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Thread: Business Start-up Partnership Advice

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    Business Start-up Partnership Advice

    Good afternoon all

    I'm new to this forum and am seeking some advise please?

    I am looking at starting a smallish business (projected turnover of +/- R 15 M p/a) with two other partners. I have very limited knowledge on the subject, having worked in the project engineering environment for most of my career to date.

    What I would like to know is what would the best/most beneficial way be to structure the partnership? Please bear with me, as I said I have very limited knowledge on the subject at present.
    Obviously I want to protect my interest (not that I don't trust my potential partners) and would also like a structure that is as tax efficient as possible if that makes sense.
    Would forming a CC and utilising a Loan Account system be a good option? Or are there better ways to do it?
    Who could I contact to seek professional advise and assistance with setting the partnership up?
    Also, is there any literature out there that I could make use of to better my knowledge on this topic?

    Any responses and advise would be greatly appreciated!


    Thanks,

    Mike

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    Diamond Member HR Solutions's Avatar
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    What are your "interests" ? Ie what are u taking into the partnership ?
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    Silver Member Greig Whitton's Avatar
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    Quote Originally Posted by MikeRS View Post
    What I would like to know is what would the best/most beneficial way be to structure the partnership?
    Without knowing anything about the business that you plan on launching or the arrangements that you have made with your partners, a close corporation or registered company will probably be the most sensible structure. Amongst other benefits, this will afford you and your partners limited liability.

    Should you choose to register a company, your Memorandum of Incorporation (i.e. the documented agreement between you and your partners on how to run your business) will be crucial. Things to think about when drafting your MoI include (but are most certainly not limited to):

    * What contributions (monetary and non-monetary) will each partner make?
    * How will the business equity be allocated amongst the partners?
    * What process must be followed should any of the partners choose to dis-invest?
    * What will happen if any of the partners are incapacitated permanently or temporarily?
    * Who will be responsible for what?
    * What will happen if any of the partners fail to attend to their responsibilities?
    * How will decisions be made?
    * How will disagreements be resolved?

    Quote Originally Posted by MikeRS View Post
    Obviously I want to protect my interest (not that I don't trust my potential partners) and would also like a structure that is as tax efficient as possible if that makes sense.
    For tax efficiency, structure your business so that you qualify for the Small Business Corporation tax system (if at all possible). Trading from a Special Economic Zone could also yield significant tax benefits, although doing so may be impractical depending on your location and industry.

    Quote Originally Posted by MikeRS View Post
    Would forming a CC and utilising a Loan Account system be a good option? Or are there better ways to do it?
    You can't form a new CC, so you would need to register a company or buy a shelf CC. I strongly advise against the latter since you would inherit any liabilities accompanying the shelf company upon transfer. The new Companies Act made the registration and administration of privately owned companies substantially less complex, expensive, and time-consuming, so close corporations don't really have any advantages over them.

    Good luck!

    Founder of Evergrow - Helping South African business owners grow their business without the growing pains

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    Mike. I have seen in life how things unforeseen can cause you great harm. I know more than one person who had a partner pull out after a few years and demand their share in cash even though they did not contribute financially. Be sure your contract stipulates exactly what process will be followed in such an event. I personally would not take a partner that does not have sufficient cash to carry himself for a period of 5 years without taking an income from the new business. This after all is a long term investment and needs a long view. All partners should refrain form bleeding the business dry by living off other income for a period of time. All partners should put in cash irrespective of skills. Skills need to be paid for according to the going rate. They should not receive shares based solely on skills. Hope you understand what I am trying to get at?
    I am not a business person but have life experience.!

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    Diamond Member HR Solutions's Avatar
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    Im fully in agreement with Emelia. That is why one of the reasons I always ask is what you/them are putting into the partnership.
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    When ever I start with my partnership agreement, the first clause is in the case of a disagreement, what the procedure is going to be. At this time every one is friendly, and will contribute positively to the exact process that will take place in the case of there being a disagreement. The next step, is exactly what each member is going to do in the company, and exactly what he will expect in return. Remind every one of the previous clause.

    If you can get past the first 2 clauses, you may continue with the partnership agreement, and get the next lot of clauses behind you.
    The next clause is the process to follow in the case one of the partners wishes to resign from the agreement at any time. Bearing in mind the financial process during the exit strategy, if too early, the financial burden may kill the company.
    The next clause is the procedure in the case one of the shareholders dies.

    Now do all the other stuff to go in the agreement, procedure for the removal and appointment of directors. Who handles the finance, payments etc, regular meetings to verify the financial/bank statement. Procedure for effecting payment, and so on.
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