Company Formations

Definition: A profit Company is operated for the purpose of financial growth for the shareholders. Profit Companies are formed by one or more incorporators, also known as promoters. There are four different types of Profit Companies which may have any number of shareholders.

Profit Companies are divided into five types:

1.1 Pty Company (A Private Company)

1.2 Public Company

1.3 Sole Proprietor

1.4 Partnership

1.5 Personal Liability Company

Characteristics and Definitions of Profit Companies in South Africa

1.1) Pty Company (A Private Company)

Definition: A Pty is a privately owned company, which replaced the Close Corporation (CC) format in 2010. The securities of a Pty Company are not available to the public and transfer of the securities are prohibited in the Memorandum of Incorporation.

Characteristics:

• A minimum of one director is needed to run a Pty Company.
• One or more incorporators are needed to register a Pty Company.
• It is not necessary to register an Auditor, Company secretary or audit committee for a Pty Company.
• The financial statements of a Pty Company does not need to be audited, but it has to be reviewed independently.
• New company shares can be issued by the shareholders.
• A Pty Company can either be a large or a small business.
• According to the Companies Act of 2008, only those Directors that were directly involved in an action against the law should be held responsible.

This is the Company Format most businesses in South Africa use. To apply for a PTY, please go to our Company Registration Application Form.

1.2) A Public Company

Definition: A Public Company does not have certain privacy restrictions like a Pty Company. For example, the securities of a Public Company may be propagated to the general public.

Characteristics:

• Board of Directors should be formed out of three Directors.
• A Public Company has to appoint a Company secretary, an audit committee and an independent auditor.
• Social as well as ethics committees have to be appointed.
• An annual audit of the Public Company’s financial statements has to occur.
• A Public Company can have any number of shareholders.
• Unlike a Pty Company, a Public Company has to have an annual meeting with all the shareholders present.
• The shareholders have no prior rights over new shares being issued.

1.3) A Sole Proprietor

Definition: A business entity that is run by a single owner and where there is no distinction between the two.

Characteristics:

• The owner is the only resource of the Company.
• Credit might be easily extended, but unlimited liability for Company debt can result in problems.
• Creditors may take the owner’s position to settle outstanding debt in case of bankruptcy.
• Continuity could be especially difficult in case of a new owner, due to the fact that the new owner would have to take full responsibility and acceptance for everything.
• The owner receives all the profit.
• The use of the owner’s time is very flexible.

1.4) A Partnership

Definition: A business owned by two or more individuals who share management and profit.

Characteristics:

• The partners are responsible for each other’s actions.
• All of the partners are responsible for the business’ debt.
• The number of shares allocated to each partner will be determined by the incorporators.
• Partnerships are easy to start, without a big investment.
• A partnership can offer favourable taxes.

1.5) A Personal Liability Company

Definition: A Personal Liability Company Inc. is a private company that is mainly used by ‘associations’ such as Lawyers, Engineers and Accountants. The Company’s Name must end with the word “Incorporated”. It operates on the principle of ‘personal liability’. This term means that the directors of the company, as well as previous directors, will be responsible for the debts of the company. 

Characteristics:

• A Personal Liability Company’s name must end with the word ‘Incorporated’ or with its abbreviation ‘Inc’. It is important that it is mentioned last in the company’s name and not at the beginning or in the middle.
• Just like with a private company, a Personal Liability Company is also required to have a minimum of one director on the board of directors. The Memorandum of Incorporation can however be altered to require more than one director on the board of directors.
• A Personal Liability Company is also, just like a private company again, not required to appoint an independent auditor, a company secretary, or an audit committee.

To apply for a Personal Liability Company, Click Here.