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
or the time you decided to help
that distant relative with the bad credit
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.
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.
In terms of the Companies Act of
2008, no new Close Corporations will be registered.
Existing Close Corporations will for now be allowed to
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
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.
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
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
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.