Routes to Market in South Africa
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South Africa Routes to Market
There are several types of businesses that can be established. The decision as to which is appropriate will depend on numerous factors, including the need for limited liability and tax transparency. South Africa has a well-developed and formally regulated company law regime, which is based on English company law and it is administered by the Register of Companies (www.cipro.gov.za). There is no distinction between locally owned or foreign-owned companies.
There is a wealth of world-class expertise that will guide an investor through the process of registering a business in South Africa.
The key investment vehicles for international investors are listed below. For more information visit www.southafrica.info, and go to the section Doing business in SA.
Limited liability companies
A limited liability company will generally be the most suitable investment vehicle, since it allows great flexibility and can be used for joint ventures. Two types of limited liability company are possible in South Africa: public companies and private companies. Both are created in terms of and are governed by the provisions of the Companies Act of 1973. The act prescribes the procedures to be followed to form a private or public company.
Section 53(b) companies
Certain professional persons, such as attorneys and accountants, who are statutorily prevented from forming private companies may incorporate a section 53(b) company to regulate their affairs. These companies are identified by the word "Incorporated" or "Inc." after the name of the company.
A foreign company not wishing to incorporate a subsidiary in South Africa may instead set up a branch office.
This is a simpler and less expensive form of corporate body than the limited liability company, which still provides for separate legal personality, perpetual succession and some form of limited liability, but it is unlikely to be of interest to the majority of foreign investors.
Partnerships are useful for tax planning purposes and are frequently used to create a joint venture between two corporate entities. They may be constituted by contract or by implication from the conduct of the partners. They are not regulated by statute.
Business of Trading Trusts
A business or trading trust has several advantages over other business entities, despite recent legislation that tightens control over the conduct of trustees and trusts generally.
International joint ventures represent a significant proportion of international operations in South Africa, particularly amongst the largest enterprises. The economic sectors of activities in which joint ventures are most common are research and development, national resource exploration and exploitation, engineering and construction, production/manufacturing, buying and selling and services.
Franchising and franchise arrangements are a popular way of doing business in South Africa. The pattern for non-South African franchisors' involvement in South Africa has frequently been to conclude a franchise agreement with one South African entity, which then acts as sub-franchisor and concludes franchise agreements with a number of local franchisees.
Franchising has an enviably free position in South African law in the sense that there are no special laws regulating it. However, certain abuses in the franchise community have appeared and there is a trend towards self-regulation.
The largest franchise sector in South Africa is the fast food sector, representing approximately 29 percent of the franchise industry. There are many other industries that exhibit promise for future growth, such as automotive, educational training, building and home services, business services, health and beauty services, printing, real estate, and leisure services.
Although South Africa's foreign exchange controls and import documentation requirements have been relaxed, it is recommended that overseas firms contract with a South African agent or partner. This partner would be responsible for marketing the product, holding stock, fulfilling purchasing transactions, and remitting revenue to the foreign company.
Organisations that can assist with Routes to Market
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