A Private Company is treated by law as a separate legal entity and it has to register as a tax payer in its own right.
It has a separate life from its owners and it is required by the Companies Act, No 71 of 2008, to perform right and duties of its own. The owners of a Private Company are shareholders and the company may not have an interest in a close corporation (CC).
The number of shareholders was restricted to a maximum of 50 but the restriction was later withdrawn in The Companies Act No 71 of 2008. The rights and obligations of the shareholders against each other and the company are set out in a memorandum of incorporation and shareholders agreement.
A private company’s name must end with the words “(Proprietary) Limited or (Pty) Ltd.”
Advantages of a Private Company
- Life span is perpetual.
- Shareholders have limited liability.
- The Act only imposes personal liability on directors who are knowingly managing the business in a reckless or fraudulent manner
- Ease of transfer of ownership.
- Easier to raise capital.
- Efficiency of management.
- Adaptable to both small and large businesses.
- Not required to file their annual financial statement with the Registrar of Companies and so they are not available to the general public.
Key points of a Private Company
- The company is subjected to many legal requirements based on its turnover size.
- It is difficult and expensive to establish compared to Close Corporations and Sole Proprietorship but since 2011, no Close Corporations may be created or purchased.
- A Private Company must have t least one shareholder. This can also be a foreign entity, another Private Company or close corporation.
- A Private Company must have at least one director.
- A Private Company cannot be listed on the stock exchange.
- It cannot issue share warrants or bearer shares.
- The quorum for a meeting is two shareholders (except a one-person company), unless the Memorandum of Incorporation states otherwise.
- The voting rights of shareholders of a Private Company must be determined by the Memorandum of Incorporation.
- Certain Private Companies have to get their annual financial statements audited.