In the past few years the buzz word in almost any business industry has been compliance and how it relates to your business. The significance of compliance is to ensure adherence with the many legislation we have in the country and also to ensure that there is sufficient protection of the general public against major corporations.

Say you have decided to open your own business and have had it registered at the CIPC and now have to deal with the day to day running of the business. To ensure survival of your business’ one of the many things that you have to take into account would be compliance. A lot of business owners view compliance as an unnecessary added expensive on the business as they may be required to retain services of an attorney or other professional for assistance in this regard. Unfortunately this is absolutely necessary. In this edition we look at the most pressing pieces of legislation that you need to be aware of as a business owner mostly because failure to comply comes with very heavy penalties.

• Consumer Protection Act (CPA):

The purpose of this legislation is to promote fair, accessible and a sustainable market place for consumer products and to establish national norms and standards relating to consumer protection. This includes providing remedies and guidelines for best practice for businesses in terms of how they access their clients (telemarketing etc.) and how they deal with their client’s complaints (whether there is complaints procedure in place).

• Protection of Personal Information Bill (POPI):

This piece of legislation promotes the protection of personal information processed by public and private bodies and it introduces certain conditions so as to establish minimum requirements for the processing of personal information. One of the many emphases in this legislation is that clients that submit their personal information to a business need to be made aware of the reasons for the processing of this information. Further, any information ascertain from a client may not be used for any other reason accept for the reason for which it was attained. Failure to comply with this legislation may result in a fine of up to 10 million rands or imprisonment of up to 10 years.

• Financial Intelligence Centre Act (FICA):

The purpose of FICA is to prevent money laundering. According to Andrew Taylor of LexNove, FICA requires that certain types of businesses such as investment institutions know their clients (KYC). FICA also sets out various requirements for different types of institutions that need to be adhered to. Failure to comply could result in a fine of 10 million rands and or imprisonment.

• Financial Advisory and Intermediary Services Act (FAIS):

If your business includes rendering financial services to natural or legal persons then you need to be aware of this piece of legislation as it regulates the financial services industry.

Obviously this is not complete information on any of the above mentioned legislation and services from a professional consultant will have to be retained for further advice and assistance.

Before you can register your business with the relevant authorities, there are quite a few things to consider such as the business structure and legalities, continuity of the business, tax implications on your chosen business choice, the effect that insolvency if the business goes into debt and how same will be financed. Here are some of the basics you need to know:

Legal entities:

There are four legal entities that aspiring business owners’ may choose from:

Sole Proprietorship:

This is the most general form for the small business .The owner gains all the profits and is personally liable for all the losses. A sole proprietor is not separate from the personal estate of the owner and a business operating as such will therefore cease to exist after the death of the owner.

A partnership:

A partnership is an association of two or more persons (but less than 20) who are contractually bound to each other to operate a joint business venture with the objective of making a profit. All partners are personally liable for the losses of the business. A partnership will dissolve upon the death of any of the partners.

A private company:

A private company is a legal entity separate from the personal estates of the owners, all assets, debt and profits belong to the company .A company continues to exist past the death of its members . A private company can have no more than 50 members.

Inter vivos trust:

A business trust is a trust where a trustee does not simply protect and manage trust assets, but also preliminary uses these for carrying on a business for a profit in order to benefit the trust beneficiaries or to further the aims of the trusts. Although this trust was never meant to be used as a legal entity for a business, it can be used as such .The assets are owned by the trustees in their capacity as trustees and will be separate from the personal estates of the trustees.

How do I raise capital to finance the business?

A private company raises capital by selling shares in the company to investors and this form of business provides the owner with more options for financing the business.

A sole proprietor, a partnership and a trust can only raise capital from outside the business in the form of a loan.

Insolvency:

Although a lot of business owners are often convinced that their businesses will succeed, it is important to consider what will happen in the event that the business becomes insolvent.

If the owner trades as a sole proprietorship or partnership, his personal estate becomes liable for all his debts. In the case of a private company or a trust the business is a separate legal entity meaning all the debt s of the company will be recoverable from the company and not the personal estates of the owners provided that the owner did not sign any surety in his personal capacity for the debts of the business.

Tax

Another important element to consider is the tax implications. The different legal entities are all taxed differently. A sole proprietorship and partnerships are taxed at an individual scale between (18% and 41%). A company is taxed at a flat rate of 28%.On any amount declared as dividend, 15% dividend tax will be levied. A business trust is taxed at a flat rate of 41%.

Before venturing into a business it may be a good idea to speak to a professional for more information.