Category Archives: Business advice

Removing directors of a company

The Companies Act, 71 of 2008, requires that the business and affairs of any company be managed by or under the direction of its board, which has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that the Companies Act or the company’s Memorandum of Incorporation provides otherwise (section 66(1)). The Companies Act further requires that a company must have at least one director (section 66(2)), and further that only natural persons may serve in that capacity (section 69(7)(a)).

Those individuals occupying the position of directors of a company are therefore responsible for managing the affairs of the company and they do so as custodians on the shareholders behalf. It should be remembered that the directors do not own the company: the company rather is owned by the shareholders and the directors serve therefore to promote the interests of the company, and indirectly therefore the economic interests of the shareholders.

Quite often, in the case of private companies, the directors and shareholders may be the same individuals. However, where the directors have no or limited shareholding interest in the company itself, it may happen that the shareholders may wish to move to have certain directors removed and replaced on the company’s board if e.g. the company’s financial performance or operations otherwise are not satisfactorily conducted according to the shareholders’ liking.

Naturally, a director may be requested to resign under amicable circumstances. However, where a director refuses to resign (and may perhaps have the backing of other shareholders), the question becomes what remedies the aggrieved shareholders still have? It is possible to have these matters regulated in terms of the company’s Memorandum of Incorporation specifically to dictate under which circumstances a director may be removed from the board of a company. It could also be agreed with the director initially by way of a clause in the appointment contract.

Irrespective of whether the Memorandum of Incorporation or an appointment contract addresses the matter specifically, a director may always be removed by way of a majority vote at an ordinary shareholders’ meeting (section 77(1)). Before the shareholders of a company may consider such a resolution though, the director concerned must be given notice of the meeting and the resolution, and be afforded a reasonable opportunity to make a presentation, in person or through a representative, to the meeting, before the resolution is put to a vote (section 77(2)). In terms of procedures not entirely different from that as applied to shareholders, the directors may among themselves too resolve to remove a director from the board of a company (sections 77(3) & (4)).

It is important for directors to realise that they serve at the pleasure of shareholders. It is likewise necessary for shareholders to know that they have remedies against directors who do not deliver on their mandate, and that keeping directors in check amounts to good corporate governance.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Threshold registration requirement for the skills development levy

We have recently become aware of an increased level of audits being conducted by the South African Revenue Service in relation to taxpayers’ obligations in terms of the Skills Development Levies Act, 9 of 1999 (SDL Act). The focus appears to be specifically on non-compliant taxpayers who fail to register as required in terms of section 5 of the SDL Act, and thus for these employers to pay the requisite levy over to SARS. The problem is perhaps amplified thereby that the skills development levy is often considered an ‘unimportant’ tax by taxpayers (primarily due to it being less costly compared to, for example, VAT or income tax). Compliance with the SDL Act is therefore not a top priority to taxpayers, with the effect that taxpayers are also not apprised of their rights and obligations in terms of this Act when confronted by SARS to register and settle an ostensible skills development levy obligation.

The skills development levy (or SDL) is a levy upon employers required to register for SDL (see registration requirement below). It is levied at 1% of remuneration paid to employees during any month (which include directors of a company). The levy is thus also applicable to directors’ remuneration.

Even though directors’ remuneration is also subject to the SDL, what should not be forgotten, though, (especially in the context of what appears to be the focus of SARS’ audits) is that directors’ remuneration is excluded in terms of section 3(5)(e) from determining whether the threshold amount of R500,000 has been reached and which requires registration for SDL purposes (see section 4(b)).

As above, even though the threshold limit for registering for SDL is R500,000 of remuneration paid (or reasonably expected to be paid to employees in the coming 12 months), the R500,000 threshold amount is determined for private companies without having regard to any directors’ remuneration paid. Therefore, although the directors’ remuneration will be subject to SDL once the company is registered, it is ignored for purposes of determining whether a taxpayer is liable, and thus required to register, for SDL.

This is particularly relevant for SME’s conducting business through a private company, especially where remuneration is comprised largely of directors’ salaries. To give an example in illustration: assume a private company pays salaries to non-directors of R400,000, and R1,000,000 to the two directors of the company collectively. On these facts, the company need not register and pay SDL as non-director salaries amount to less than R500,000. Were the company, however, to pay salaries to non-directors of R600,000, then irrespective of the directors’ remuneration, the company would need to register for SDL and pay 1% per month on the total remuneration paid to all employees (including directors).

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Newton’s laws of life

A1After many years in practice, dealing with many people and attending many seminars and workshops I have picked up a couple of points which I would like to share with everybody.

This is not intended to be a motivational or other speech but merely points which I would like you to consider and it will give me great satisfaction if any of them can be helpful to you in your daily life.

Please read through slowly and enjoy.

Law 1

Listen, think and then speak

Whether in business or in your personal life you will be amazed to realise how many people do not listen to what someone else is saying, do not think about what that person has said and often speak without having listened or thought.

You can only understand the issues and make good and accurate decisions if you listen carefully, think about what has been said and then offer your opinion. This is indeed relevant in all aspects of life. It will definitely give you a competitive advantage in business dealings but is equally important in personal relationships.

Law 2

Positive thoughts

It’s much easier to be negative rather than to be positive. It also takes 10 positive people to negate a negative person.

You will however be surprised how much better life is if you are positive. Positive thinking is better for your mind, body and overall health, and will not only lead to a happier lifestyle but also a healthier lifestyle.

As negative thoughts are so easy, it is important to force them out and replace them with positive thoughts. This does not always come naturally and a concerted effort has to be made to change a negative mind-set.

You will achieve more, be healthier and have more enjoyment by having a positive outlook.

Law 3

Don’t worry unnecessarily

Don’t waste time and energy stressing about all the possible things that could go wrong. This creates unnecessary stress and is in fact a waste of time especially if you do not have any control over the outcome.

You will find that most of these things do not happen and you have spent all that energy on matters that you could, in any case, not control.

Deal with it, if and when it happens.

Law 4

Not problems only opportunities

We are constantly being challenged by tasks, some small and meaningless, some large and important. One must not view these as problems but as opportunities. This change of approach will not only allow you to deal with the matter more easily but could be turned into a positive outcome.

There is a story of a person whose life was just plain sailing with no hint of any trouble whatsoever for a period of time. He fell to his knees and asked: “God don’t you trust me anymore?”

If your body doesn’t allow you to play rugby anymore, it might be an opportunity to start playing golf!

If you lose your job, it might be an opportunity to start your own business!

Don’t refer to matters as problems but rather see them as opportunities.

Law 5

Deal with it

When confronted with a number of tasks, tackle the most difficult one first and then the rest will be easy.

An issue does not go away by ignoring it. It is often not as bad as it seems if dealt with quickly and honestly. The longer it is avoided the worse it seems and gets.

If you get back to the office and there are 5 calls to return, one of which you are dreading to make then phone that one back first.

Law 6

Love yourself

The way you feel about yourself is reflected to others. Don’t be too hard on yourself or be too self-critical. You might even have to bulls#%t yourself a bit, but love yourself.

If you don’t love yourself, how can you expect anybody else to!

Law 7

Live life

We only live once so we might as well enjoy it.

If you find yourself in a rut and board, try this: take a different route to work every morning. You will be fascinated by what different things you see. Driving to work doesn’t have to be boring. Make life interesting.

Don’t make life too complicated. Enjoy.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. (E&OE)

Do you use a monthly financial checklist? If not, you might miss something important!

A3The primary purpose of business is to generate positive cash flow and make a profit, both of which are determined by two factors: money coming into the business and money going out of the business. As long as the money coming in is more than the money going out, you will be smiling. But what if the scenario changes and money going out is more than money coming in?

Will you even know if your business is not making a profit and/or generating enough cash to stay afloat? If you check the financial figures sporadically you might pick up that something’s going wrong eventually but then it might be too late to save the business. If you check the figures religiously once or twice a month and make comparisons between months, you will discover quickly when profitability and cash flow changes for the worse, and you will be able to take steps to rectify this sooner rather than later and have a fair chance of saving your business.

Checking up on your business’ financial affairs at least every month is a good business practice that will help you as a business owner/manager to stay on top of what’s going on in the business. It is crucial to stay in touch with what’s happening elsewhere in the business especially if you are not involved in the day to day running of the business or if the business have grown and you had to delegate some of your workload to others.

Using a checklist regularly and interpreting the results accurately, enables a business owner/manager to get a bird’s eye view of the business in a relatively short period of time. Some of the most important points which should be included in a monthly financial checklist are:

  • Check that accounting software is updated
  • Make sure financial data is entered into the accounting system regularly and accurately
  • Ensure that stocktakes are performed regularly and reconciled with accounting balances; follow up on discrepancies between the counted stock and the theoretical stock balance on the accounting system; be on the lookout for damaged and/or obsolete stock which must be removed from the accounting system
  • Consider implementing a policy of invoicing clients for goods and services as soon as it has been delivered to them
  • Check all bank reconciliations (including petty cash and investments), and follow up on discrepancies and long-outstanding items on the bank reconciliations
  • Check debtors’ reconciliations and follow up on long outstanding amounts
  • Check creditors’ reconciliations and compare with approved list of suppliers; follow up on long-outstanding items on the creditors’ reconciliations
  • Implement periodical asset stocktakes and reconcile results with fixed asset register
  • Review salary records for reasonability of salary deductions, timely payment of PAYE to SARS, etc.
  • Draw up a budget for a future period and compare the actual results for that period with the budget – investigate any material variances between budgeted and actual amounts, keeping in mind that a budget is a forecast and will never be 100% accurate

Indicators of the financial health of a business are calculated from the financial reports and financial statements. By paying attention to these indicators and comparing them from month to month, you will be able to spot trends in the business and the industry in which it operates, and take appropriate action if and when required.

No two business’ checklists will look the same as every business is unique so use caution if you use a standard checklist that has not been customised for your unique business setup. Lastly, make sure you know how to interpret the results you get from working through the checklist otherwise the use of the checklist will just be a waste of time.

If you would like to implement the use of a monthly financial checklist in your business or improve the financial checklist you are currently using, do contact your financial adviser for professional assistance and advice suited to the specific needs of your business.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

Reference List:



Resistance: A stranglehold on business

A4It is not always easy for people to change, but because the business world is constantly changing and evolving, it is essential that your business will adapt to these changes or go under. Real resistance to change does occur in many small businesses and it manifests in ideas that amount to nothing and initiatives that are not carried through.

To have a conservative approach about business is one thing, but to refuse to adapt to changes in technology, customer needs and the market may be futile for your business, especially if your competitors are willing to make the necessary changes in their enterprises. Rick Maurer, an organisational consultant and author of “Beyond the Wall of Resistance”, declares that 70% of organisational change will fail due to resistance from employees. He suggests the following steps to identify resistance and break down the barriers to facilitate change. 

  1. Identify resistance

The signs of resistance are often either blatant criticism or a very easy yes – both potentially harmful to your company. Employees might say yes because they did not quite understand the scope of the changes, and they agreed because they don’t want to give offense or be labelled as uncooperative. Take time to ensure that every employee understands exactly what would be expected of them in the new phase and what the changes entail, else the yes-votes may quickly change to long term, undermining, passive-aggressive resistance. 

  1. Identify the reasons

Resistance from employees is normally due to three reasons. Ranging from least to most severe: they don’t understand what and why; they don’t like the idea; they don’t like you. Every time you find that a business initiative has stalled or a project did not reach its maximum potential, you will probably find one employee who harboured thoughts of resistance regarding that particular process or project. 

  1. Fix it

If your employees don’t grasp the essence of the change, you will have to find a way to persuade them of its merits. Instead of simply repeating yourself, try a different approach or additional training. If they don’t like the idea, one of them will probably find an aspect of the project intimidating or uncomfortable. Try to see their viewpoint – this might help in presenting the information in such a way that their worries and apprehensions are addressed. If it’s you they don’t like, be direct and ask them what the problem is. If you think that trust is a problem, use an anonymous survey with space for personal comments to find out what the real reasons behind the resistance are.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. 


Guard your online reputation

A2Your business may not be advertised online, but the Internet can be utilised to enhance or damage your reputation. Protect your reputation and the way the world views your company.

In the days before the Internet ruled the world, you were the only one responsible for building your company’s reputation. Nowadays you have to manage your reputation, because the smallest thing you do, the slightest fallout with a customer, will be magnified and blown out of proportion online. Consumers research their products before they buy, and it only takes one scathing remark by a disgruntled customer to undo all the hard work you have put into your company. It could take years to recover from such a blow, so like it or not, managing your reputation is extremely important.

Blogs, forums and anonymous review sites have given consumers a platform to air their opinions, which could be a good thing, but some people may comment under instruction of your competition. If you do not actively manage your business reputation, others may do it for you, in a way that will not be advantageous for you or your company.

Michael Zammuto, president of, offers these tips to small business owners on how to protect your online reputation: 

You cannot ignore the Internet

Research on the Internet rules, and that is a fact. Even small business owners who do not advertise on the Internet may find themselves being discussed online. The Internet may not bring you business, but it may influence your reputation, because customers go online, especially when they feel cheated or mistreated. You have to go online yourself and do research about what is said about your own company; you might be very surprised at the results!

Know what you can control

Do not direct potential customers to online review sites when they inquire about your business, because you don’t have control over the content of those sites. Rather try to improve your ranking in Google search results by posting helpful articles with advice, information and hints. Become a trusted source of assistance for your customers, and in the long run you will see positive results. 

Protect your own reputation

Instead of spending a bunch of money on a reputation management company, use free tools and services such as Google Alerts, TweetBeep and Monitor to help you keep track of your company’s reputation. If you do opt for a reputation management company, avoid companies that create various Twitter accounts and microsites to flood the Web with positive feedback about your company. This will cause your position in search results rankings to fall to the bottom and will do more harm than good.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. 


Financial risk management for your small business: Do you know how to do it?

A9Is it really necessary to be able to manage financial risk? The answer is a definite “Yes!” It can make the difference between having a successful business or being forced to close down the business. Make sure you give your business the best chance to survive and thrive by understanding and implementing financial risk management.

Financial risk management can be broken down into the following steps:

1. Understand what financial risk is

A financial risk is any event or circumstance that can have a potentially negative impact on the finances of a business.

2. Identify financial risks applicable to the business

Identify all the financial risks that you can think of which can have an impact on the business. Consider using brainstorming with employees and/or a SWOT analysis to help you identify as many potential risks as possible.

An example of a financial risk is that customers who buy on credit from your business will not be able to pay their outstanding accounts.

3. Assess each financial risk separately

Estimate as well as you can with the available information how probable it is that each risk can affect the business and what the possible amounts of the damage (negative impact) could be if the risk should realise.

Taking the example of customers who will not be able to pay their outstanding accounts, the following matrix is handy to assess the probability and extent of the damage should the risk realise. Assume that the probability and potential damage of clients not being able to pay their outstanding accounts are high as indicated on the matrix with “X”.

Probability of damage occurring (clients not able to pay accounts)
High Medium Low
Estimated extent of damage Major damage e.g. R100 000 X
Medium damage e.g. R30 000
Minor damage e.g. R5 000

4. Treat risks to limit negative impact on business

Select and treat those risks you have the most control over to focus your financial risk management efforts on. Control in this context will be the ability to minimise the chances and potential damage caused if the risk should realise.

Create and implement an action plan to reduce each of the selected risks to acceptable levels.

Consider using insurance to protect the business against external risks which the business does not have much control over e.g. natural disasters.

To continue with the example: the matrix shows that it is highly probable that clients won’t be able to pay their accounts, and the amount of the resulting bad debts can be major. There are measures that the business can implement to prevent, or at least decrease, the likelihood and the amount of damage due to bad debts. These are the measures that the business should focus on implementing to reduce the risk of bad debts occurring to acceptable levels. Preventive measures could include checking the credit record of customers before selling on credit to them and implementing a pre-approved credit limit per customer.

5. Monitor the financial risk management plan

Review the financial risk management plan regularly to ensure that it stays up to date with the changing circumstances of the business and remains effective to decrease current financial risks.

Using the above example of potential bad debts, the regular inspection of the debtors’ age analysis might show an increase in long outstanding amounts which can indicate that the credit policy for clients needs to be reviewed and updated.

Proper financial risk management can greatly increase a business’ chances of being successful and profitable. If you would like to implement a financial risk management plan or suspect that the financial risk management plan currently in use might be outdated, do contact your accountant for professional assistance.

Reference list:

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.


How to register a new company

A1The basic steps to register a company under the new Companies Act of 2008 at the Companies and Intellectual Property Commission (CIPC) comprise certain forms and supporting documentation that must be lodged and fees that must be paid.

The first step in registering a new company is optional. A CoR9.1 form must be completed and lodged with the CIPC in order to reserve a name for the company to be registered. However, the Act does make provision for a company to be registered without a name. The company registration number will then be the name of the company until such time as the company properly registers a name. A certified copy of the identity document of the applicant must be submitted as supporting documentation with this form and a filing fee is payable.

The next step is to complete and lodge the CoR14.1 Notice of Incorporation form together with the CoR15.1 Memorandum of Incorporation.

The Notice of Incorporation specifically contains information regarding the type of company to be registered, the incorporation date, financial year end, registered address, number of directors and the company name if applicable. A certified copy of the identity document of the applicant must be submitted as supporting documentation and a filing fee is payable. A CoR14.1A form contains specific information about the directors of the company who will be appointed at registration, and this form must be lodged together with the Cor14.1. Certified copies of the identity documents of all directors to be appointed must be submitted as supporting documentation. An optional form CoR14.1D may be lodged together with the CoR14.1, which indicates any company appointments to be registered with the CIPC, such as a company secretary or auditor.

The Memorandum of Incorporation is probably the most important document when registering a company, since the provisions contained herein will govern the company. It can be short and simple, or long and extremely technical, depending on what type of company is being registered. In this regard, it is best to seek professional advice. The supporting documentation and filing fees applicable will depend on what type of Memorandum of Incorporation is being registered.

If an auditor or company secretary is appointed at registration as contained in the CoR14.1D, a CoR44 form must also be completed and submitted. No filing fee is payable for this form. An original acceptance letter and certified copy of the identity document of the auditor or company secretary must be submitted as supporting documentation.

The CoR21.1 Notice of Registered Address must be completed with the particulars of the registered address of the company. Again a certified copy of the identity document of the applicant must be submitted as supporting documentation, but no filing fee is payable.

Once all the necessary forms and supporting documentation has been submitted and applicable fees paid, the CIPC will issue a Registration Certificate form CoR14.3 if it is satisfied that all provisions in the Act has been satisfied.

Any changes to the information placed on record at the CIPC at the original registration of the company, must be registered without delay and on the proper forms and possible payment of applicable filing fees.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions, nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. 


A1Die besit van ‘n besigheid vereis noukeurige opvolgbeplanning en is deel van jou boedelbeplanning, omdat jy moet bepaal wie jou gaan opvolg, of wie jou aandele gaan koop, of wie geregtig sal wees op die inkomste na jou dood. Die toekomstige eienaarskap van jou besigheid is op die spel.

‘n Vennootskap word outomaties ontbind by die dood van ‘n vennoot en die oorblywende vennote moet dan die vennootskap ontbind en die bates onder mekaar verdeel.

In die geval van ‘n Maatskappy mag die aandeelhouers ooreenkom dat:

  1. Die oorblywende aandeelhouers ‘n reg van eerste weiering het om die oorlede aandeelhouer se aandeelhouding te koop, in teenstelling met ‘n bemaking in ‘n testament.
  2. Die toekoms van eienaarskap of aandele gereguleer kan word deur ‘n skriftelike ooreenkoms tussen aandeelhouers en word na verwys as ‘n “koop- en verkoopooreenkoms”, wat ‘n invloed het met die dood van ‘n vennoot of aandeelhouer.
  3. Die koop- en verkoopooreenkoms verplig die eksekuteur van die oorledene om die aandele aan te bied teen ‘n voorafbepaalde prys, en lewenspolisse tussen aandeelhouers onderling dek gewoonlik die koopprys. Die oorblywende aandeelhouers is verplig om te koop.
  4. Die oorblywende aandeelhouers is die begunstigdes van die lewenspolis op die lewe van die oorledene en gebruik dit om die aandele te koop, normaalweg pro rata tot die aandele wat hulle reeds besit.
  5. Koop- en verkooppolisse val buite die boedel van die oorledene en die opbrengs is nie onderhewig aan boedelbelasting nie, op voorwaarde dat die volgende drie vereistes nagekom is:
    –  Geen van die premies moes betaal gewees het deur die oorledene self nie;
    –  Die aandeelhouers-verhouding moet bestaan ten tye van die dood;
    – Daar moet ‘n skriftelike ooreenkoms wees.
  6. Wanneer die vaardighede en kennis van ‘n vennoot essensieel is vir die voortbestaan van die besigheid, kan “sleutelmanversekering” uitgeneem word op die lewe van sodanige aandeelhouer of vennoot. Die premies word betaal deur die besigheid en die opbrengs word betaal aan die besigheid self om finansiële verlies te voorkom of om ‘n plaasvervanger aan te stel en op te lei.

In die geval van ‘n eenmansaak behoort opvolgbeplanning in die Testament behandel te word.

  1. Die volledige waarde van die besigheid vestig in die bestorwe boedel.
  2. Beplanning is essensieel omdat die besigheid by dood termineer, alhoewel die eksekuteur dit mag verkoop as ‘n lopende saak.
  3. Dis ‘n goeie plan om ‘n reg van eerste weiering te gee aan ‘n vennoot, wat dan die besigheid en intellektuele kapitaal na die dood kan koop.
  4. ‘n Lewenspolis kan uitgeneem word waarin die eienaar se lewe verseker is, die vennoot die begunstigde is en die opbrengs by dood aangewend word om die besigheid te koop.
  5. Dit is voor die hand liggend dat beplanning die voordeel vir die boedel verhoog, in teenstelling met die sluiting van die besigheid waar die bates veel minder werd sal wees.

Deurlopende opvolgbeplanning moet deel wees van jou besigheidstrategie om te verseker dat jou harde werk die regte persone bevoordeel.

Hierdie is ‘n algemene inligtingstuk en moet gevolglik nie as regs- of ander professionele advies benut word nie. Geen aanspreeklikheid kan aanvaar word vir enige foute of weglatings of enige skade of verlies wat volg uit die gebruik van enige inligting hierin vervat nie. Kontak altyd u regsadviseur vir spesifieke en toegepaste advies.

Succession Planning

A3Owning a business requires careful succession planning and is part of your estate planning as you have to determine who will succeed you, or who will purchase your shares, or who will be entitled to the income after your death. The future ownership of your business is at stake.

A Partnership automatically dissolves upon the death of a partner and the remaining partners will then have to dissolve it and divide the assets amongst them.

In the case of a Company the shareholders may agree that:

  1. The remaining shareholders have a right of first refusal to purchase the deceased shareholder’s shareholding, as opposed to dealing with it in a will.
  2. The future of ownership of shares can be regulated by a written agreement between shareholders that is referred to as “buy and sell” agreement and has an influence at the death of a partner or shareholder.
  3. The buy and sell agreement compels the executor of the deceased to offer the shares at a pre-determined price, and life policies between shareholders normally cover the purchase price.
  4. The remaining shareholders are the beneficiaries of the policy on the life of the deceased and use it to purchase the shares, normally pro rata to the shares they already own.
  5. Buy and sell policies fall outside the deceased estate and are not subject to estate duty provided that three requirements are met:
    – None of the premiums should have been paid by the deceased;
    – The shareholder relationship must have existed at the time of death;
    – A written agreement must exist.
  6. When the skill and knowledge of a partner is essential for the survival of the business, “key man insurance“ can be taken out on the life of such a partner or shareholder. The premiums are paid by the business and the benefit is paid to the business to prevent financial loss or to appoint and train a replacement.

In the case of a “sole proprietor”, succession planning is dealt with in the Last Will and Testament.

  1. All the value of the business vests in the deceased estate.
  2. Planning is essential as the business terminates at death, although the executor may sell it as a going concern.
  3. It is a good idea to grant a right of first refusal to an associate, who can purchase the business and intellectual capital at the time of the death.
  4. A life policy can provide for cover on the life of the owner, with the associate being the beneficiary, and the proceeds at time of the death utilised to purchase the business.
  5. It deserves no debate that planning increases the benefit for the estate as opposed to closing the business down, where the assets will be worth far less.

Continued succession planning must be part of your business strategy to ensure your hard work benefits the right people.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.