What is a private company?
A privately held company a business owned by non-governmental organisations or by a relatively small number of shareholders which does not offer or trade its company stock (shares) to the general public on the stock market.
A private company is ideal for smaller businesses that don’t have large capital requirements and want to avoid regulations with regard to disclosure that applies to public companies. A private company may be incorporated with only one member and may not have more than fifty members.
After a number of years, if a company has grown significantly and is profitable, or has promising prospects, there is often an initial public offering.
This converts the private company into a public company or an acquisition of a private company by a public company.
Typical characteristics
- There are between one and 50 shareholders
- The directors’ approval may be required before the shares are sold
- Shares cannot be offered for sale to the general public
- It is common that the income support recipient and their partner are the only shareholders and directors of the company
Preparation
- Founding statement – which sets out the structure of the corporation must be prepared.
- Association agreement – that spells out the relationship between the company and the members must be prepared and agreed to.
How to register a (PTY) Ltd
A Private Company is registered at the Companies and Intellectual Property Registration Office (Cipro).
All the documentation need to form a public company are available from Cipro and must be lodged them. These are the necessary documents
- CM5: Application for Reservation of Name or Translated Form or Shortened Form or Defensive Name with R50 deposited into the client’s customer code
- CM22: Notice of Registered Office and Postal Address of Company (in duplicate)
- Power of Attorney: Notification to act on behalf of promoters
- CM29: Contents of Register of Directors, Auditors and Officers
- CM31: Notice of, consent to change of name, or resignation by auditor or removal of auditor
- CM46: Application for certificate to commence business and R60 deposited into the client’s customer code
- CM47: Statement by directors regarding adequacy or inadequacy of share capital (by each director), memorandum and articles of association
Registration of a Private Company is required by law. Because the (PTY) Ltd structure is generally more complex to maintain, the help of an attorney is strongly advised.
Turnover time
It is difficult to pinpoint the exact amount of time it will take to register a company. It helps if you make sure that when you apply, you submit all the documentation that’s required. If the name of the company has already been registered, it will make the application go faster.
What are the Pros and Cons of a Private Company?
Pros:
- Protecting your personal assets through Limited Liability
- Deducting certain expenses as business expenses
- Reducing tax and Audit risk
- Improving your chances of securing funding through a bank
- Gaining credibility with your customers, suppliers and financial institutions
- Need not file their financial statements with the registrar
Cons:
- The (Pty) Ltd structure is generally more complex to maintain
- Expenses involved in registering a company
