Effective Steps to Successfully Close a Business in South Africa
Who should be reading this article?
- Anyone whose business is no longer trading and wishes to wind it down
- Anyone who wants to liquidate their business
- Anyone who has lost interest in their registered business and now wishes to discontinue it
KEY TAKE AWAY POINTS:
- Pay all outstanding creditors
- Collect from all debtors if any
- Cancel all contracts (ensuring that all the conditions and terms of doing so are understood and taken care of)
- Inform all employees and customers of the intention to close down the business
- Sell your business assets (including the cars) and stock (if any) or write off any assets or inventory no longer – S0, basically liquidate the business
- The last step would be to distribute any cash or assets that remain in the business
- Deregistering at the CIPC
- Deregistering with SARS (all tax numbers)
Why may you consider closing a business?
There are many reasons for this. But, you may consider closing off your business because of any of the following reasons (not limited to this list:)
- The business was negatively affected by COVID and there is no possibility of the business doing well again in the future
- The business has become unprofitable and it no longer makes sense to continue operating
- Your focus or passion has changed and you would like to focus on something else
- The project for which the business was designed has ended and will not be resuming again in the future
- The most profitable clients of the business have left and you do not see the business attracting any new clients
- Changes in technology that drive your product or business out of the market
- You no longer have the cash flow or working capital to keep the business going
If you are considering closing down your business, the following steps and considerations are important:
1. Have an exit strategy:
Truly speaking, this should happen before there is a need to close down a business. This is because we will all exit from our business one way or the other. Some of the exit reasons are what we have already highlighted above. But, it could also be due to health reasons, death, new investors, a merger or sale of the business or part of the business. Whatever the reason, every business should have an exit and succession plan in place.
Your goal here is to formulate a plan of how you will close down the business or exit from the business. Without a plan, things usually go wrong and you may be caught unaware along the way.
2. Notify your employees:
After your customers, your employees are an important asset to the business. Besides, they have families to feed and lives to live. Leaving it until late may place an unnecessary mental burden on them and leave them with little time to look for alternative employment. As an alternative, use your relationships to find then alternative employment.
But, the important point here is to keep the employees in the loop, not in the dark, about what is going on. Also, decide on who will handle the communications with the employees. It is also important to decide and communicate their terminal benefits and how these will be paid.
3. Notify your clients
It is important to notify your clients in time so that they have time to look for alternative suppliers. Also, you may need to collect anything that they still owe you. It is important that you decide how you will collect and how they will be notified.
4. Collect your outstanding debts
Plan your business closure around your existing collection policies and avoid giving new credit lines to existing or new clients.
You also want to collect any outstanding debts before you close the business because it may become difficult to get payments once you have already closed off the business. Some businesses’ financial policies do not allow payments to individuals.
Avoid announcing that you want to close off your business before you collect outstanding debts because some clients may just stall on payments hoping it will all go away.
You can offer settlement discounts to encourage customers to settle their accounts. An alternative is selling these accounts to a collecting agency.
5. Notify your creditors and pay outstanding debts
Inform your creditors of your decision to close and ensure you have a plan to handle the outstanding debts.
SARS may be one of those creditors. Ensure that you have filed all your returns and that every return is paid for. If you are unable to pay them, there are processes you can follow to ask for a compromise or a repayment plan (Click here to read more about compromises and repayment plans here.)
There may be specific laws on how you may pay your creditors. Ensure you are familiar with these and follow them in settling your creditors. If you are not sure, enlist the services of a lawyer.
6. Sell your business and operating assets
If you can, package some of the cash-generating units that are still functional and profitable and sell these to interested parties. If this is not possible, you may want to sell the assets in the business including all the inventory, vehicles and other operating assets you may still have if there is a market available for them.
7. Deregister the business
Once you are satisfied that all processes are complete, it is now time to deregister your business with the CIPC. This is to inform the CIPC that your business is no longer in existence.
After this is done, inform SARS that you have deregistered the business. Also, apply to have all tax types (numbers) deregistered. This is to clear you of future tax compliance burden since your business is no longer in existence.
Frequently asked questions:
How do I shut down a business in South Africa?
- Start by submitting all outstanding SARS tax returns
- Obtain a tax clearance
- Deregister the business with CIPC
- Deregister the business with UIF and WCA
- Deregister the business with SARS for Income tax, VAT, PAYE and other related taxes
Does CIPC automatically deregister a company?
If your company fails to file two or more consecutive annual returns, the Companies and Intellectual Properties Commission (the CIPC) will initiate the deregistration process. After five or more missed annual returns, the company will be moved into “AR Final Deregistration
How do I permanently close my business?
- Start by submitting all outstanding SARS tax returns
- Pay all creditors
- Sell all assets
- Obtain a tax clearance
- Deregister the business with CIPC
- Deregister the business with UIF and WCA
- Deregister the business with SARS for Income tax, VAT, PAYE and other related taxes
- Keep records
How long does it take to close a company in South Africa?
The CIPC takes up to 4 months to officially deregister a business in South Africa. Other processes within your business depend on internal factors. SARS does not have a turnaround time for deregistering tax types (they normally take up to 21 working days or more.)
Can I close my business and start a new one?
Yes, as long as you have not been disqualified as a director and the new business has a unique name.
What documents are needed to deregister a company in South Africa?
- Mandate to lodge the closure
- Certified ID copies of the directors and the person lodging the request to close off a business
- Tax clearance PIN
- Deregistration letter (to be sent to SARS)
You may contact us if you need help with:
- Company registrations
- Tax and VAT registrations
- Closing off your business with CIPC and SARS
- Accounting and Tax
- Business mentorship and advisor
Ready to close your business and ensure a smooth transition? Whether you’re looking to liquidate, deregister with the CIPC and SARS, or navigate complex tax and creditor obligations, we’re here to guide you every step of the way.
Need help with the process? Contact us today for expert assistance with company closures, tax compliance, and business advice.
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Good day
Do you facilitate companies closing down?
regards
Pierre de Villiers
Pierre de Villiers,
Yes, we do.
let’s start a conversation. Our email is hello@evacfo.com or you may book a meeting here:https://meetings.hubspot.com/lazarus
Good afternoon,
I would like advice on closing the company
Hi Vuyo,
We would be glad to help. We have emailed you.
Looking forward to be pf great assistance to you
Hi
I have already closed down my business but I have so many people hounding me for money that I dont have. What do I do in this circumstance? Also my accountants are not very helpful.
Regards
Ryan
Consult with an attorney who specializes in bankruptcy or business closures. They can help you navigate your legal rights and responsibilities in this regard.