BLACK ECONOMIC EMPOWERMENT

“Accordingly, government defines BEE as an integrated and coherent socio-economic process

that directly contributes to the economic transformation of South Africa and brings about

significant increases in the numbers of black people that manage own and control the countries

Economy, as well as significant decreases in income inequalities.

Thus BEE process will include elements of human resource development, employment equity,

enterprise development, preferential procurement, as well as investment, ownership and control

of enterprises and economic assets.”

(www.sagovdocuments.gov.za)

UMSOBOMVU YOUTH FUND

Government created the Umsobomvu Youth Fund (UYF) in January 2001, and gave it the task of promoting entrepreneurship, job creation, skills development and skills transfer among South Africans between the ages of 18 and 35.

The UYF is dedicated to investing in things that create opportunities for young people to get good skills, find job opportunities or even start their own successful businesses.

How to access this youth fund

To access the Umsobomvu Youth Fund’s guides and fact sheets and any of its products and services that relate to Starting a Business, expanding a business or creating business opportunities for others. Contact their offices located around the country and if you are in the Ethekwini Metro you can go to Ethekwini Business development Center now known as SEDA at Alice Street next to the Kwamashu taxi rank or simply log on to their web site www.uyf.co.za .

(http://www.uyf.org.za/inveloper)

Partnerships

Definition

“Partnerships are sort of like sole proprietorships for two or more people. Again, there is no need to register your partnership with the state, and like with a sole proprietorship, you are taxed individually, i.e., each partner is taxed on the partnership’s profits – so there is no need to file separate returns for your business.

And although you do not have to register a partnership, you are well-advised to draft a written agreement laying out the terms of the partnership. The partnership agreement, at a minimum, should outline each partner’s share in the profits, losses, and funding obligations. Furthermore, the partnership should detail what happens to the business should one of the partners die.

The major disadvantage, of course, is that the members of a general partnership are fully liable for the debts and obligations of the partnership. If your company is sued, then each partner will have to pay the damages and attorneys fees – and if the damages are steep, you could lose your shirt – and your house.

A limited partnership is similar to a general partnership except that the limited partners are only liable for what they put in to the partnership. Limited partners are like investors into the partnership – they can only lose what they invest. However, limited partners are not allowed to have any say in the management of the partnership.”

(www.legal definitions.com)

Characteristics

Partnerships can broadly be classified according to:

 The liability of the partners, which may be shared by all the partners proportionally (ordinary partnership)or be limited to certain partners (extraordinary partnership),and

 The extent of profit sharing, which may relate to all the income of the partners(universal partnership)or be limited to the income derived from a specific venture(particular or ad hoc partnership)

Formation

A partnership is formed by the persons who wish to become business partners entering to valid business agreement. The parties to the agreement may be natural or legal persons.

The agreement may be

An oral agreement

A written agreement

Essentials of a partnership

The requirements to form a partnership were set as follows by InnesCJ in uysVS Le Roux

To constitute a partnership there must be some contribution of money value, skill, labour or their equivalents, by both persons concerned there should be an intention of doing business or undertaking for a common business goal there should be an agreement to share profits and losses propotionall.When these elements are present a court of law would as a general rule be justified in finding that there was a partnership.

The following essential elements will now be briefly considered:

 Valid partnership agreement

 Contributions by persons

 Sharing of profits and losses proportionally

 Common benefits of partners

 Lawfulness

 Mutual mandate

At this stage a partnership is established, profitful business operations may be undertaken.

Advantages

      It can be formed and managed without having to comply with formal requirements. All that is required is a partnership agreement.

      It is flexible and can be formed for a single venture or an ongoing one.

      The initial contributions and other business assets are owned by the partners, insteard of a single separate legal person.

      A partnership may have natural or legal persons as members unlike the cc whose members are restricted to natural persons.

Disadvantages

      An ordinary partnership does not provide limited liability.

      A partnership does not have perpetual succession

      A partnership may have more than twenty partners (except certain professional partnerships) this may limit the future growth of the partnership.

The private company

Definition

Registered private companies are granted Proprietary Limited or "(Pty) Ltd” status

“A private a company is a business entity owned by shareholders and their shares cannot be sold to the public. In terms of the Companies Act, 1973, a private company must have at least one to 50 shareholders. Shareholders are often referred to as the directors of the company.”

.

(http://www.services.gov.za/en-za/Registeraprivatecompany.htm)

Formation

The registration procedure for a private company involves a detailed process. Because of the complexities of the procedures involved, the services of attorneys must be used in the registration process.

      Contact the Companies and Intellectual Property Registration Office.

      Complete the following forms:

Ø      Reservation of a company name – Form CM5 with R50 deposited into the client’s customer code

Ø      CM22 (in duplicate) – Authorisation of situation of registered and postal address

Ø      Power of Attorney – Notification to act on behalf of promoters

Ø      CM29 – Return containing particulars of directors, officers

Ø      CM31 – Consent to act as auditor

Ø      CM46 – Application for certificate to commence business and R60 deposited into the client’s customer code

Ø      CM47 (by each director) – Statement by directors regarding adequacy or inadequacy of share capital

Ø      Complete the memorandum and articles of association

      Pay the prescribed fee.

Forms to complete

Reservation of a company name - CM5.

      Authorization of situation of registered and Postal address (in duplicate) CM22

      Power of Attorney – Notification to act on behalf of promoters.

      Return containing particulars of directors, auditors and officers CM29.

      Consent to act as Auditor, CM31.

      Application for certificate to commence business CM46 

      Statement by directors regarding adequacy or inadequacy of share capital (by each director) CM47

      Memorandum and articles of association CM2.

Cost

      R350 – Memorandum and Articles

      R60 – Certificate to commence business

      R50 – name reservation

      R5 – per every 1 000 shares issued

Total: R465

(http://www.services.gov.za/en-za/Registeraprivatecompany.htm)

Characteristics

Form of organization

Private companies may be called corporations, limited liability companies, partnerships, sole proprietorships, business trusts, or other names, depending on where and how they are organized. Different jurisdictions have varying laws that call business entities by different names. Each of these categories may have additional requirements and restrictions that may impact income tax liabilities, governmental obligations, employee relations, marketing opportunities and other business decisions.

Reporting obligations and restrictions

Privately held companies generally have fewer or lesser reporting requirements for transparency, via annual reports, etc. than do publicly traded companies.

Private companies also sometimes have restrictions on how many shareholders they may have. For example, section 113 of the Corporations Act 2001 limits a private company to fifty non-employee shareholders.

(http://www.answers.com/)

Advantages

  A private company is a separate legal entity, so your personal assets are never in any danger;

   The liability of the directors is limited;

  A private company can have a maximum of 50 members;

   The Companies Act, memorandum and articles provide clear guidelines about how a company can operate;

   Shares are easily transferable;

   There can be continuity of family control;

  A company is a separate entity for tax purposes, and there are some tax saving benefits; and

  A company can arrange for staff, or the public, to buy shares.

Disadvantages:

  A company pays a constant rate of tax regardless of income;

 The law requires a greater disclosure of financial affairs; and

  An annual audit must be performed

The close corporation

Definition

Close Corporations are governed by the Close Corporations Act 69 of 1984

The Close Corporation (CC) is a more simplified and flexible business than a company. It is ideally suited to small businesses. The managerial and administrative requirements for Close Corporations are less formal than for companies.
In contrast to a company, the CC act has been so designed that the ordinary person would be able to draft the papers and register the corporation by her/himself.

Although a Close Corporation is required to have an Accounting Officer, audited financial statements are not required. The Companies Act prescribes compulsory meetings for Companies, such as annual general meetings. There are no equivalent requirements for Close Corporations. Meetings are usually held between members on an ad hoc basis. The members of CCs do not all have to take an active role in the running of the business. Although in most CCs, the “members” are also the managers of the business.

Characteristics of a close corporation

    A corporation is a juristic person and has the capacity and powers of a natural

person of full capacity, insofar as these are appropriate to a legal

person (S2(4)). These rights do not vest in, nor do individual

members owe the duties. The profits made by a close corporation

belong to the corporation and not to the members until properly

declared as a distribution,

    has perpetual succession and continues to exist as a juristic person

despite changes in its membership (S2(2)),

    may not have more than ten members all of whom must be natural

persons (S28),

   may itself buy a member’s interest. As membership is restricted

to natural persons (S2(2)) a member’s interest cannot be

registered in the name of the corporation. Where a corporation

acquires the interest of a member the requirements of S38(c) must

be complied with whereby the interest acquired must be added to

the respective interests of the other members in proportion to their

existing interests or in some other agreed proportion (also refer

paragraphs .82 to 84),

    provides limited liability to its members; however, members may

be held jointly and severally liable for the corporation’s debts

should they have contravened certain of the provisions of the Act

(refer paragraph .12), and

   has a capital account, which is termed “contribution”. The

contribution is stated in the founding statement and may be varied

by lodging an amended founding statement signed by all members,

provided a reduction may only be made where solvency and

liquidity are not impaired.

The administration of corporations is under the control of the Registrar

and all documents kept by the Registrar are open to public inspection,

subject to the payment of a prescribed fee.

(https://www.saica.co.za/documents/guide_close_corporations.pdf)

Documentation required

Prescribed documents that are required to be filed with the Registrar

have been kept to a minimum and are relatively inexpensive to register.

These forms are:

·  CK1 Founding Statements

·  CK2 Amended Founding Statement

·  CK2A Amending Founding Statement in Respect of Accounting

Officer and Addresses

·  CK3 Application for the Restoration of the Registration of the

Corporation

·  CK4 Application for Conversion of a Company

·  CK5 Lodging of Order of Court for the Alteration of/Replacement

of/Addition to a Founding Statement

·  CK6 Resolution: Voluntary Liquidation

·  CK7 Reservation of name.

Formation of a close corporation

The founding statement (Form CK1)

To register a close corporation, the original and two copies of a

founding statement, which must be signed by or on behalf of every

person who is to become a member, must be submitted to the

Registrar together with a power of attorney where the founding

statement is signed by someone other than the members. (In practice,

the Registrar accepts the original and one copy of a founding

statement.) The relevant copies of the founding statement must be

submitted together with the written consent of the person who is to be

appointed the accounting officer (regulation 15(4)) as well as proof of

payment of the prescribed fee (regulation 15(3)).

As in the case of a company, the close corporation must first reserve a

name that must be approved by the Registrar. To effect such a

reservation Form CK7 must be used on which the prescribed fee must

be paid (S19(2)). Such a reservation will be valid for a period not

exceeding two months (S19(3)). Form CK 7 must be attached to

Form CK1. (In practice, a printed letter from the Registrar,

confirming reservation of the name, is attached to the CK7.)

(https://www.saica.co.za/documents/guide_close_corporations.pdf)

Advantages

      It is easy inexpensive to form

      It is a simple and flexible corporate entity

      It provides perpetual succession

      It provides limited liability

      ·  There is no formal decision making structure. A corporation is not

required to hold any meetings, and although members may request

meetings, decisions can be taken informally on the basis of

consultation between members; actions requiring written agreement by all members can be dealt with by a written resolution

signed by all members without the need for a formal meeting

      A corporation may be converted to a company without affecting its rights, obligations or tax status, the legal person that existed prior to the conversion

      continues to exist in the registrar of close corporations

 ·  Annual financial statements are not required to be audited, resulting

in a reduction of costs.

(https://www.saica.co.za/documents/guide_close_corporations.pdf)

Disadvantages

      A CC may not have more than ten members. This may limit the corporation’s growth.

      The members must as a general rule be natural persons. Companies, corporations and inter vivos trusts may not become members. This limits the usefulness of corporations in group structures and estate planning.

      The members who own and manage the corporation are referred to simply as members and there is no familiar business titles such as shareholders ,director, managing director and chair person of the board .the may be perceived as lack of status.

      Although a corporation provides limited liability there area number of instances in which the members become personally liable for the corporations debts.

PUBLIC COMPANY

Definition

“A public company usually refers to a company which is permitted to offer its securities (stock, bonds, etc.) for sale to the general public, typically through a stock exchange.

Usually, the securities of a public company are owned by a large number of investors while the shares of a private company are owned by relatively few shareholders. However, a company with a large number of shareholders is not necessarily a public company. For example, in the United States, in some instances, companies with over 500 shareholders may be required to report under the Securities Exchange Act of 1934; companies that report under the 1934 Act are generally deemed public companies. The first company to issue shares is thought to be the Dutch East India Company in 1602.

The term "public company" may also refer to a government-owned corporation. This meaning of a "public company" comes from the tradition of public ownership of assets and interests by and for the people as a whole (public ownership), and is the less-common meaning in the United States.

"Publicly owned company" can also have either meaning, although in the United Kingdom it will usually be interpreted as meaning a company in the public sector (being owned by national, regional or local government). The term "public limited company" or simply "PLC" would be used to unambiguously refer to a publicly-traded company in the private sector.”

(http://en.wikipedia.org/wiki/Public_company)

Characteristics

·                          Shares are offered to the public.

·                          There is no limitation on maximum shareholders, but there is a minimum of7.

·                          There is no limit on the transfer of its shares.

·                          The word "Limited" will appear at the end of the companies’ name.

·                          They must make certain information known to the public.

·                          This type of business is normally very capital intensive.

·                          There is a minimum of two directors.

Formation

Who can form a public company

The Companies Act generally allows two or more persons to form a company for any lawful purpose by subscribing to its memorandum of association.

Formation of a public company requires a minimum of two directors. In general, terms anyone can be a company director, but there are some rules. You cannot be a company director if:

·        you are an undischarged bankrupt or disqualified by a court from holding a directorship, unless given leave to act in respect *of a particular company or companies;

·        In the case of PLCs or their subsidiaries, you are over 70 years of age or reach 70 years of age while in office, unless you are appointed or re-appointed by resolution of the company in general meeting of which special notice has been given.

The registration procedure for a public company involves a detailed process and due to the complexities of the procedures involved, the services of attorneys must be used in the registration process.