Types of Companies and Business Terms


What is Independent Legal Entity (company)

A CC, Trust, (Pty) Ltd and Sec 21 are all legal persons which have the same rights as natural persons. For example, a company can own property, employ people, make profits, pay tax, sue people, as well as be sued, just like a natural person like you and I.

What isLimited Liability

This is the protection which the Independent legal entity (company) offers to its members or directors in the event of it being sued. Claims are made against the company and the assets which are owned by the company, and not against the personal assets of the members or directors. However, no protection is offered if the members/directors were negligent, fraudulent, misrepresented themselves or have signed personal surety.

What is a Sole Proprietor

A sole proprietor is a one-man business, which requires no registration. An example would be an informal trader or a street vendor. A sole proprietor is not an independent legal entity and there is no legal protection against claims. The sole proprietor is thus sued in his personal capacity and his personal assets are at stake.

What is a Partnership

A Partnership is similar to a sole proprietor in terms of liability. The partners are jointly and severally liable for all claims, meaning even the "innocent" partner, who may be totally unaware of the claim, can be held personally liable and loose his personal assets in the event of a successful claim.

What is a Closed Corporation (BK)

This is a legal entity and the member(s) have the protection of limited liability. A maximum of ten natural people are allowed to hold membership in a CC. There is no limitation in respect of the number of employees in the CC.

100% of the membership must be owned. This means that if there are 5 members, all with equal membership (20%) and one member desires to resign, the remaining 4 must take up his membership and now all will own 25% each. All parties must agree to any membership change. A bookkeeper also needs to be appointed. Note that since 1 May 2011 the law has changed and no further CC's can be registered. Although CC's are maintained as an entity for the foreseeable future.

What is a Private Company - (Pty) Ltd

A private company is also a juristic person where the liabilities of its shareholders are limited. The shareholders own the company and appoint the directors to run it on their behalf. (a shareholder can also be a director)

A Private Company can sell their shares, but share offers need to be made to other share holders before it can be offered to outside peoples.

A private company does not have to lodge interim reports and its annual reports are not available to the public.

What is a Public Company Ltd

A public company can have any number of shareholders and the shares can be freely traded, and for this reason, quarterly reports and annual financial statements have to be lodged with CIPC, where they become available for public inspection. These are the type of companies which are usually listed on the JSE.

What is an Incorporation

These are the same as private companies. These are used by Professionals, e.g. Accountants, Lawyers and Engineers.

The only difference is that all present and past directors are liable together for the company debts contracted during their period of office.

What is an External Company

An External Company is a company that is registered in another country and that wishes to establish a company in South Africa. For example, if a German registered company, "Munich Transport", wishes to establish an external company in South Africa, the company will be called "Munich Transport SA"

When registering an external company, the Registrar will require that a notary, from the country of origin, must certify each page of the Memorandum and Articles.

What is a NPC? - Not for Gain - Sec 21 cant be registered

These companies are formed not for gain, and are usually charitable institutions. Previously, under the old companies ac, they were called a section 21 Company must have a minimum of 2 directors, which helps with accountability and 7 subscribers to appoint the directors. However this has changed under the New Act, where they are called NPC's and must have at least three directors at all times.

70% of the income of the company must be allocated to the object of the business, which is normally a community based business initiative. The directors may however draw reasonable salaries. No assets or properties can be sold but must be donated to a similar organisation.

What is a NPO or an NGO

These are general terms used to refer to organisations that are not governmental and are formed in effor to aid the community. NPO stands for Non Profit organisation and NGO is Non Governmental organisation. These are just generic terms and all mean the same thing. Although NGO's can be registered under another department instead of CIPC, the process of registering an NPC is faster, through SwiftReg and the CIPC department and is so recommended for the individual who wants to start an organisation that benefits the community.


The shareholders of the company are the people who contribute finance to run the company by purchasing the shares. They appoint the directors to run the company for them. However, the shareholders can also be directores of the company.


Value Added Tax (VAT) is tax charged on the supply of most goods and services by businesses (vendors) on behalf of the Receiver of Revenue (SARS).

Input Tax

This is the VAT which the vendor pays on purchases, e.g. rent.

Output Tax

Is the VAT charged to customers.

The output tax less the input tax in the tax period results in the amount payable or refundable.

A person selling mostly to consumers (who are not VAT registered) will benefit from NOT being registered for VAT because his value-add is not taxed. A business selling mainly to other VAT vendors, should consider registering voluntray because the VAT paid on its inputs is deducted from the VAT it charges its customers.

Income Tax

Every company pays tax, and every individual pays tax. Company Income Tax is set at 28% and is paid on your declared profit for the year. So if your profit is 10 000 then R2800 of this will need to be paid to SARS.

Personal Income Tax, is the tax on your personal income. So if your company pays you a salary of R10 000 a month, then that R10 000 is taxable in your personal capacity. This means that your company, should either take off the PAYE amount of R846.67 before it pays you, and pay that amount to SARS.

Registered address

The registered address is the address which all CIPRO and tax correspondence is sent to. However, the residential, postal, business and registered address can all be the same.


Esclusive right given to an author, designer, musical worsks, etc. for original work. Protection lasts for 50 years.


Exclusive right granted for an invention. Protection is granted for 20 years.

Trade Marks

Brand name (Coca Cola), slogan or logo. Protection is forever, but must be renewed every ten years.

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