How to start a business in South Africa?

To start a business in South Africa needs a business research, understanding and dealing with many issues.  This involves business planning, legal, financing, sales and marketing. And this also involves intellectual property protection, and human resources.

In this article, I give you business fundamentals for you to start your own business in South Africa. So, this could be a brick and mortar, online business or both. But the process of starting a business in South Africa is the same. And It only needs understanding the commitment and challenges involved in starting a business, so you need to take full responsibility. 

I give you business guidelines for starting a business or growing your existing business. These are the basics, and if you already know them, you may always visit our website for the advanced tips.

After reading this article, you will have a clear understanding of starting your own business. And be able to answer what is the business, the different types of business, the advantages and disadvantages.

First thing, first…..

  1. What is a business?
  2. Different types of businesses

These are some of the questions you may ask yourself before even starting your business. 

1. What is a business?

A business is any activity of producing/ buying and selling products (goods and services) in exchange for cash. A business starts with the concept (business idea) to solve the problem and give the solution to the customers for a profit.

You need to

  • Identify the problem (market niche) that you will solve
  • Determine whether it is feasible to make a profit or not.
  • Your product or/and service must be in demand
  • So, you must love what you do
  • Then you need to do a research about the businesses that offer the same products or services and
  • Capitalize to their weaknesses.

2. Different types of Business in South Africa

There are about 5 different business structures in South Africa. You should know the advantages and disadvantages of each structure type. And this will play a big part in how you run your business.

5 Different Types Of South African Business Structures

Sole Proprietorship

A Sole Proprietorship is a business that has one owner. This is the simplest form of business entity because the business is not separate from the owner.

Advantages of a sole proprietorship

There are few advantages of sole proprietorship

  • It is easier to set up than any of the other business entities.
  • The owner maintains 100% control and ownership of the business.
  • The owner gets all of the profits.

Disadvantages of a sole proprietorship

  • The owner takes all the risk for the business.
  • You cannot appoint another owner as your partner.
  • Unless you dissolve the sole proprietorship and register a different new entity.

Partnership

 A partnership is when 2 or more co-owners run a business together. Partners contribute money, skills, & resources in the ups and downs of business success.

Advantages of having a partner

There are benefits of having a partner to run your business. Following are the advantages of having a partner(s):

  • With more people comes more knowledge and expertise
  • You’ll have more capital and cash to work with.
  • You can share the financial burden and expenses of running a business with your fellow partners.
  • Having partners mean there is an even distribution of labour.
  • You’ll have a better work-life balance as there are others to assist you with the workload? And ensuring your business is becoming a success.

Disadvantages of having a partner

Having more people isn’t always a benefit, here are the disadvantages of having partners:

  • Everyone is liable for debts whether they were caused by other partners or not.
  • You have to share control of the business with your partner(s)
  • Dealing with others is not always seamless; as there could be a falling out or an argument. This can strain the relationship between you and your partner.
  • If you ever want to sell your business, this could prove difficult if others don’t want to sell.

Proprietary Limited Company (Pty-Ltd)

A private company is treated as a separate legal entity. So even if you launch your business single-handedly, this type of business is registered as a separate legal entity.

The owners of a Pty Ltd are also known as the shareholders.

  • You don’t have to explain your finances and decisions to anyone.
  • The business is a separate entity, so it continues to run smoothly even if you sell your shares or take on partners.
  • Shareholders are typically not liable for company debts, although there are some tax liabilities.
  • Anyone acting recklessly or fraudulently can be personally liable for all or any debts of the Pty Ltd.

Disadvantages of being a Pty Ltd

  • Private companies are required to comply with a large number of legal requirements.
  • As this is a private company, you can’t offer shares to the public or list the business on a stock exchange.
  • Two shareholders must be at a meeting, except when the company only has one shareholder

Public Company

A public company is a business that issues securities through an initial public offering (IPO). And it trades its stock on at least one stock exchange. The daily trading of the public company’s stock determines the value of the whole business.

Publicly traded companies are defined as public because, unlike Pty Ltd businesses, shareholders can be anyone who purchases stock. Anyone can then become equity owners of the business.

Advantage of publicly traded companies

Just like any other type of business structure, a public company has benefits, such as:

  • Since you can sell your shares to the public, this offers you more capital to work with.
  • Being listed on a stock exchange means that fund managers and traders are keeping an eye on your business. The more interest you have, the more business opportunities will come your way.
  • The risk is spread out amongst the various shareholders and the more shareholders, the less risk everyone holds.

Disadvantages of publicly traded companies

  • Setting up a public company is more challenging compared to the other types of business structures.
  • Since there are now more shareholders, directors and managers, making decisions can take significantly longer.
  • You need to reveal some of your documents and annual accounts are published for inspection to the public. This improves transparency but doesn’t enable you to guard your secrets effectively.

Franchise

A franchise is when the business owner sells the trading licenses of a business to the third party. This usually includes business name, and corporate identity. There are rules and regulations that must be respected in this king of business structure. And these rules are for keeping the standard and the name of the business.

Advantage of operating a franchise

  • A franchise has a successful track record and a positive reputation that you can capitalise on.
  • Franchises offer training programmes designed to optimise how you run the business and bring you up to speed quickly.
  • And if you join a franchise, they also offer ongoing operational support. This ensures you’re not alone when building and growing your business.

Disadvantages of operating as a franchise

  • If you have bought a franchise, then you’ll have to follow the rules, and regulations. You will also follow system operations and directives of the franchise.
  • The cost of becoming a franchise can be high, and sometimes even higher than starting your own business.
  • You have to pay royalties to the franchise for the use of their name and systems.

Conclusion

In this post, I was talking about how to start a business in South Africa. And that you need to do a research before even starting it. So that you can know what a business is and what are the types of business structures. That means that you will know exactly what business that you want to start. And what are the advantages and disadvantages of your choice of business.

Now that you know how to start a business in South Africa you can boldly register it. And if you need any help, please feel free to contact us.

Do you know any business structure that you know and I have not mentioned here? Please, write it on the comment form sot that we can know.

What type of business structure do you currently own or wish to have? What are the advantages and disadvantages of it? I’m waiting to hear what you think……….

Cheers!

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