Private Company

A private company must end in (Pty) Ltd or (Proprietary) limited. A private company has a separate legal personality. The company is accountable for its own debts. A board of directors is chosen by the shareholders. The private company may carry on independently and the change in shareholders has no influence on continuity.

The business pays income tax at a company rate. Shareholders do not pay income tax on dividends received. Change to a private company may only occur with a special resolution of all shareholders. Shares of a private company may be sold with the permission of the other shareholders. The voting rights of a private company is determined by the number and kind of shares held.

The Documents That Are Handed To The Registrar Include The Following:

  • The original document of the company as well as two certified copies
  • The document containing the rules for internal affairs of the company as well as two certified copies
  • Proposed name of the company and or translated or shortened form of the company name, if any
  • Company’s registered or postal address
  • The directors names
  • Consensus from the directors stating that they are willing to be the directors of the company
  • Consensus from auditors stating that they are willing to be the auditors of the company
  • Proof of payment of the prescribed fees

Advantages of a Private Company

  • Limited liability, if the company should be liquidated shareholders only lose the amount of money they’ve invested in the company. They do not lose any personal possessions
  • Unlimited continuity, the company will continue to exist even if the present shareholders should leave and new shareholders join the company
  • Existing shareholders have control over who may join and form part of the shareholders
  • A private company in the past may have up to 50 shareholders which was now amended, and currently are not limited by number, and can therefore raise fairly large amounts of share capital
  • A private company is subjected to fewer legal restrictions than a public company thus having more privacy in the running of its business
  • Unlike a public company, the private company may begin business once it has received the certificate of incorporation.
  • A private company is a good form of ownership for those business people with innovative ideas and skills, but with limited amounts of capital
  • A private company need not publish financial statements. It is thus a useful form of ownership if privacy is required

Disadvantages of a Private Company

  • The stock exchange of a private company is not freely transferable Shares cannot be converted to cash as rapidly and simply as possible and may also not be listed on the stock exchange
  • Shares of a private company may not be accessible to the broader public. The source of capital is limited to what the current shareholders can contribute. Growth may therefore be held back. The formation and management of a private company was far more difficult and complex than that of a close corporation, but this was amended in the new companies act.