Registering a farming business is not much different from registering any other type of business in South Africa. As with most entrepreneurship enterprises, registration depends on the size of your business.
Katlego Ngwane, agricultural lawyer and founder of Katika Consulting, says that registering your farming business may not necessarily be mandatory. Business registration is a question of the size of the business, as the process can attract many costs which may simply not be worth it for a small enterprise.
“If you want to register your business, you must look at your size, your income, and what works best. I would always say get advice from a lawyer or your accountant,” Ngwane advises.
“Ask your lawyer or accountant what the best model for you is, because you don’t want to pay too much taxes, you don’t want to pay too much in small fees that actually add up, like annual returns and all of the costs that go with administration. So, it’s always best to be wise from the get-go and ask advice from experts.”
While getting expert advice is the wisest course, educating yourself on the business registration process can never go amiss. In South Africa, businesses liaise with the Companies and Intellectual Property Commission (CIPC) if they choose to get registered, and the only additional requirement farming businesses may have is to be compliant with whatever regulations their specific agricultural activity entails.
Get to know the lexicon
To know more about registering your business, you need an understanding of some of the terms used in the process:
Sole proprietorship – The South African Revenue Service defines a sole proprietorship as a business that is owned and operated by a natural person or an individual. These businesses are not considered legal entities and are not separated from the individual running the business.
The person running this business is called the proprietor, and this type of business does not necessarily need to be registered. When it comes to taxation, the sole proprietor is obliged to submit their tax returns as an individual, including the income they receive from their business.
Pty Ltd – Also transcribed as “(Pty) Ltd”, this abbreviation means “Proprietary Limited” and is used to indicate that the business is a private company. Private companies are considered separate legal entities and have rights and duties of their own. The owners of private companies are the shareholders, and under the Companies Act 71 of 2008 (the Companies Act), there is no limit to the number of people who are able to hold shares in a company. Because private companies are registered as separate entities, the company also needs to be registered as a taxpayer in its own right.
Co-operative – The CIPC defines a co-operative as a “business where a group of people with common needs get together voluntarily and establish a co-operative in order to address the needs that an individual cannot address alone”. Farming communities often combine their buying power to form co-operatives.
Memorandum of Incorporation (MoI) – Under the Companies Act, businesses need to have an MoI to register. The MoI is the document that stipulates the conduct of the company. The Act provides certain requirements that are mandatory parts of the MoI, but businesses are allowed to add or adjust provisions, as long as those provisions are on par with the Act.
A broad outline of the process
The first place to start with registering your business is by choosing your business name. You can register the business without a name as this shortens the process, and companies that are registered without a name have their registration number listed as the name by default.
Business owners who would like to add their business name to their registration need to apply for a name reservation. You can apply with up to four names at a time.
There are a number of online services that allow you to apply, including the CIPC E-Services platform, BizPortal, the CIPC Mobile Application and your local bank. Name reservations are valid for six months and lapse if they have not been used.
Some of the documents that you may need to register are your certified identity document, those of every company director and the power of attorney, depending on your business type.
Advice from an expert
Ngwane says that registering your farming business can be an expensive process. While sole proprietorship means that the business owner remains liable for any business failures, taxation and other expenses, a sole proprietorship is easier to manage. She advises that farmers who just start out wait until they are more established to register their businesses.
“Remain a sole proprietor and don’t register a Pty Ltd just yet, because you incur costs that are unnecessarily expenses when you’re still very small and starting out. So, if you’re still very small starting out, I would suggest that you remain a sole proprietorship until you get to a point where you want to separate yourself [as an individual] from the business itself, especially when you start gaining liabilities.”
Ngwane also advises farmers who own land to put the land in a trust, as sole proprietorships are the personal responsibility of the business owner. A sole proprietor who defaults on their debt, for instance, can get their land attached.
“If the business fails, you still own the land, or the trust still owns the land and you can’t lose it. And creditors can’t come to you and try to take your land from you. So, it just depends on how big you are. Also, [private companies] are considered people in a way. So, as they’re considered people, it also means that creditors can go against the company for any debt that’s incurred or any bad business deal that goes wrong.”
Small business owners may eventually be obliged to register their business, but Ngwane says this is all down to planning and business size. “Consider the scale of your business. And of course, having a business plan always helps because then you can almost tell in the future [through it]. Perhaps you have three years or five years. How’s your business going to look then?”
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