I have recently bought into an existing close corporation which has been around for about 18 years. There were originally four members, now there are only two remaining. I was offered a 10% ownership within this entity at a specific amount. Based upon the fact that I was employed within this entity for a long period, I rushed into the deal without understanding the workings around the administration of the entity.
One year has passed since I have joined, now there are items cropping up which I have questions about..
1. Members Salaries - I was informed that members salaries are not seen as expenses within the financial statements, therefore they are not tax deductible. It was further explained to me that the Expenses (excluding Member Salaries) will be deducted from the Revenue to give the Profit of the CC before Tax. Then, tax will be taken out, leaving the Net Profit which will be shared amongst the members according to their shareholding. In my case this will be 10%, my salary will then be deducted from this amount and the remainder can be paid to me as a dividend. So,
E.g. Revenue R10 000 000 - Expenses R5 000 000 = Profit R5 000 000 - Tax (28%) R1 400 000 = Net Profit R3 600 000
My 10% = R360 000 - (Member Salary R25 000pm * 12 = R300 000) = Dividend Pay-out of RR60 000
2. Company Vehicles - When I came into the company the majority shareholder (75%) had a company vehicle. I was informed that based upon my 10% shareholding it would not be worth my while purchasing a vehicle since the value of the vehicle would be linked to the 10% ownership. This is base don the fact that the value of the vehicle (repayments) would be deducted from my R60 000 dividend which would not work out.
Any advise on the above?