Xero Accounting Gold Champion Partner
We hope you enjoy reading the blog post.
If you want our team to do your accounting or tax for you click here.

To Trust Or Not To Trust – Part 1

In this first of a four-part series, we highlight the importance of protecting your assets as a small business owner and also minimizing the risks you face in running it. We’ll be looking at important factors to consider when implementing a risk management strategy and the two critical components that determine the success of this process; A Last Will and Testament and a Trust.

What are the typical risks that a small business owner faces?

  • Paying Tax on business revenue/profits
  • Protecting assets from creditors and potential liquidators
  • Paying Taxes at the time of death

The only way to preserve wealth is by protecting your assets. Great, how do I do that?

You have one of three options:

  1. Place your assets in your spouse’s name
  2. Run your business through either a Close Corporation or a Private Company
  3. Establish and hold your assets in a Trust

Why placing your assets in your spouse’s name is not a great idea

The idea behind this is that in the event that you are sued and your assets are attached, the assets in your spouse’s name would be protected as they belong to your spouse. This however would only be effective if you’re married out of community of property (Anti-nuptial agreement). Should you follow this route you might end up in the pickle in the following scenarios:

  1. If you are married out of community of property and get divorced. As all the assets are in your spouse’s name, he or she is the legal owner of such assets and you might walk away empty-handed.
  2. Your spouse has signed surety. If your spouse signed surety, the assets can be attached regardless of the legal nature of the marriage.

Am I not protected by running my business through a Close Corporation or Private Company?

Let’s have a look at the different vehicles available when running your business and the different levels of protection they each provide:

You can operate as:

1. A Sole Proprietor

As you are trading in your personal capacity, there is no difference in the protection you would have had as an individual. We never recommend this option as a trading vehicle.

2. Through a Close Corporation(CC)

3. Through a Private Company (PTY)

The main difference between a CC and a PTY is that:

  1. The costs associated with running a CC are much cheaper than that associated with a Pty
  2. The legal framework requirements for cc is less stringent than that of Pty

The main risk associated with running your business through either of these vehicles, is that should you be declared insolvent in your personal capacity, your members interest in the cc or shareholding in the Pty could still be attached by creditors and you could therefor still end up losing your business.

In that case, what can I do to protect myself and my business?

Step 1: Ensure that you have a valid Last Will and Testament that is revised at least once a year, or at every major change in your life or business, such as the birth of a child or the acquisition of business assets, and

Step 2: Have a Trust formed that will hold the members interest in your cc or the shareholding in your Pty. We usually advise on forming two Trusts as indicated below:

trusts

In the next edition, we’ll look at the importance of having a Last Will and Testament and how to minimize your deathbed expenses.

Facebook
Twitter
LinkedIn
WhatsApp
Thrive CFO

Thrive CFO

At Thrive CFO, we do accounting, tax, payroll and consulting. But we don’t really DO them…

Instead, we DO FREEDOM.

Freedom of time, money and location.

Yes, tell me more!
FREE DOWNLOAD

Business Profitability Toolkit

Are you looking to improve your business’s profits?

With our toolkit, you’ll have access to a step-by-step guide and much needed worksheets that will help you identify areas for improvement and increase your profitability.

Don’t miss out on this opportunity to take your business to the next level. Try our toolkit today and start seeing results.

"*" indicates required fields

This field is for validation purposes and should be left unchanged.

Are You Thinking of Changing Accountants?

GET THIS FREE EBOOK

Don’t miss out on this valuable resource! Fill in your email address below to receive your free copy of ’10 Reasons to change accountants’ now.

"*" indicates required fields

This field is for validation purposes and should be left unchanged.