Starting a business and registering a company are not necessarily the same activity. Know the difference and avoid rushing to register a company. I often come across people who tell me: “I would like to start a business so I need to first register a company”. And when I ask what their business will do, they have not yet worked out the details. It has become so much easier to register a company in South Africa that the barriers that would normally make people think twice about registering a company are removed.
Here is my advice. If you are still early state and are still testing assumptions, establishing supply chains, and so on, rather stay away from formally registering a company. This is because the activities that are required to keep a registered company compliant can be time consuming. In some instances, the activity may be as simple as submitting a nil return at the South African Revenue Service, but you run the risk of paying penalties for missing submission deadlines. It will ordinarily take a lot to keep governance at the top of mind for a non-operating company.
The guide in this article gives a detailed description of what it takes to maintain compliance for a generic operating company in South Africa. The list does not include any industry or sector-specific licences and permits that apply to your business. In early stages of the business, the list is much shorter, but it is useful to understand the scope at an early stage so that you can decide when you have capacity to formalise.
Benefits of delaying formally registering a company
Your initial idea is likely to evolve
Testing the viability of a business takes time and the lessons learned during this phase may result in changes that may compel the registration of a new company altogether. For example:
- Your initial idea of a pig farm may pivot to a generic “agritech.io” and the initial name you used to register the company may not make sense anymore; or
- A market size and positioning may point towards registering an NPO to maximise your impact; or
- Your initial colours, name and branding may need to change for differentiation purpose, and the registered name may need to change along with that.
It can be argued that a generic enough company name is the answer and should hold irrespective of how the initial business idea evolves into. Or that a “trading as” may be a good option to continue using the original name you no longer like. Because a “trading as” is not a registered name, you may need to register it as a trademark to prevent anyone else from using it. Furthermore, the brand confusion that needs to be managed under the circumstance may not be worth it.
Minimise rework and costly amendments.
Many changes to a registered company take time and require submission of specific documents that must be verified by other agencies. For example, proof of address, new mandates if you use a third party to lodge documents, certified national identification copy, etc., all with a 3-month shelf-life. It is also common for co-founders to go separate ways very early on; or for founders to incorporate new directors to bolster skills and capacity. Delaying company registration will keep the hassles of these amendments to a minimum.
Ability to raise capital is not impacted
It is very rare to raise capital for a company in early stages. Put differently, registering a company formally is not going to increase the chances that your business will be funded at the early stage. You can pitch many times to Venture Capital funds and you will not be required to have a registered entity to be given that opportunity. I would encourage founders to pitch their business idea as many times as possible to Venture Capitalists. The feedback is usually valuable and will give direction in terms of what type of traction funders would be looking for.
Conclusion
In conclusion, there is no real pressure to rush to register company in the very early stages of the business. Registering early has its advantages though. The company may present a longer “life” and therefore seen to be more experienced. However, startup funding opportunities can also be lost on the basis that the company has been in operation for longer.
Further reading
For other guides and articles on governance, please refer to this section of our site.
