Many people form a company and start a business without knowing what this really entails. So, here are the basics in FAQ format –
What is a company?
It is a legal entity (person, if you like) which is separate from those who own it and those who run it.
Who owns a company?
People, other companies, trusts or other legal entities buy shares in a company and the more shares they own the bigger their “shareholding” in the company.
Who runs it?
It is the Directors who run the company, not the shareholders.
How does one get to be a Director?
The Directors are appointed by the shareholders to run the company for the benefit of the shareholders (owners).
Can a shareholder be a Director?
Yes and, for smaller companies, that is the usual arrangement.
What is the difference between an executive and a non-executive Director?
The first is an employee of the company and the second is not. Non-executive Directors attend Board Meetings where the running of the company is discussed, but do not actually take part in the day to day activities. Most smaller companies have only executive directors.
How do the Directors get paid?
In smaller companies, usually by means of a salary, car allowance and little else. In other words, just the same as any other employee.
How do shareholders get paid?
If the company has spare cash, it can declare a Dividend to the shareholders. This rarely happens in smaller companies, so the shareholders don’t normally get paid at all (except in their probable role as Directors).
Does a company have to register as a taxpayer?
Always. In fact, the company is automatically registered when it is formed.
Do the executive Directors have to pay PAYE?
Yes, just like any other employee.
What tax returns does the company have to submit?
A 1st Provisional return halfway through the company’s financial year.
A 2nd Provisional return at the end of the company’s financial year
An Annual return one year after the end of the company’s financial year.
Are there any other returns that must be submitted?
Yes. All companies must submit an Annual return to CIPC (what used to be called CIPRO) in the month following the anniversary of the company’s date of registration.
What if the company hasn’t traded?
All of the above returns must be submitted whether or not the company traded.
What happens if the returns are not submitted?
If tax returns are not submitted, then SARS may impose penalties and it will not be possible to obtain a Tax Clearance Certificate until the outstanding returns are submitted.
If the CIPC returns are not submitted, CIPC will (after two or more years) de-register the company.
Can a de-registered company be restored?
Only if it owns fixed property or was trading when de-registered. It is complicated and expensive and in the latter case it is often not worthwhile, so most people simply form a new company and start again.
What else must the company do?
As soon as it starts paying any salaries, even if only to one Director, it must be registered as an employer with SARS, UIF and WCC.
It must (yes, must!) keep proper books of account from when it starts trading. These are essential for the completion and submission of the annual tax returns.
Should I do all this myself or should I farm it out?
You should engage professionals, such as ourselves, to take care of the returns and to do the payroll.
However, if you have the time and the inclination, you would do well to tackle the bookkeeping yourself. Firstly to save money and secondly, so that when you do eventually subcontract it (again, we provide this service), you will understand what the bookkeeper is doing and whether they are competent or not (mostly not!).
So when should I farm the bookkeeping out?
When you can make more money for the business in the time saved than what the bookkeeper(s) charges you.
Any final advice?
Yes. Give great service and manage your cash!