Starting a Business

1. Overview

Doing Business first indicator is Starting a Business. This indicator deals with the number of procedures, time taken and associated costs for starting and operating a business. South Africa has taken this indicator quite seriously over the past few years and has implemented many reforms to make it easy to register a business in South Africa. South Africa took a coordinated effort with CIPC taking the lead as the business registry to interface with other Government agencies such as Home Affairs, Department of Labour – Unemployment Insurance Fund and Compensation Fund, and the South African Revenue Service.

Source: Doing Business Database

2. Business Procedures

South Africa introduced BizPortal which is essentially a one stop shop for registering a business. In BizPortal an entrepreneur can reserve a company name, register a company, obtain a BBBEE certificate, create a domain name, open a business bank account, obtain a Company Tax Number from SARS, obtain a Company UIF number from the Department of Labour Unemployment Insurance Fund, and obtain a Company CF Number from the Department of Labour Compensation Fund. All of this is done in one place with a cost of just R125 for registering a company and R50 for reserving a company name (which is optional). This site takes the ease of doing business very seriously. No paperwork is involved at all!

2.1 Setting up a new company

This is regarded as only one procedure by the definition of the World Bank Methodology. Within the BizPortal there are workflows that guide you into registering the type of business that you want.

3. Methodology

The World Bank has a unique methodology where it counts the number of steps that an entrepreneur would take to register a business, how long it takes for each step, what are the costs and most importantly this has to be verified by a Professional. The World Bank team conducts the survey with a Chartered Accountant or a Lawyer. The methodology appears to be flawed in that it requests the Government to make changes so that it is easy for an entrepreneur but interviews a person who used to make money out of the entrepreneur! The Professionals’ answers then represents the country score and ranking.

Be that as it may, South Africa has made it amazingly simple to register a business online with no documentation and even open a business bank account. Not many countries have such an innovative solution.

In order to compare apples to apples, the World Bank has a standardised case study that it used in its benchmark survey. South Africa is a hybrid country with first world and third world economies. For some of us, we have all the niceties of a first world country with multiple houses, businesses, cars, electronics, Wi-fi, access to credit and just a few kilometres away there exists the third world with abject poverty, lack of running water, no electricity, and no hope for a job.

Why is this important? The World Bank measures the percentage take-up of the reforms (in this case, the BizPortal). Now considering the vast third world economy that we have, South Africa will be disadvantaged in the scoring and ranking.

The World Bank measures the life-cycle of a SME for Starting a Business. What this means is that it looks at any steps that need to be done before registering a business, the actual registration of the business and then anything that needs to be done thereafter (post registration). Typically, this means running or operating the business once it has been registered.

Source: Doing Business Database

The methodology can be found here:

This methodology has assumptions about the type of business that will be registered. It assumes that there will be five (5) directors, with different share holdings, etc. This is not representative and realistic of the start up businesses in South Africa. Nevertheless, the Professional filling in the survey will have to take into consideration of this ‘example’.

Definitions

A procedure is any interaction of the company founder with external parties, for example, government agencies, lawyers, auditors or notaries. Interactions between company founders or between company officers and their employees are not considered separate procedures. Both pre- and post-incorporation procedures that are required for an entrepreneur to legally operate a business (including procedures required after the company incorporation) are recorded. If female entrepreneurs have to comply with additional requirements compared to male entrepreneurs, such additional requirements are included in the list of procedures and are marked as “applies to women only”.

Time is recorded in calendar days, not working days. The time span for each procedure starts with the first filing of the application or request and ends once the company has received the final document, such as the company registration certificate or tax number (for example, it includes the time to make an appointment with a notary or any waiting time once the documents are filed). It is assumed that the entrepreneur has had no prior contact with any of the officials. Procedures that can be fully completed online and in less than 1 day are counted as half a day.

Costs include only official fees and taxes. Bribes are excluded. If possible, please indicate the relevant fee schedule or calculation formula (for example, as a percentage of the company’s capital). Fees for professional services (such as those of notaries, lawyers or accountants) are included only if the company is required by law to use such services or if the use of professional services are solicited by the majority of entrepreneurs. Paid-in minimum capital requirement is the amount that an entrepreneur is required to deposit in a bank or with a notary prior to or within 3 months of company registration.

4. Reforms

South Africa made significant changes to the way that an entrepreneur would typically start a business. Entrepreneurs would go to various agents or even make use of Professionals such as Accountants and Lawyers to register a business. With the introduction of BizPortal, it makes it easy for an entrepreneur to register a company on his own, without the need for any paperwork.

The World Bank ranked South Africa as number 139 out of 190 countries. With the changes that were now implemented, South Africa would hopefully rank better.

Source: Doing Business Database

The details of the procedures can be found here.

Companies and Intellectual Property Commission, Unemployment Insurance Fund, Compensation Fund, and Home Affairs got together and crafted a solution that would make it far simpler to do start a business.

They reduced the procedures from 7 to 4 and would now be targeting just 3 procedures as shown below.

5. Laws

The Companies Act (2008) governs how a company is registered. The Act can be found here.

However, when a company is operating, it still needs to adhere to other Acts as they employee people.

Here are some of the Acts that need to be considered when operating a business:

Act	Link
Protection of Personal Information	Open Link
Employment Equity Act	Open Link
Labour Relations Act	Open Link
Basic Conditions of Employment Act	Open Link
Occupational Health and Safety Act	Open Link
Skills Development Act	Open Link
Skills Development Levies Act	Open Link
National Qualifications Framework Act	Open Link
Compensation for Occupational Injuries and Diseases Act	Open Link
Unemployment Insurance Act	Open Link
Employment Services Act	Open Link
Constitution of South Africa	Open Link

6. Technical Working Group

A technical working group was established in 2018 to analyse end to end processes involved in registering a business with the aim of streamlining and creating efficiencies in the process of registering a business. The TWG comprised of members from CIPC, the UIF and CF, the World Bank and the Department of Trade, Industry and Competition.