Establishing a new company in South Africa

The days of running fast and loose with establishing a company when you start a new business, are definitely over.

The complexities of managing the regulatory compliance aspects are now making it difficult, if not impossible, to manage.? Several important matters need to be attended to if you want to ensure that the compliance aspects remain manageable in future.

Setting up a new company is cheap and easy

Interestingly, incorporating a new company is incredibly easy and hardly costs anything.? For instance:

·????? Reserving a company name with CIPC, filling out a few forms which you email to them and paying a measly fee of R175 makes you the proud owner of a brand new company.

·????? Or you can use the services of Govchain and achieve the same results plus a few extra functionalities, for only R800.

·????? You can also opt to buy a shell company from one of several businesses that trade in newly incorporated companies, for less than R1,000.

Buyer beware

In a typical “buyer beware” scenario, several headaches are potentially lying in wait for you in future if you are not careful.? These far outweigh the nominal expenses incurred at the outset.

For instance, be careful whom you bring in as fellow shareholders and directors. ?The best would be to remain the only shareholder and director. If this is not possible, ensure that all documentation dealing with their involvement is watertight before they join.

If they baulk at signing these, rethink their continued involvement, but do not waive your documentary requirements.

FATF Requirements

Realistically, all these additional and elaborate requirements are unfortunately needed.? Frankly, it is long overdue.?

The Financial Action Task Force and the?Eastern and Southern Africa Anti-Money Laundering Group assessed South Africa's AML/CFT system.

The Mutual Evaluation Report of South Africa is a comprehensive review of the effectiveness of South Africa's measures and their level of compliance with the FATF Recommendations.?

The report concluded that South Africa has a solid legal framework for combating money laundering and terrorist financing but significant shortcomings remain.

1.?? In particular, the country needs to pursue money laundering and terrorist financing in line with its risk profile, including by proactively seeking international cooperation, detecting and seizing illicit cash flows, and improving the availability of beneficial ownership information.

2.?? Authorities need to make better use of the financial intelligence products provided by South Africa’s financial intelligence unit.

3.?? The country should also improve the application of the risk-based approach by obligated entities and supervisors to report in much more detail to the authorities

Why is all this important to me?

You may well ask “Why is all of this important for me?”

Let me explain.

CIPC approached these requirements by launching two important online initiatives required of all shareholders and directors, with immediate effect:

All shareholders are required to complete and submit the ultimate beneficial owner details of every company and close corporation on their database.?

• This involved the submission by the end of September 2023, of certified ID documents of each shareholder, proof of address and a UBO register based on CIPC’s design reflecting the details of the shareholders.
• Furthermore, the same UBO register, updated with any changes that occurred since the previous submission and supported by documentary proof per the above in such an event, must continue to be submitted annually within 30 days of the anniversary of the registration date of the company.
• Companies which are incorporated after the end of September have to file the above details at the time of incorporation.
• This arrangement can get complicated:?
• Maintaining a UBO register with shareholders exceeding 15 or more, gets complicated.? Co-ordinating the timeous receipt of documents and the uploading of one time pins (OTP) sent to each shareholder by CIPC and to co-ordinate the uploading to CIPC timeously, can get out of hand.
• None of this is however as complicated and difficult to finalise than the UBO register where one or more shareholders are Trusts. The onus is now on the beneficiaries to submit such details to CIPC. ?

The board of directors of every company or close corporation must ensure that any change to the composition of the board, is filed.

• These filings may not be done anymore by the CIPC customer who did this in the past. It must be done by a director, who declares that he/she is duly authorised. Effectively, a director has to now register as a CIPC Customer.
• Also, the movement of individuals serving as directors of a company has to link up with the previous board meeting's details. A person can not resign or be appointed from one meeting to the next without the necessary change filed with CIPC.
• If one or more directors are from outside South Africa and filed a copy of their passport, this has to be attended to first.

Summary

A word of caution: Treat the appointment / resignation of members of your board and directors with circumspection.

Get advice if in doubt. Always easier and cheaper to deal with all aspects beforehand than to try and fix it afterwards when people often to do not talk to one another anymore.