Pros and Cons of setting up a private company

What are the advantages and disadvantages of a private company? A private company - (Pty) Ltd - is treated as a separate legal entity and has to register as a taxpayer, separately from its owners. The name of the company should end with '(Proprietary) Limited' or '(Pty) Ltd'.

The advantages of registering as a private company are as follows:

• The company has a perpetual lifespan and can continue if one of the owners dies.
• Shareholders have limited liability, but directors are personally liable, if they are knowingly part of running the business in a reckless or fraudulent manner.
• Transfer of ownership can be done with ease.
• Raising capital is also easier.
• Management can be done efficiently.
• Private companies can be adapted to both small and large businesses.
• Private companies are not required to file their annual financial statements with the Registrar of Companies, and so their annual financial statements are not available to the general public.

There are also some disadvantages:

• Private companies are subject to many legal requirements.
• They are more difficult and expensive to register compared to a Sole Proprietorship.
• At least one director is required.
• Shares may not be offered to the public and cannot be listed on the stock exchange.
• A minimum of two shareholders are required for a meeting, except in the case of a one-person company.
• Annual financial statements must be audited with some exceptions in terms of the new Companies Act.

For more information on how to set up a private company, please contact James Grove. james@groveaccounting.co.za