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Thread: ASAP: Close Corporation Membership

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    New Member jonathan87's Avatar
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    ASAP: Close Corporation Membership

    Hi my name is Jonathan and i have just recently finished my Bcomm degree at the University of Stellenbosch. My father is the managing member of a close corporation and i am hoping to someday take over the business from him. My father has married for the second time in community of property. What advice can you give me concerned with entering the business with my father and membership?

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    Hi Jonathan. Its a bit of an open ended question and very general which makes a simple answer difficult.

    Perhaps the most important points are to:
    1) Put in writing what each of your roles, tasks and responsabilities are to the cc. You don't want arguments later over who should be doing what.
    2) Put in writing how each of you will be paid and when.
    3) Put in writing what happens if one of you wants to leave the business. How do they get paid for their shares? Who can they sell to? Try and imagine you have had a fall out and have this process as clear as possible.
    4) Put the succession plan in writing.
    There are probably a host of other things to consider, but the above should get you thinking. Treat this as though you are dealing with an unknown third party. Don't treat it any differently just because its family.

    By putting everything down in writing it forces the two of you to evaluate this partnership properly and many of the assumptions can be sorted out now rather than later when conflict arises.

    Good luck

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    Gold Member Singhms's Avatar
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    As BusFact mentioned.

    It is best to have a full association agreement drawn up by that all members sign and agree to as the rules of engagement!
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    Site Caretaker Dave A's Avatar
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    My primary concern is the community of property side of things. I'd suggest your father's interest should be held in a trust...
    Wouldn't hurt if you did the same too.
    The trouble with opportunity is it normally comes dressed up as work.

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    Dave A has rightly pointed out that too much info is missing to be able to provide good advice.

    The extent to which you may be able to formalise arrangementsis very dependent on the relationship you currently have with your Dad. So it may be a challenge to start askng him to formalise matters too much particularly given he is letting you into his business. Tread lightly when discussing it with him.

    In addition to that already suggested and without knowing your Dads age, think about the situation if he were to pass away and where that might leave you viz-a-viz your step mother. Potentially this could be extremely problematic and protracted which you want to pre-empt and provide for well ahead of time.

    Perhaps you should also investigate entering an agreement with your Dad, drawn up by an attorney, that entitles either of you to purchase the share of the other in the event of his death, based on a pre-agreed formula that would be best advised by an accountant. I believe that as long as the basis of formula is a fair one, your step mother would have no grounds to contest it later BUT you would need to check with an Attorney givent they are married ICOP. It may not be a workable situation when he passes on, your step mother inherits his share and then starts to meddle in the business PARTICULARLY if you hold a minority share.

    To provide for the purchasing of shares you should take out a key-man insurance policy covering an amount you feel would cover or pretty much cover the estimated share value. Similarly a policy should be taken out on your life so that your Dad could buy your share in the event anything happens to you as he is only getting older, you're probably going to get married and my guess is that you will become an important part of the business going forward with him possibly playing less of an active role . Speak to a suitably qualified life broker in this respect.

    Another thing, CC's are going to be phased out over time and converted to Pty Ltd's. You may wish to explore the Trust option that Dave A has suggested and then trade in partnership.

    Truth is that you probably wont be able to cover every possible situation but all of the above will go a long way to helping.

  6. Thank given for this post:

    Blurock (09-Jan-12), BusFact (10-Jan-12)

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    Diamond Member Blurock's Avatar
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    Good advice given all round.

    Once you are accepted as a member or shareholder in the business, you need to consider entering into a buy and sell agreement as suggested by gac. This will prevent the remaining party having to deal with a non contributing and potentially meddling partner that could harm the business.
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    New Member jonathan87's Avatar
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    Thank you very much for all the advice. My stepmother in fact has her own business and is not interested in the business at this point, its just the fact that they got married ICOP. But things could change in the future and i would like to rectify this before any problems could arise. I am on good terms with my father and stepmother and we all would just like to avoid any complications.

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