A company is an entity in the same legal sense as a person, in that it has the ability to act on its own. As such, companies are subject to a legal framework that decides what constitutes a company as well as the rights and powers that companies hold. For a business to become a company, it has to be registered through filing a Memorandum of Incorporation (MOI) that represents the company’s founding statement.
There exist two different types of companies namely: profit and non-profit. Profit companies are also divided into four sub-types:
- Private companies reflected as ‘Pty Ltd’
- Personal Liability Companies reflected as ‘Inc’
- Public companies reflected as ‘Ltd’
- State-owned companies reflected as ‘SOC Ltd
Each of these sub-types has characteristics and legal implications.
It’s comprised of one or more individuals, at least one who serves as the director, and an unlimited number of shareholders. This kind of arrangement gives room for growth, but private companies are not allowed to give their shares to the general public. A significant number of other legal requirements, such as the need to hold an annual general meeting (AGM), also apply to the operation of private companies, making them difficult to manage.
Personal liability companies
These differ from private companies in the sense that, the liability of shareholders and directors of a private company is limited; while the directors of a personal liability company are jointly and severally liable for any debts that the company may incur. The advantage of such a scenario is that personal liabilities are not required to submit audited financial statements and are subject to fewer transparency requirements.
A public company is one that offers its shares on the open market, allowing it to raise capital from this source. Such companies require at least three directors and are obviously subject to a high degree of transparency, with almost all information regarding business operations being open to the public. This can be an advantage or a disadvantage in different contexts.
The government creates these companies with the thrust of allowing it to partake in commercial activities. Such companies can be legally viewed as part of the government, or as a share company with the government holding a controlling share.
CIPC Business Registration Stats for the last five years
The obvious advantage of this kind of company is that the government provides it with all initial funding, but the controlling influence of government can complicate the decision-making process and introduce a large number of legal formalities that other companies can more easily avoid.
Finally, non-profit companies look like other types of companies in terms of organisational structure, but any profits generated by the NPC must be used to continue its work, and cannot be shared among the members themselves. They are also prohibited from distributing shares and paying dividends.
Meanwhile, this can serve to simplify the management of the company rather, and lighten a number of legal restrictions that affect other types of companies. As many NPCs exist to carry out charitable work, this can prove to be a great advantage, helping them to focus on the more important aspects of their functioning rather than worry about legal matters.