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INTRODUCTION

WHY PROTECTION OF ASSETS?

Financial risk is always a reality to bear in mind when conducting any business. No person involved in business is exempt from it.

The bank will never forget about the sureties you signed for the business overdraft...

or the favour you did for the long lost friend with the temporary cashflow problem...

or the time you decided to help that distant relative with the bad credit record...

A more frightening reality is sudden ill health, an unexpected injury rendering you incapable to work for a period of time.

The estate duty implications which your family will face when you pass away is a possible reason for concern.

All of these are ever-present facts of life, which require of us to have a closer look at safeguarding our hard-earned assets against some of the curve balls that life may throw at us.

 

DIFFERENT ENTITIES

All assets held in your personal name are at risk when catastrophe strikes. There are mainly three possible entities to consider for safeguarding of assets.

Close Corporation:

In terms of the Companies Act of 2008, no new Close Corporations will be registered.  Existing Close Corporations will for now be allowed to still operate.

A Close Corporation (popularly referred to as a CC), is registered in terms of the Close Corporations Act. Its operation is strictly controlled by legislation. It consists of a minimum of one member and a maximum of ten members. A member holds a memberís interest, which is always expressed as a percentage.

A Close Corporation is a legal entity separate from the members thereof, with its own assets and its own liabilities. The members are not automatically answerable for the payment of the debts of a CC.

The interest held by a member in a CC however falls into the estate of the individual member. Should the assets of the CC be of a substantial value, it follows that the value of the interest of the member will be of the same value. Although the assets belong to the CC, the interest that the member holds in the CC is always at risk of attachment by a creditor or may push the value of a deceased estate into the brackets for payment of estate duty. It therefore offers the least protection of assets.

Company

There are different types of companies. An Incorporated Company is usually for a professional body of persons such as a firm of attorneys, engineers or accountants and has the abbreviation "Inc" after its name. A Public Company is listed on the stock exchange and has the abbreviation "Limited" (Ltd) after its name. A non profit organisation is another specific type of Company.

An ordinary Company which is relevant to our discussion is usually referred to as a private Company and has the reference "Proprietary Limited" [(Pty) Ltd] after its name.

A Private Company is registered in terms of the Companies Act and its operation is strictly controlled by legislation. The directors see to the day to day management and the shareholders get to spend the profit generated from time to time. You donít need to be a director to be a shareholder and a shareholder need not be a director.

The directors and the shareholders of a Company are not automatically answerable for the payment of the debts of a Company. The value of the shares that one may hold in a Private Company however falls into the estate of the individual shareholder. Should the assets of the Company be of a substantial value, it follows that the value of the shares will be of similar value. Although the assets belong to the Company, the shares that you may hold are always at risk. There are ways to overcome this practical problem, such as holding the shares in the name of a family Trust, as opposed to your personal name.

Trusts

A Trust is registered with the Master of the High Court in terms of the Trust Property Control Act. In essence it is a contract entered into between the different office bearers, for the benefit of a specified group. A Trust is therefore a Creature of Document as opposed to the previous two entities, which are Creatures of Statute.

The main purpose of setting up a Trust should be for the protection of assets and not for any purported tax benefits or any other reason.

The Founder enters into a formal contract with the Trustees of the Trust, in terms of which they are instructed to administer the Trust assets for the benefit of the beneficiaries.

The Trustees are in control of the Trust and must see to the day to day administration and running thereof, for the benefit of the Beneficiaries. The Trustees can be compared to the directors of a Company and the beneficiaries of a Trust, to the shareholders of a Company.

The Trust assets belong to the Trust itself and not to the Trustees or the beneficiaries.

Therefore, the Trust, or a Company where the shares are held in the name of a Trust, are regarded as the most suitable entities when it comes to asset protection.

For a more detailed discussion on Family Trusts and the protection of assets, click HERE

   

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Connie Marais Attorneys

Our difference

is your advantage

 

The views expressed should not be regarded as specific legal advice, as the circumstances may differ from one individual to the other. 

For specific advice regarding individual circumstances, contact us HERE by e-mail, or schedule an appointment with an Attorney.

 

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