Types of companies

Preliminary stages of writing a business
plan

Types of Companies

There are two types of companies that can be incorporated under the Companies Act, 2008. These encompass:

1. Profit companies
2. Non-profit companies

1. Profit companies

In terms of profit companies, the following types of companies can be incorporated:

Private Companies

Private companies are incorporated for the purpose of financial gain for their shareholders. Private companies are prohibited from offering securities to the public. In addition, the transferability of their shares are also restricted. Previously, private companies were restricted to 50 shareholders; however, this has now changed under the Companies Act, 2008.

Advantages

Limited liability
Allows for ownership and control to be more practical for a greater number of people
Allows for incorporation
Can have more than 50 shareholders

Disadvantages

Can have cumbersome tax and financial audit requirements
Subject to capital gains tax

Public Companies

A public company is a profit company that is not a state-owned company, a private company or a personal liability company. The difference between public and private companies is that public companies may offer their shares to the public.

Advantages

Public companies have limited liability
They can have an unlimited number of shareholders
Shares are transferable

Disadvantages

Annual financial statements must be prepared within six months after the end of the financial year. These financial statements must also be audited.
Constant rate of tax regardless of the income level
Subject to capital gains tax

Personal Liability Companies (Inc)

This type of company is characterized by having unlimited liability. The directors and past directors are jointly and severally liable together with the company for any liabilities arising during the period of office.

State Owned Companies

These are entities that are either owned by a municipality or defined as a ‘state owned enterprise’ by the Finance Management Act 1 of 1999.

2. Non-profit companies

Non-profit Companies (NPC)

Unlike private companies, non-profit companies are not set up with the objective of making profits. Income generated from non-profit companies are not distributed to members, incorporates, directors, officers or persons related to them. Income is used for the overriding purpose/ mission of the non-profit company.

Advantages

They exist as a legal entity in their own right and separately from their founders, members or directors
The incorporation of such companies puts the overriding purpose of the entity above the personal interests of the directors, members or incorporates. Non profit companies are in a position to raise funds by soliciting charitable donations from the public
Non-profit companies positively contribute to the welfare of society
Non-profit companies benefit from partial tax exemptions and donor deductibility for contributions to non-profit companies

Disadvantages

They are not set up for profit, hence, in most cases, they are not as competitive as private or public companies
A non-profit company may not amalgamate or merge with, or convert to, a profit company
It may not dispose of any part of its assets, undertakings or business to a profit company at a profit. Such transactions should be at fair value. Exceptions are however possible where the disposal of assets occurs in the ordinary course of the activities of the non-profit company

Foreign and External Companies

A foreign company is defined as follows:

It is a company incorporated outside of South Africa, irrespective of whether it is a profit or non-profit company or carrying on business in South Africa or not. A foreign company is required to register as an “external company” with the Companies and Intellectual Property Commission if it conducts or intends to conduct business in South Africa. The Companies Act in terms of Sect 23 lists a series of activities which will be regarded as conducting business. This list is much broader than the provision in the 1973 Companies Act relating to a “place of business” in South Africa.

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