The start-up starter-pack
You are tired of the nine-to-five, but you have a great business idea. You decide that you are resigning first thing Monday morning to spend the next month getting your ducks in a row to start your cash cow, but you have no idea where to start? That is where most people start. If you do not know where to begin, read this post.
Think about structure
We can not talk about starting a business without thinking about structure. Not everyone likes structure, but it is the foundation on which you build your empire. A company's structure will determine if it is tax-efficient, legally compliant, and able to serve its main objective of being a profit-generating entity. There are many implications to your structure. You have to think about your long term goals and why you want to take on this venture. It will not be easy. That is why you need a solid game plan to succeed.
Here are some legal pointers you can follow to turn your business plan into a functioning entity.
Register a company
Businesses come in many forms, but we recommend incorporating a private company. It may sound unnecessary for a small side-hustle but as soon as you start understanding the concept of a company being a separate juristic person (meaning its existence is not directly tied to any person), you will appreciate that you are not personally liable for the company’s debts. If things go belly up, your house and car will be safe. There are exceptions to the general position when you use the company to trade recklessly, fraudulently or with gross negligence, but that is where you lose our sympathy. Just remember that as a director, you have to act in the bests interests of the company.
Decide if you want to be a team player
You have to decide if you want to do it all by yourself, or with other shareholders and directors. When two rule together, disagreements are inevitable. The worst is not knowing what to do about a disagreement when it happens.
A suitable shareholding structure is there to ensure that you have a plan when the unplanned happens. A shareholders' agreement can ensure that you know what to do if you require capital injections, want to sell your shares, appoint other directors, buy out your partner, or cash in on your loan account. If you have certain requirements for the regulation of the company as between directors and shareholders, it is not a bad idea to adopt a custom Memorandum of Incorporation. When your operational policies and procedures align with the underlying structure, you can rest assured that it won’t collapse when something goes wrong.
We'll assume that you have opened a business bank account, obtained a SARS income tax number and registered your domain by this step.
Location, location, location
If you want to lease a business premises, ensure that you conclude a lease agreement that clearly sets out what your rights are. As a start-up, the Consumer Protection Act ("CPA") will probably apply. Standard commercial lease agreements will often create the impression that the CPA does not apply. Don't just accept the agreement the landlord provides.
Negotiate fair terms. Consider turn-over rental versus fixed rental, the duration of the lease agreement, options to renew, how your deposit will be held, and what it may be utilised for. With the commercial lease market being oversaturated with empty properties, you have some leverage to get the best possible terms.
Do not forget to ensure that the premises is suitable for your business. If it is not, it might be difficult getting the trading license that you require and you might have to renovate more than you planned.
Licensed to trade?
Your business may require a business license to trade. This usually applies to businesses that are involved in the sale or supply of meals, health, and entertainment services. If you want to sell liquor for on-site or off-site consumption, you have to apply for the appropriate liquor license. If you forget about this step you can be punished with a fine or even imprisonment.
You can not build the company and run the production line simultaneously, so you consider employing minions.
If you are not the local labour law wiz, get professional help and have a clear employment contract drafted that suits your company's needs. Ensure that your minions know what is expected of them before contracts are signed. Having a trusted workforce that trusts you will lead to a healthy and efficient company. Include incentives in your employment contract and make provisions for development and growth.
Remember that the contracts are also there to protect the company. Protect your intellectual property and other confidential information, set boundaries, and consider including reasonable restraint of trade and non-compete provisions to ensure that your prodigy can not just leave you for the competition and take your secret sauce with her.
Once you have appointed your minions, you will have to do a few things to ensure that you do not have a run-in with the South African Revenue Service (“SARS”) or the Department of Labour.
Don't forget the following:
Register with SARS for Pay As You Earn (“PAYE”). Normally you would have to do this within 21 business days of becoming an employer.
Register with the Unemployment Insurance Fund (“UIF”.) If an employee will work for more than 24 hours a month you have to contribute to the fund on the employee's behalf.
You may have to register in terms of the Skills Development Levies Act. You have to do this if you pay more than R500 000 to employees over 12 months.
You will also have to register with the Compensation for Occupational Injuries and Diseases Fund’s Compensation Commissioner. It sounds like a burden, but it protects the company against certain damages claims if a worker gets injured or ill while on duty.
Once the company is on the move, start considering other important aspects. You may want to trademark your awesome logo or quirky slogan, patent your groundbreaking invention, or you may have to register for Value Added Tax.
Do not forget to get sound legal, accounting, and business advice. Not everyone is good with ideas, and not everyone is good at implementing them. Find the balance, manage your risks and do not let things get out of hand.
We love putting structures in place. We have a soft spot for start-ups, so whether you are struggling with these pointers, require the perfect structure, or want to ensure that your standard trading terms and conditions are fair, we have got your back.
Contact us if you take your business seriously.
Article disclaimer: While we have made every effort to ensure the accuracy of this article, it is not intended to provide final legal advice as facts and situations will differ from case to case, and therefore specific legal advice should be sought with a lawyer.