole Proprietor”).  The owner can conduct business under their own name by simply doing business; for example, as “John Doe”. A sole proprietor can also do business under a trading name such as “John’s Jet Skis” or “Super Skis”.

Below is a table comparing the two different entities:

Close Corporation (CC): a legal entity much like a Pty (Ltd); it is run and administered by its members, who must be natural persons (i.e. no other legal entities). A close corporation’s members are like a Pty (Ltd) Directors

Below is a table comparing the two different entities:

Side Note: A CC can no longer be registered at CIPC due in part to the 2008 Company Act that made CC redundant but it is still maintained by CIPC if you have not changed to a Pty (Ltd).  They can be purchased as an operational entity if you choose.  If you are interested in purchasing a CC we can do an in-depth article on how to proceed and identify the things to look out for and what not to do.

For additional information: Please Click Here

Private Company – Pty (Ltd): This is a company that is treated as a separate legal entity and has to register as a taxpayer in its own right.  It has a separate life from its owner/owners and is required by The Companies Act of 2008, to perform rights and duties of its own.  They are incorporated by one or more persons (can have Juristic shareholders), must have at least one director, and does not offer its shares to the general public. It is an excellent way to conduct business in South Africa.

Below we have listed the advantages & Disadvantages

When to register scenario: This is a simple and easy question to answer, when you no longer wish to be a Sole Proprietor, that puts you at high risk in your personal capacity.  It separates you from your business and your business from you.  A CC can be converted to a Pty (Ltd) company.

Personal Liability Company – INC: This is an entity mainly used by associations such as lawyers, doctors, engineers, and accountants. The principle difference between a Personal Liability Company and a Private Company is that directors of a Personal Liability Company, as well as previous directors, can be held responsible for the debts of the company. However, the owner of a Private Company is considered separate from the company.

Below I have listed the Advantages and Disadvantages:

Side Note: When setting-up a Personal Liability Company the following should be front and centre of your mind Personal Liability Companies are not for an average business they are usually used by professionals that are required by law to have a greater degree of liability for the directors of the company. In plain English, all it means is that individuals who have spent years at university obtaining degrees to work in a specialised field.

For additional informan: Please Click Here

Co-Operatives: This is a private group of small business owners or individuals that opt into pooling their resources to benefit all its members to maximise the goals. A Board of Directors is elected and officers run the cooperative while regular members have voting power to control the direction of the cooperative. Members can become part of the cooperative by purchasing shares, though the amount of shares they hold does not affect the weight of their vote.

Below I have listed the Advantages and Disadvantages:

Side Note: Once again just like a Partnership there are different types of Co-Operatives and below we have listed it for you:

• Producer, Consumer, Workers
• Housing, Financial, Multi-Stakeholder
• Non-Profit Community Services

These are just a few of the different types of Co-Operatives that can be set-up for different reasons but what you should remember is that a Co-Operative can be a good and bad thing.  To be part of one there needs to be ethical leadership or it is doomed to failure from the start.

For additional information: Please Click Here

Non-Profit Company – NPC: This is an entity that is set up to help people, protect the environment, or to lobby for a good cause. They could include churches, charity organisations,  cultural organisations, and many more.

Below I have listed the Advantages and Disadvantages:

Side Note: The primary objective of an NPC is to benefit the public, not to make a profit. The income and property may not be distributed to the incorporators, members, directors, or officers of a non-profit company, except as reasonable compensation for services rendered by themselves.

Partnership: Formed when two or more people (limited to 20) wish to come together to form a business. Partnerships are a good way to conduct business for many people especially when used for small businesses with a low turnover however they do not offer the same security that comes with entities like a Pty Limited particularly as they are not legal entities in the eyes of the South African law.

Below I have listed the Advantages and Disadvantages:

Side Note: There are different types of partnership and they are as follows:

• Ordinary partnerships – the most common form and partners are liable jointly for the profits and loss of the venture.
• Anonymous Partnerships –not to be disclosed to the general public and will not be liable to third parties but will be liable to other partners for a pro-rata share of the profits.
• En-commandant Partnerships – a partner is only a financial contributor but has no say in the way the partnership is run.
• Universal Partnerships – cannot be chosen, it is enforced by court order and used to ensure the division of assets between other partners.

We end this chapter off with the general rule of thumb, do not register multiple businesses because that leads to all types of tax complications.  Rather create one entity that has multiple-divisions within. In our next chapter, we look at other lesser-known functionalities of CIPC that could be useful to a business owner or just useful information that you can impart to someone else in your inner circle.  “Knowledge is power” so stay tuned for more interesting Did You Know?