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STARTING A SMALL BUSINESS: EXERCISING ECONOMIC RIGHTS AND PROMOTING EQUALITY
Issued by Ismail Joosub on behalf of the FW de Klerk Foundation on 02/09/2024
This article is the fourth in the series by the FW de Klerk Foundation for Money Smart Week 2024.
Starting a small business in South Africa is not merely a personal or economic venture, it is a fundamental exercise of economic rights and a step toward promoting equality. As we mark Money Smart Week 2024, this article explores the crucial role entrepreneurship plays in advancing economic rights and enhancing equality, as enshrined in sections 9 and 22 of the Constitution. Section 9 guarantees the right to equality, ensuring that everyone has the opportunity to participate in economic activities without discrimination. Section 22 upholds the right to choose one’s trade, occupation or profession freely. This article delves into how financial literacy equips entrepreneurs with the tools needed to navigate the complexities of starting and running a business, including understanding relevant legislation, managing taxes and avoiding common financial pitfalls.
The Constitutional Imperative of Economic Rights
The Constitution is a robust framework designed to safeguard various rights, including economic rights, which are essential for fostering entrepreneurship and economic empowerment.
- The Right to Equality (section 9)
Section 9 of the Constitution enshrines the right to equality before the law and ensures equal protection and benefit of the law. This provision is fundamental in the context of entrepreneurship, as it mandates that all individuals, regardless of race, gender, or socio-economic background, should have equal opportunities to start and run a business. This constitutional guarantee aims to dismantle systemic barriers and discrimination that might hinder individuals from pursuing entrepreneurial ventures.
- Freedom of Trade, Occupation and Profession (section 22)
Section 22 of the Constitution further reinforces economic rights by protecting the freedom to choose one’s trade, occupation or profession. This right is crucial for entrepreneurs, as it allows individuals to freely engage in economic activities and establish businesses. However, this freedom is subject to regulation by law, which balances individual rights with broader economic policies and public interests.
Positive Developments
In recent years, there have been significant legal developments that have strengthened the protection of economic rights under section 22. For instance, the 2023 Supreme Court of Appeal (“SCA”) decision in Democratic Alliance v Minister of Home Affairs invalidated provisions of the South African Citizenship Act of 1995 that were found to unduly limit this right. This ruling has reinforced the constitutional protection of freedom of trade and occupation.
Additionally, the resilience of South Africa’s informal economic sector has been notable. Post-pandemic, the informal sector – comprising local spazas, beauty salons and car washes – has demonstrated significant growth. This sector plays a crucial role in the economy, accounting for about 17% of employment and contributing to food security and human dignity. This flourishing of informal economic activities underscores the constitutional commitment to economic inclusion and empowerment.
Negative Developments
Despite these positive strides, there have been concerns about recent legislative changes that might impact people’s ability to exercise their economic rights:
- Employment Equity Amendment Act (2022): The President passed this Act into law onApril 2023. This actaims to enhance workplace diversity and equality by setting numerical targets for equitable representation. While the Act is intended to promote fairness, critics argue that it could adversely affect employment opportunities for minority racial groups, potentially leading to job losses and increased unemployment. This has raised concerns about how such measures might impact the broader economic landscape and individual entrepreneurial opportunities.
- National Health Insurance Act (2023): The passing and subsequent signing of this Bill into law has sparked debates about its implications for the healthcare sector. Critics fear that the Bill could lead to an exodus of medical professionals due to restrictions on their ability to sustain their practices. There are also concerns about the funding mechanisms and operational feasibility of the proposed National Health Insurance system, which could affect economic stability and entrepreneurial ventures within the healthcare sector.
The Role of Legislation and Support Structures
Navigating the legal landscape is fundamental for entrepreneurs in South Africa, as it impacts every aspect of starting and managing a business. Understanding and complying with relevant legislation not only ensures legal operation, but also provides a framework for business growth and sustainability.
Here’s a more detailed look at the key legal considerations and how they affect entrepreneurship:
- Choosing a Business Structure
Selecting the right business structure is one of the first and most crucial decisions an entrepreneur must make. The choice impacts liability, taxation and overall business operations.
- Sole Proprietorship: This is the simplest form, where one individual owns and operates the business. It offers full control, but also personal liability for business debts and obligations.
- Partnership: This involves two or more individuals who share ownership. Partnerships can be general or limited, with varying levels of liability and responsibility.
- Company (Pty Ltd): A private company (“Proprietary Limited”) offers limited liability, meaning that the owners’ personal assets are generally protected from business debts. Companies must adhere to stricter regulations, such as holding annual general meetings and maintaining detailed records. This structure is often favoured for its ability to attract investment and provide stability.
- Registering the Business
Legal registration is crucial for formal recognition and compliance:
- Companies and Intellectual Property Commission (“CIPC”): Businesses must register with the CIPC to become a legal entity. This involves choosing a business name, registering the company and obtaining a registration certificate. The CIPC ensures that businesses are officially recognised and can legally operate.
- South African Revenue Service (“SARS”): Entrepreneurs must register for an income tax reference number with SARS. This registration is essential for complying with tax obligations, including Value Added Tax (“VAT”) and Pay As You Earn (“PAYE”) if applicable. Proper registration helps in managing tax responsibilities and accessing potential tax benefits
- Understanding Employment Laws
For businesses with employees, adherence to employment laws is crucial:
- Basic Conditions of Employment Act of 1997 (“BCEA”): This Act sets out the minimum employment standards, including working hours, overtime and leave entitlements. It aims to ensure the fair and equitable treatment of employees.
- Labour Relations Act of 1995 (“LRA”): The LRA governs labour relations and promotes fair practices in the workplace. It addresses issues such as dispute resolution, collective bargaining and unfair dismissal. Compliance with the LRA helps in managing employee relations and avoiding legal disputes.
- Employment Equity Act of 1998 (“EEA”): The EEA aims to promote diversity and prevent discrimination in the workplace. It requires businesses to develop and implement employment equity plans to ensure fair representation of various groups.
- Skills Development Act (SDA): This Act establishes the framework for skills development and training. Businesses are required to contribute to the Skills Development Levy (“SDL”), which funds training initiatives and promotes workforce development
- Key Legislation Affecting Small Businesses
- National Small Business Act of 1996: This Act establishes a framework for supporting small businesses in South Africa. It defines small enterprises based on specific criteria, including turnover and number of employees. The Act creates the National Small Business Advisory Board to guide government policies and oversee business support initiatives. It includes provisions for the National Small Business Support Program, which offers financial assistance, training and infrastructure development to help small businesses grow. The Act also mandates a strategic approach to support, ensuring businesses have access to necessary resources and skills. Overall, the Act aims to foster a conducive environment for small businesses, promoting their development and contribution to the economy.
- Consumer Protection Act of 2008 (“CPA”): The CPA protects consumers by ensuring fair trading practices and addressing issues such as product safety, misleading advertising and consumer rights.
- Intellectual Property Laws: Laws related to trademarks, patents and copyrights help protect innovative ideas and brand identities. Registering intellectual property with the CIPC provides legal protection and competitive advantage
- Financial Reporting and Compliance
Entrepreneurs must comply with financial reporting standards and regulations:
- Companies Act of 2008: The Companies Act outlines the financial reporting requirements for companies. It mandates the preparation of annual financial statements and the appointment of auditors, ensuring transparency and accountability.
- Tax Compliance: Regular and accurate financial reporting to SARS is essential for tax compliance. Entrepreneurs must keep detailed records, file tax returns on time and adhere to VAT and PAYE regulations
- Access to Support Structures
- Industrial Development Corporation (“IDC”): The IDC provides financial support and advisory services to businesses, particularly in manufacturing and industrial sectors. It offers funding, strategic guidance and support for growth.
- Small Enterprise Development Agency (“Seda”): Seda supports small businesses with various services, including business development, mentorship and access to funding opportunities. It aims to help entrepreneurs overcome challenges and achieve sustainable growth
By understanding and adhering to these legal requirements, entrepreneurs can establish a solid foundation for their businesses, ensuring compliance and enhancing their ability to succeed in a competitive environment.
The Impact of Financial Literacy on Promoting Equality
Integrating financial literacy into the school curriculum is crucial for promoting equality and giving effect to fundamental rights. Financial literacy equips individuals with essential skills to make informed economic decisions, which is a cornerstone of personal empowerment and economic participation.
For small business owners, this knowledge is particularly transformative. It provides them with the tools to navigate financial challenges, manage resources effectively and seize opportunities for growth. By fostering financial literacy from an early age, we can contribute to a more equitable environment where people from diverse backgrounds have the capability to start and sustain businesses, thereby promoting economic inclusion and reducing disparities.
Conclusion
Starting a small business is a significant way to exercise economic rights (section 22) and contribute to a more equitable society (section 9). Financial literacy is essential for navigating the complexities of entrepreneurship, from securing funding and managing taxes to avoiding financial pitfalls. By equipping entrepreneurs with the knowledge and skills they need, we can help them overcome barriers and realise their potential, thereby advancing the constitutional rights enshrined in South Africa’s Bill of Rights.
As we celebrate Money Smart Week 2024, let us recognise the critical role of financial literacy in empowering entrepreneurs and promoting equality. The FW de Klerk Foundation remains committed to supporting initiatives that advance economic rights and foster a more inclusive and equitable society.