Results 1 to 3 of 3

Thread: Investment or Loan???

  1. #1
    Full Member deetee's Avatar
    Join Date
    Jan 2010
    Location
    West Rand
    Posts
    28
    Thanks
    7
    Thanked 6 Times in 3 Posts

    Question Investment or Loan???

    I'm not sure if this goes here or in the Credit Act board, but here goes anyway...

    If I were to invest directly into a business, thereby helping a person to start up their own business, and for my investment receive a share of ownership in the business, I am exposing my money to a certain (possibly large) amount of risk.

    If however, I was to rather purchase the capital equipment in my own (or my own business) name, and "rent" it to the new startup business of the person I was helping, with the proviso that after X period of time (once I have recovered my investment with interest) the ownership would pass to the new business, would my money firstly not be a lot safer (if the equipment remains my property for the duration of the "rental" period.)

    The term "rent" here would surely more appropriately be "lease," but would I then be required to register as a financial services provider??

    How else could I "invest" in a startup business and still achieve a return on my money while still protecting it.

    Any ideas and/or input would be appreciated.

    Thanks,

    Dan

  2. #2
    Platinum Member sterne.law@gmail.com's Avatar
    Join Date
    Oct 2009
    Location
    Durban
    Posts
    1,332
    Thanks
    38
    Thanked 566 Times in 413 Posts
    Blog Entries
    7
    Holding the assets as security would probably give you a safe option, depending of course on the resale potential of such equipment. Additionally you will be able to claim the depreciation which helps your tax burden. Depreciating it would mean after 5 years the value is zero, hence you in theory can give the assets to the business. in this way you can probably word it as rental and not a lease, thus getting around that issue.
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

  3. Thanks given for this post:

    deetee (30-Mar-10)

  4. #3
    Email problem
    Join Date
    Apr 2010
    Location
    Durban
    Posts
    16
    Thanks
    1
    Thanked 9 Times in 6 Posts

    Lease

    A lease of movable property constitutes a credit transaction if :
    - temporary possession of the property is given to the consumer, and
    - payment for the possession and use of the property is deferred during the agreement, and
    - interest, fees and charges are payable on the amount deferred, and
    - at the end of the lease agreement, ownership is granted to the consumer.

    The lessor under such a lease is a credit provider and must register if the total value of the lease is over R500 000.

    This question though is more about risk. If the lease is made out to the other business, then that business does not qualify for Chapter 4 Part D of the Act which deals with over-indebtedness. So should something happen, the other business cannot get protection from the NCA to keep the equipment while defaulting on the lease. The Act wouldn't apply.

    Invest or loan?
    Relationships change over time and when things go bad, these issues can get pretty sour. Maintaining investments in separate entities where possible is advisable for the following reasons :
    - each party maintains control of his own investment
    - perceptions or allegations of wastefulness or mismanagement of funds are thus avoided
    - the transaction can be more focused and structured when done between separate entities
    - all of these make adjudication in the event of a dispute easier because there are less grey areas
    - in the event of one business failing, the other investment remains intact and immune from liabibility, as well as still being available to generate reward from productive use elsewhere.

    The cost would be the administrative burden in maintaining an additional entity.

  5. Thank given for this post:

    deetee (04-Apr-10), sterne.law@gmail.com (05-Apr-10)

Similar Threads

  1. I DISCOVERED A PROFITABLE AND PAYING INVESTMENT COMPANY
    By wisemen in forum Scam Alert Forum
    Replies: 7
    Last Post: 07-Nov-09, 10:46 AM
  2. Pension funds and investment advisors
    By Dave A in forum Business Finance Forum
    Replies: 0
    Last Post: 27-Jul-09, 09:57 PM
  3. [Question] urgent business loan
    By BUHLE in forum General Business Forum
    Replies: 4
    Last Post: 02-Jul-08, 03:25 PM
  4. Fears for "black box" foreign investment.
    By Dave A in forum General Business Forum
    Replies: 0
    Last Post: 02-Jul-07, 07:50 AM

Did you like this article? Share it with your favourite social network.

Did you like this article? Share it with your favourite social network.

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •