One of the key responsibilities of an entrepreneur is ensuring compliance with both industry-specific and other national or international regulations. Failure to adhere to legal prescripts can significantly impede critical business activities. For example:
- No funder will consider investing time or money in a business that does not comply to laws and that risks penalties and fines;
- Many corporates expect supplier, whether large or small, to be compliant, to ensure sustainable supply chains;
- Government agencies and corporates that provide Enterprise and Supplier Development (ESD) support require entities to be compliant (or attempting to achieve compliance).
For us, the best way to describe compliance is this: “If you thought the cost of compliance is high, try non-compliance”. While working hard building a business, you cannot afford to sabotage all the effort by risking a temporary or a permanent business closure. Compliance is essential for the sustained viability of any business and should be given priority alongside other critical aspects such as sales, production, and cash flow.
In our business, we make compliance “a way of business” by using a simple tool to map and track our highest priority compliance activities. To get a complimentary copy of the tool, join our whatsapp channel and switch notifications on – you will be completely anonymous to us . This will let you get updates on funding, governance, technology and other small business matters.
For those that are starting out, we have discussed the basic compliance in slightly more detail in the rest of the post.
Initial Compliance
One of the first key requirements that a business normally fulfils to run a business is to get it formally registered. This process in South Africa is straight forward and has, over the years, become easy to accomplish through bizportal. Most small businesses register a private proprietary limited company and the incorporator, the person registering the company, must:
- Reserve a name and provide up to 3 alternatives;
- Wait for final confirmed name and use it to register a company;
- Provide personal identification and proof of address;
- Submit personal identification of all proposed directors of the company; and
- Pay the fee with a card.
If all documentation is in order and the are no exceptions, the process is completed in under 48 hours.
Depending on the options taken, the generic company will have a registration certificate, COR14.3, and will come automatically with the following:
- Registration for Income Tax at the South African Revenue Services (SARS);
- Tax Compliance Certificate, on formally completing registration at SARS (e-filing or manual); and
- BBBEE (broad-based black economic empowerment) certificate on formally completing revenue, director and shareholder declarations on BizPortal.
Further compliance requirements
For larger companies, further basic compliance will apply:
- PAYE (Pay-as-you-earn) registration at the SARS for companies that are employers;
- UIF (Unemployment Insurance Fund) registration at the Department of Labour for companies that are employers. This can also be completed on bizportal;
- Compensation Fund for employers that have at least one employee who works a minimum of 24 hours in a month. This can also be completed on bizportal;
- Value-Added Tax for companies that have, or are expected to have a turnover from goods and services of over R1 million per annum. However, businesses can register voluntarily on the basis of a number of advantages that come with VAT registration. The most cited advantage is that small businesses that are VAT vendors are perceived to be more professional and established. Our view is that registering for VAT is an additional burden that small businesses should stay away from for as long as they can because the disadvantages outweigh the benefits when revenue is low.
- Registration as Importer/Exporter at SARS for small businesses that will import goods.
- Letter of Authority for small businesses that will manufacture or import certain goods, such as electronics, that are subject to compulsory certification. The application must be done at the National Regulator for Compulsory Specifications (NRCS) and it does take time. The best way forward it to consult the list and determine whether the goods you intent to sell are subject to a compulsory certification.
Other Compliance
The full scope of compliance is dictated by the nature of your business, as well as the sector or industry that it operates in. For example, a small business that will do electrical installations is required to register as a electrical contractor with the Department of Labour. Or a restaurant will be required to fulfil additional health and safety certificates for operating a food service business. These technical imperatives must never be overlooked or be put aside.
Maintaining compliance
In many instances, the initial registration is the easiest part. In order to maintain compliance, directors, particularly new business owners, must:
- Have a mechanism to ensure they can file or renew before deadlines.
- Generate sufficient cash and make sufficient provision for fees or payments; as well as pay consultants where necessary; and
- Minimise penalties for late submissions, filing or renewals.
Conclusion
Compliance is a business imperative and should not be treated as peripheral to core activities. It is very expensive to close compliance gaps and non-compliance can threaten the sustainability of business, especially small business.
Further reading
For other guides and articles on governance, please refer to this section of our site.
