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Thread: Advice please - new business

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    Advice please - new business

    I did not want to hijack the other thread so have started a new one. We are wanting to start a new business and would like to know the best way to go about it. Have got some advice from a few people, some conflicting advice, but nevertheless. We are 3 people going into a new venture - my wife and I with a 3rd person. We all have our own businesses at present. My wife and the other guy has a pty ltd and I have an old cc. I am aware that I will have to change my cc to a pty ltd over the next 10 years.

    We thought that we could buy a cc and be a T/A, but have subsequently been told you cannot do that, but now have been told that if I buy a shelf cc that is about 3 years old we can actually apply for a name change and or then be a T/A. Is this correct ? We would then convert it to a pty ltd over the next few years . I have a memo stating that if you convert over the next two years it is free of charge.

    Secondly I would like to know about the members / shareholders - do you as a current business owner lose your business perks by being a member of another cc ? If you are a member of two business ie director of one and a member of a cc of another and the shit hits the fan, can they come after you in your other business ? Can my wife and I perhaps form a family trust and can the trust then be a member of the new formed business/cc ? How does this affect tax ? If the trust is a member of the cc are the members paid a normal salary at the normal tax rates ? If the cc declares a profit at the end of the year and the trust is paid dividends, will the tax be higher ??

    If anyone can assist I would really appreciate it. Thanking you

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Kevinb View Post
    We thought that we could buy a cc and be a T/A, but have subsequently been told you cannot do that, but now have been told that if I buy a shelf cc that is about 3 years old we can actually apply for a name change and or then be a T/A. Is this correct ? We would then convert it to a pty ltd over the next few years . I have a memo stating that if you convert over the next two years it is free of charge.
    Why not just register a new company per the new Companies Act and be done with it in one step?

    Quote Originally Posted by Kevinb View Post
    Secondly I would like to know about the members / shareholders - do you as a current business owner lose your business perks by being a member of another cc ?
    I'm not sure exactly what you might be thinking of in terms of perks, but there certainly are consequences when a member/shareholder has an interest in more than one company. There's the loss of the small business tax breaks which apply only when all shareholders only have an one business, additional disclosure issues in financial statements and at times information provided to clients/potential clients.

    Quote Originally Posted by Kevinb View Post
    If you are a member of two business ie director of one and a member of a cc of another and the shit hits the fan, can they come after you in your other business ?
    Ordinarily not provided there's no mischief or sureties involved. But given the common ownership/top management link, if the brown stuff hits the fan transactions between the two businesses will probably be scrutinised quite closely. I'd also be wary of both companies banking at the same bank. It's not unknown for a bank to pull funds from one account to cover for a default elsewhere on pretty thin linkages (and shaky legal entitlement to do so).

    Quote Originally Posted by Kevinb View Post
    Can my wife and I perhaps form a family trust and can the trust then be a member of the new formed business/cc ?
    Probably a good idea.

    Quote Originally Posted by Kevinb View Post
    How does this affect tax ? If the trust is a member of the cc are the members paid a normal salary at the normal tax rates ? If the cc declares a profit at the end of the year and the trust is paid dividends, will the tax be higher ??
    Generally you'll apply flow-through principles to pick the most tax-efficient way to manage this situation. Normally this means avoiding having profits taxed in the hands of the trust as the rate tends to be punitive.
    The trouble with opportunity is it normally comes dressed up as work.

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    Thank you Dave. The reason why I did not want to form a new business straight away is because you can only register PTY LTD and that also has heavy audit costs at the end of the financial year. This is a small sideline business starting up and we are looking at keeping costs down. Also to open a pty ltd now is very expensive !!

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    Site Caretaker Dave A's Avatar
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    Kevin, audit requirements have also changed substantially under the new Companies Act! Just because you're a company doesn't mean you have to have an audit anymore.
    The trouble with opportunity is it normally comes dressed up as work.

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    Quote Originally Posted by Kevinb View Post
    Thank you Dave. The reason why I did not want to form a new business straight away is because you can only register PTY LTD and that also has heavy audit costs at the end of the financial year. This is a small sideline business starting up and we are looking at keeping costs down. Also to open a pty ltd now is very expensive !!
    In terms of the new Companies Act of 2008 only certain (Pty) Ltds need to be audited. I'm not sure of the exact implications but I'm pretty sure that your business will qualify as one that doesn't. Your year-end procedures will be similar to that of a CC. I'll look up the appropriate sections in the Companies Act later for you.

    I really don't think opening a private company (Pty Ltd) is as expensive or difficult to do as it was before. I would seriously look into that route instead of a shelf CC.
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    I would really suggest you simply register a new Pty Ltd and forget about a cc or t/a. As of last year, a small PTY is much cheaper to setup and run than before. Its essentially very similar to the old cc. Only when your pty gets bigger and more complicated do the costs increase with thins like audits. Hopefully Mark will be able to find the different factors that affect these requirements.

    I think much of your conflicting advice might be from when people are referring to the old companies act instead of the new one which became effective last year and together with the CPA is phasing out cc's and t/a options.

    In theory, the second company that you are an owner (shareholder) of is only likely to be attacked if it is you personally who is being sued. Typically this occurs if you have signed surety on the first company and things go badly wrong there. The creditors then chase you for the money and part of your assets includes your shares in the second company, so they will try and liquidate that too in order to get their cash.

    Note that if you are a director of the second company and not a shareholder then they shouldn't be able to do this, as the second company does not belong to you. A Director is merely an employee. A high ranking employee admittedly, but he doesn't necessarily own anything in the company. This is where your trust plays a role. The trust owns the second company and you are merely a Director.

    If the creditors attack you, you may no longer be able to be a director, but they can't sell the second company as you don't own it, the trust does.

    It can get a bit more complicated but the above is a simple summary of the general idea.

    The dividend tax laws are also busy changing, but up until now the tax on dividends was paid by the company (the cc) at a fixed rate, so it didn't make any difference if the dividends were received by a person/trust/cc/pty. They were tax free for the receiver of the dividends. Its busy changing in April I think and I'm not yet sure how its changing.

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