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Start-up Advice

Start a Successful Business

The legal considerations when starting or building a successful business enterprise.

Nicolene Schoeman-Louw

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As the future of an economy, businesses are the future of a country. It’s therefore very important that each business owner recognises their responsibility to greater society while they are considering their personal goals.

The unfortunate reality is however, that many businesses under-perform or die before they have actually lived because of poor planning.

At Schoeman Attorneys we are committed to helping our clients make informed decisions and implement strategies that consider their specific circumstances and promote their best interests. We will now briefly discuss some key considerations needed to facilitate proper planning.

Choosing the right vehicle

There are various corporate entities — also called juristic persons — available when electing to start a business. These include:

  1. Company
  2. Close Corporation (which may not be incorporated any longer since the enactment of the new Companies Act on 01/05/2011)
  3. Co-operative
  4. Business Trust (although it does not have a separate legal personality)

All companies and corporate entities (save for co-operatives and trusts), regardless of size, have been unified under one legislative banner. The Companies Act 71 of 2008 extensively regulates the formation, management, governance and deregistration or termination of companies.

There are various aspects to consider when electing which company structure (for example, a private or public) is best. Generally, however, a company offers a limited liability and separate legal personality from its members (shareholders). From an estate and continuity planning perspective, this is a great advantage. It is also useful in protecting personal assets from business creditors.

However, remaining compliant with various regulations however present some practical challenges, particularly with regard to management, accountability and administration such as directors duties (management duties).

An annual return must be filed with the Companies and Intellectual Property Commission (CIPC) each year to prevent deregistration. Some companies must meet auditing requirements, and bigger structures face more complex governance and related issues.

Another vehicle to consider is a co-operative. Regulated by the Co-operatives Act 14 of 2005, a cooperative is an autonomous association of persons who have united voluntarily to meet their common economic and social needs through a jointly owned and democratically controlled enterprise.

This is very similar to a company structure and has the same advantages. But one major difference lies in the fact that every member only holds one vote, regardless of shareholding. These enterprises are particularly useful when smaller operations want to stand together to take advantage of bulk buying or association with one another for mutual benefit while retaining their individual business autonomy.

Another vehicle that is quite widely applied, specifically in the real estate development and related industry, but not always fully considered, is a Trust. Trusts are regulated by the Trust Property Control Act 57 of 1988.

In most instances Trusts are not suitable vehicles with which to conduct business. Among other reasons, this is to the lack of limited liability or separate legal personality from its members, along with the normal income and capital gains tax obligations.

On a practical level, the administration of Trusts is generally extremely challenging because the Master of the High Court does not have a national automated system, unlike the CIPC. This lack of automation makes it extremely time consuming and challenging to amend or obtain certain documents.

In addition, unlike Companies and Co-operatives, from a due diligence perspective Trust records are difficult to research because of the nature of the Master of the High Court’s record keeping structures.

However, there are instances where a Trust can be very useful, such as broad-based black economic empowerment (B-B BEE) structures and employee share schemes. Trusts are generally still very useful and relevant in estate planning, when the purpose is to preserve assets or to look after minor children after the death of their parents. Therefore, a Trust structure may play a role in the planning process, where applicable.

It is therefore crucially important that all the appropriate vehicles are properly investigated before starting a business and again when the business is expanded. Due consideration should be given to the specific circumstances and vision of the business owner, which will inform the most appropriate vehicle to implement.

Compliance is essential

Compliance with other relevant legislative provisions is essential, including: choosing a suitable, properly zoned premises; scrutinising your commercial lease agreement before signing it; compliance with the relevant tax laws; having professionally drafted employment contracts; and implementing the relevant policies and procedures to ensure that your internal business documents — whether company documents (memorandum of incorporation), trust deed or a co-operative’s constitution — is aligned with the business plan and with legal compliance.

It is therefore essential that you engage a professional to complete these tasks.

Identifying your target market

Identifying your target market is specifically relevant when you are and contracting with government or big corporates and you are required to comply with legislation such as B-B BEE (Act 50 of 2003). If government or big corporates fall within your current or future target market, it is essential to ensure that your business plan, company documents and related employment and investment strategies align with your B-B BEE strategy.

If you are proactive and align these from the outset, you will be better able to win and retain valuable client contracts.

The next important legalisation to consider is whether your transactions will fall within the requirements of the Consumer Protection Act 68 of 2008. Generally, the Consumer Protection Act is a law of general application and therefore applies to every transaction between a consumer and supplier within South Africa.

However, because of their size, certain juristic persons (specifically large juristic persons) are excluded from the protection given to consumers under the Act. Although we do recommend that companies comply with the Consumer Protection Act and commit to rendering a high quality service towards consumers, in a certain sense lawful non-compliance does offer more contractual freedom.

Protecting wealth

At Schoeman Attorneys we specialise in a range of services designed to best serve both individuals and businesses. These services include commercial or business law, contract drafting, mining law, civil litigation, antenuptial contracts, wills and estate planning.

We believe that through proper planning in structuring business affairs and by implementing risk aversion strategies it is possible to pave the way forward for business growth that will result in the creation and sustenance of wealth.

Taking this approach, the individual behind the business will be able to structure their personal affairs most effectively to allow them to enjoy the fruits of their hard-earned money.

This is why we recommend that each person, regardless of whether they are a business owner or not, implements estate and personal planning strategies that includes a professionally drafted will. We also further recommend that you regularly update your will and appropriate estate plan so you can protect the fruits of your hard earned labour from unnecessary risk.

We often compare the integration of these services with the construction of a house. At bottom level is the foundation, which is the antenuptial contract that directs many of financial decisions that will follow in a person’s lifetime.

Above the foundation are the walls of the house, which are the business structuring, contract drafting and the personal financial planning strategies that a person will implement during their lifetime to create revenue and create sustainable wealth.

Last but not least is the roof, which is the will that protects everything that has been built up below it, keeping the contents safe and ensuring a lasting legacy. Buildings with cracked foundations, poorly constructed walls or inadequate roofs never stand for long. It is therefore essential that a professional deals with all these aspects.

Nicolene Schoeman – Louw is an admitted attorney of the High Court of South Africa, as well as being a Conveyancer, Notary Public and Mediator. She is the Managing Director of Schoemanlaw Inc Attorneys, Conveyancers and Notaries Public (Schoemanlaw Inc Attorneys) in Cape Town. Visit www.schoemanlaw.co.za for more information or email enquiries@schoemanlaw.co.za

Start-up Advice

Put On Your Wellies: It’s Time To Wade Into Risk

Entrepreneurs aren’t all leaping into the unknown like lemmings off a cliff, but they do need to consider it…

Chris Ogden

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You’ve had a great idea. You’ve looked into its development. You’ve recognised that it has potential beyond just what Auntie Mabel and Mike From The Grocer think. And you’ve clearly nailed a pain point that can make money. Now it is time to take the risk of running with it.

Every big idea comes with risk. You can’t step out into the world of entrepreneurial thinking and business development without it. Your idea may fail. It will also be time consuming, demanding, hungry for money, and hard work. It is unrealistic to expect that your project will leap out into the world and be an unmitigated success.

It is also unrealistic to assume that it isn’t worth taking this risk.

There are steps that you can follow to ensure that your risk is managed so you aren’t blindly leaping off that cliff…

Step 01: Do your research

No, canvassing your neighbours, friends and family is not doing research. You need to know that your idea will appeal to a broad market and that it will have significant legs. This may sound like daft advice, but you would be surprised how many people think an idea will take off just because Susan in Accounting said so.

Step 02: Understand the costs

Projects are hungry for money and investment. Realistically work out your budgets and how much it will cost to take your project off the ground and then stick to it.

A calculated risk is a far better bet than one that shoots from the hip and hopes for the best. You can also use this as an opportunity to draw a clear line under where you will stop investing and end the project. If it keeps eating money and isn’t getting anywhere with results you need to be able to walk away.

Step 03: Know when to walk away

As mentioned before, this can be defined by a line you’ve drawn in the proverbial sand (and budget) but no matter where you draw this line, you have to stick to it. Often, when time, money and energy have been poured into a project it can be incredibly hard to walk away.

You think ‘but I have put so much into this, just one more’ and then it gets to a point where the ‘just one more’ has taken you so far down the line that walking away feels impossible. Leave. Learn the lessons. Apply them to your next project.

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Start-up Advice

Mind The Gap

The entrepreneur’s guide to finding the gaps and building the right solutions.

Chris Ogden

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Innovation may very well be the key to business success but finding the gap into which your innovative thinking can fit is often a lot harder than people realise. Some may be struck by inspiration in the shower, others by that moment of blinding insight in a meeting, however, for most people finding that big idea isn’t that simple. They want to be an entrepreneur and start their own high-growth business, but they need some ideas on how to find that big idea.

Here are five…

1. Network

It sounds trite but networking is actually an excellent way of picking up on patterns and trends in conversation and business problems. The trick is to note them down and pay attention. Soon, you will find patterns emerging and ideas forming.

2. Look for pain

Just as networking can reveal trends in the market, so can spending time reading. The latter will also help you find common business pain points. These are the touchpoints that frustrate people, annoy business owners, affect productivity, or impact employee engagement.

Be the Panado that fixes these pains.

3. Luck

luck

This is probably the most annoying of the ideas, but it is unfortunately (or fortunately) very true. Luck does play a role in helping you capture that big idea. However, luck isn’t just standing around and random people offering you opportunities. Luck is found at networking events, it is found in research and it is found in conversations with other entrepreneurs.

4. Luck needs courage

You may have found the big idea through your network, a pain point or pure blind luck, but if you don’t have the courage to take it and run with it, you will lose it to someone else.

Being bold in business is highly underrated because most people assume that everyone is bold and prepared to take big leaps into the unknown. However, not all brilliant entrepreneurs were ready to throw their family funds to the wind and leap into an idea – they were courageous enough to figure out a way of harnessing their ideas realistically.

5. Pay attention

This is probably one of the most vital ways of finding a gap in the market. Often, people are so busy that they don’t really pay attention to that niggling issue that always bothers them on a commute, or in a mall, or at a meeting. This niggling issue could very well be the next big business opportunity. Pay attention to it and find out if that issue can be solved with your innovative thinking.

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Start-up Advice

5 Things To Know About Your “Toddler” Business

As you navigate this new toddler phase of your business, here are five things to bear in mind.

Catherine Black

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Ah, toddlers. Those irresistible bundles of joy bring a huge amount of energy, curiosity and fun to any family – but there’s also frustration and worry that comes with their unpredictability, as they grow and start to become more independent. If you own a business and it’s successfully past its “infancy” of the first year or so, it’s likely it will also go through a toddler stage of its lifecycle.

Pete Hammond, founder of luxury safari company SafariScapes, agrees with this. “Our business is now three and a half years old, and we’ve found that we’re not yet big enough to justify employing a large team of people to handle the day-to-day admin tasks, yet we still need to grow the business as well,” he says. “As a result, our main challenge is finding the time to step back and see the bigger picture. Kind of like when you are raising a busy toddler and you spend most of your time running after them!”

As you navigate this new toddler phase of your business, here are five things to bear in mind:

1. This too shall pass

Everything in life is temporary – and that goes for both the good and the bad. It’s as helpful to remember this when you’re facing the might of a toddler temper tantrum, as it is when you’re facing throws of uncertainty in your business. If your new(ish) venture is going through a rough patch in its first few years, it can be easy to think about giving up – but don’t. As long as you have an overall big idea that you believe can add value to your customers, keep pushing through the rough parts until you come out the other side.

2. Appreciate what this phase brings

The toddler years mean that the initial newborn joy is officially behind you. But these small humans also bring their own kinds of joy, as you watch them learn new skills, say funny things, and give affection back to you. While your two-year-old business may not hold the same exhilaration for you as it did during those first few months, there are now different things to appreciate about it: Maybe you’re expanding your product range, or employing new people who can take the workload off you.

3. Establish boundaries

Toddlers thrive on boundary and routine – and your toddler business will too. As it grows into a new phase, try and establish limits in terms of the type of clients you want to work with and the type of work you’ll do. It’s also a good idea to make a decision about the hours you’ll work and when you’ll switch off, which will help you establish a good work-life balance.

4. Take a break

Every parent with a toddler needs a break every now and then, even if that means a walk around the block (on your own!), a dinner out with friends, or even a few days away. The same is true for a demanding small business: every so often, remember to take time out to rest properly, where you switch off your laptop and completely unplug. You’ll return much more inspired and resilient to deal with the everyday uncertainty that it brings.

5. Give it space to make mistakes

While the unpredictability of a young business can be stressful and tiring, it’s also a time for trying new things without the risk of huge consequences if they don’t quite work. After all, it’s much simpler to change your USP if you’re a small business employing a few people, rather than a big company where 50 people are relying on you for their salary, or where you’ve received a huge amount of investment capital. While you may fail in some of the things you try with your business (in fact, this is almost guaranteed), see it as a toddler that’s resilient enough to pick itself up, dust its knees and keep moving forward.

During this phase of business growth it’s also essential to have the right type of medical aid cover. There are medical schemes such as Fedhealth which has a number of medical aid options and value-added benefits to ensure that your health and wellness is taken care of too. After all, the healthier you and your staff are, the more productive your business will be – during the toddler (business) stage and beyond.

While this phase can be frustrating, it’s a sign that your business is growing and adapting, rather than remaining in its infancy, and that can only be a good thing! So embrace the difficulties, learn from them, and watch as your business strides forward confidently into the next exciting phase.

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