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Thread: Moving from sole prop to company

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    Moving from sole prop to company

    Firstly, thank you for your time and hopefully for your insightful comments!

    I started my business 4 and half years ago and it is growing slowly but surly. I started with one shop and now will be opening my 3rd in July – I operate where the larger shops fear to tread, I think for good reason! Turnover for last year was R1.6 mill – some of which is coming from tenders.

    My prices are good, my service very good (I think!), but for me to take this further, I think I will need to bring on a BEE partner. What I have found is that a lot of quotes that I get requested to do are from “promotions” companies – generally it seems BEE – I often will get the same quote from 2-3 different companies. After they put on their margin, the quote is then too high. So need to get the tenders directly from the source.
    Obviously a BEE partner would be great, and luckily enough, my wife fits the bill!

    Right, so need to move from a sole-prop to a company – I am guessing a limited company? (or has something taken the place of a CC). Is there a nice article somewhere that lists how they are formed, responsibilities, minimum requirements ect?

    Is it fairly easy to move? Vat numbers, UIF ect? Bank details. Can I still trade as Maxsport?

    Is there an article somewhere for the tax implications of moving?

    As this is for tenders – making my wife a 51% partner makes sense, although I will getting the larger share of the profits – is this ok?

    Any other pitfalls I need to look out for?

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    With a turnover of R1,6M, you are an Exempted Micro Enterprice (EME) and so are already fully BEE compliant. So if that your reason for incorporating, then I don't think its a good one.

    If you do incorporate you will become a Pty Ltd (private company) as there is no longer a cc option. I don't think they have any "nice" articles, but the body incharge of all of this is at www.cipc.co.za. You would have to apply for a new VAT number for the new entity as well as register it as an employer for UIF and PAYE purposes. You would need to open a new bank account in the name of the new company. This is all because you are creating a totally new and different "person" / entity which we call a company.

    You will need to check if the name Maxsport is available at www.cipc.co.za by completing their application forms. If it is you can call your company that name and so trade as that name. Otherwise you might have to try and register it as a business name (trading as name) with the same guys, but this is a new process so I can't give you more info than that yet.

    Some how you will need to sell all the assets you own in the sole prop to the new business. This might give you some extra profit or generate capital gains tax, so there might be a tax implication in this regard. You may want to spend some time with a tax advisor to getv the true picture on this for your particular situation.

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    Thanks for that BusFact. Although you are right about being an EME and should be exempt, I am not sure if many municipalities and government agencies are following that rule. From what I understand there is pressure to use companies that are BEE and quite a few tender documents ask the color make up of the company and DO NOT ask what the turnover is.

    Besides the BEE side of things - having my wife on board will help as I do find that the days are becoming a bit short and another person helping would be great. At the moment I almost feel bad about asking her to help, but once she is part of the company, I think I could really tackle some projects and grow my business.

    Looks like it is not an easy transition though.

    I will chat to my book keeper and find out about the tax implications.

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Pap_sak View Post
    Looks like it is not an easy transition though.
    It's not that tricky either.

    I suggest:
    Form the company (which is a bit of a schlep, but your accountant shouldn't charge too much to do the work - for them it's routine stuff).
    Have the company either buy your sole proprietor business as a going concern, or buy the stock. This would be "financed" by a loan account.

    The tough part really is the value you attach to the sale as you need to consider Capital Gains Tax implications, among other things. If you have the cash reserves to cover a CGT hit, then selling the business with some goodwill value in there is quite tax efficient in the long run. However, if you don't want to take a hit on your cashflow, just sell the new company your assets at cost/book value and wind down the sole proprietorship.

    Mind you - I suppose you'll be facing changes in lease agreements, bank accounts, credit facilities... I guess it is a bit of a grind

    Unfortunately you're right about B-BBEE certificates being irrelevant for government and municipal procurement. They're using the preferential procurement policy framework, which is essentially narrow-based BEE focused almost entirely on ownership and management.
    Last edited by Dave A; 26-May-11 at 05:47 PM.
    The trouble with opportunity is it normally comes dressed up as work.

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    Cheers for that Dave.

    I think that is a good plan. I have spoken to some of my larger suppliers and they do not think it will be a problem - thank goodess even though I am small I am a good payer!

    Once I register a new company - is there a gradual transition (I am think some of the invoices might be in the "old" name), or are they very strict that EVERYTHING must be in the new companies name?

    I am taking a bit too much on board though - starting a new shop next month in a new town, and have decided to move my first shop in August as the three year lease is expiring and found 90% as good premises at about half the rent. So getting the new company registered - but only trading with it a couple of months down the line would be great.

    Thanks for the heads up on the CGT. Cash, what cash?! lol

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Pap_sak View Post
    Once I register a new company - is there a gradual transition (I am think some of the invoices might be in the "old" name), or are they very strict that EVERYTHING must be in the new companies name?
    I suggest pick an implimentation date in advance that'll work for you and advise your suppliers accordingly. I agree on the value of being a good debtor. A good track record always makes creditors far more obliging.

    If there are any cross-over period problems, you can solve it via internal invoicing from one company to the other. But it's extra work and who needs that
    The trouble with opportunity is it normally comes dressed up as work.

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