# Regulatory Compliance Category > Tax Forum >  Selling my 100% in a CC

## eitai2001

Hi Guys.

I need some assistance with the Tax implications of selling my 100% share in a CC.

Currently, lets say my members contribution is R100 (just an assumed figure). This amount isn't actual money I put in alone, but rather also the value of the time I spent building the CC and creating and adding to it ... time that wasn't paid by salary. I have essently created a Members Contribution as the Credit, and an Intangible Asset as a debit.

My question is this ... I am planning to sell the my share for R100 i.e. the equivalent value of my members contribution. Now, because this is the value of what I have "invested" in the entity ... is it tax exempt ... can the other company just buy the Interest for R100 and I don't have to worry about paying tax or what?

Regards

Itai

----------


## Dave A

So essentially you capitalised unpaid salary - which means you would have paid income tax on that salary income (if applicable).

I can't see SARS getting excited about you declaring a nil capital gain unless you did a whole bundle of such transactions.

----------


## eitai2001

> So essentially you capitalised unpaid salary - which means you would have paid income tax on that salary income (if applicable).
> 
> I can't see SARS getting excited about you declaring a nil capital gain unless you did a whole bundle of such transactions.


I didn't pay income tax on it, should I have, I can't afford the income tax on that because I never took the cash.

I'm not making any gains on the sale of the company, I'm selling it for the value I put in ... i.e. that 300,000

----------


## eitai2001

So if I pay 18% on that amount (because it was 300,000 over 3 years), will sars be happy ... there is no capital appreciation on it.

----------


## Dave A

That changed the complexion of the question somewhat. Tough to say where to start, but this looks as good a place as any -



> I'm not making any gains on the sale of the company, I'm selling it for the value I put in ... i.e. that 300,000


That would be money you took out of your pocket and paid into the company or undrawn profits from the trading of the CC?

----------


## eitai2001

> That changed the complexion of the question somewhat. Tough to say where to start, but this looks as good a place as any -
> 
> That would be money you took out of your pocket and paid into the company or undrawn profits from the trading of the CC?


Well I didn't have cash to put in, so I did everything myself only withdrew a little money, and I believe R300k is the equivalent value of what I put in over 3 years.

I think the easiest way to structure the sale will be to sell the website itself at a profit of R300k, and being an SBC I won't pay tax because profit will be <300k as I have a 20k loss on books, and then I take the profits as Dividend and pay 10% STC and it will be exempt income for me.

----------


## Dave A

> I think the easiest way to structure the sale will be to sell the website itself at a profit of R300k, and being an SBC I won't pay tax because profit will be <300k as I have a 20k loss on books, and then I take the profits as Dividend and pay 10% STC and it will be exempt income for me.


Sounds like a good plan.

----------


## eitai2001

Hi Guys.

An update with the sale of my company.
We are signing the contracts this weekend if the lawyer brings the final draft by then.

We have decided on the following transaction:
I am selling 100% of the members interest in the CC to the new owner in his personal capacity.

The proceeds from the sale are 250k.
They are taking over the business as is with all liabilities and assets at the moment.

The business itself has got a loss in the books due to the recession of the current year and a bad call on my part.

My question ... what is the tax I will pay, as I am selling my 100% interest for the proceeds ... so no transaction actually takes place in the CC aside from just changing names and stuff ... am I correct on assuming there are no tax implications for the CC itself?

For myself personally, am I correct in calculating the tax this way:

Proceeds:  R 250,000
Base Cost: (R 5000) (R500 and a R4500 cell phone are what I started the CC with.)
----
Capital Gain: R245000
Less Natural Person Exclusion (R15000)
Capital Gain: R230000
25% Inclusion therefore 230,000 x 0.25 = 57500
CGT at 18% = R 10350 (18% because I did not meet the second tax bracket even with salary).

So am I correct to say I am liable to pay R10350 ... are there any taxable amounts I may have missed or calculated wrong?

Regards

Itai

----------


## Dave A

> am I correct on assuming there are no tax implications for the CC itself?


 :Yes: 

From the cc's point of view, all that has changed is the member.

----------


## eitai2001

> From the cc's point of view, all that has changed is the member.


Ok cool ... any idea if my CGT calc is right for myself?

----------


## daveob

You do know, while you're doing this whole cc members change, that any surities that you signed for the debts / accounts / bank accounts of the cc, will still be in force after you change the members ?

So, if the new owner decides to default for any reason, they WILL come knocking on your door for full settlement and it doesn't make any difference to them that you sold the cc - fact is you signed the surity and you are liable.

----------


## Dave A

> any idea if my CGT calc is right


I'm hoping Sean or Christine will check that one over. It looks like you'd gone about calculating it the right way, but my knowledge on CGT is rusty.

----------


## eitai2001

> You do know, while you're doing this whole cc members change, that any surities that you signed for the debts / accounts / bank accounts of the cc, will still be in force after you change the members ?
> 
> So, if the new owner decides to default for any reason, they WILL come knocking on your door for full settlement and it doesn't make any difference to them that you sold the cc - fact is you signed the surity and you are liable.


The sale of members interest contract stipulates that they indemnify me against all sureties I have signed for any defaults as of the effective date with the exception of the overdraft which is retrospective, and that THEY must make the best effort to release me from all my sureties, and if not the sureties will move to them.

In any case, the only dangerous Surety I have is the overdraft which they will sign over once I give them access to the bank account.

The suppliers, they have to sign all new dealer applications for each one in any case.

----------


## daveob

> contract stipulates that they indemnify me against all sureties I have signed for


I'm not a legal person, but I don't think that would hold up, unless the holder of the surity co-signs the agreement accepting the transfer of the surity.

If I was your supplier, and the new owners defaulted, I would come to you for payment. I don't imagine that any other agreement that you, as the signature on the surity, has with a third party, would have any influence on the surity you signed for me ( unless I had previously accepted the transfer ). How would the supplier be able to verify the credit worthiness of the new owner without being made aware of the fact ?

As a supplier, I would hold you liable for full payment, and you in turn ( after paying me ) would have to re-claim the amount from the new owner.

Any of the legal experts on the forum have any input here ?

----------


## eitai2001

> I'm not a legal person, but I don't think that would hold up, unless the holder of the surity co-signs the agreement accepting the transfer of the surity.
> 
> If I was your supplier, and the new owners defaulted, I would come to you for payment. I don't imagine that any other agreement that you, as the signature on the surity, has with a third party, would have any influence on the surity you signed for me ( unless I had previously accepted the transfer ). How would the supplier be able to verify the credit worthiness of the new owner without being made aware of the fact ?
> 
> As a supplier, I would hold you liable for full payment, and you in turn ( after paying me ) would have to re-claim the amount from the new owner.
> 
> Any of the legal experts on the forum have any input here ?


I think you are correct in 1 sense, but I will be able to have a successful counter claim against them, and can tie up their assets. At the same time, the suppliers are not allowed to sell to them without getting my permission first if they haven't submitted a new dealer application, and as such ... I can combat the supplier with negligence ... because otherwise any fool off the street could walk into the supplier and purchase something.

If the supplier sees they bought the interest, and the supplier knew about it ... then my surety clause will be void, as the entire supplier contract would be void due to the fact that they know it has incorrect information and I am not a member.
If they did not know, then the contract would still be in force, but then I would hit them based on their own security controls and negligence.

In terms of the bank ... that will be signed over on Saturday when we go to the bank.

But what do you legal experts have to say, I'm far from knowing I am right ... this is just my thoughts on the matter?

----------


## eitai2001

I will also on my own perogitive send out an email to all suppliers with the special resolution stating I have sold the members interest in the company to another person and am no longer involved with the company.

I'd like to see them take me to court when they are all fully aware I am no longer the owner. I will send them all a copy of the sales agreement, and tell them to be aware of clause x.x which states the information regarding the indemnity or suretyship, and also the number on which they can use to contact them.

----------


## daveob

> I will be able to have a successful counter claim against them, and can tie up their assets.


Problem is that if this situation arises, you will probably be sitting with enough assets and cash / value for the supplier to attack / attach, whereas the new owner probably doesn't - indicated by the fact that he defaulted in the first place.

So you might find your supplier gets paid ( by you ) and your counter claim, even if successful ( and legal costs aside ) may result in you getting 100% of what the new owner has at the time - nothing.

Again, just my opinion, but I would seek some serious legal advice first.

----------


## daveob

> I'd like to see them take me to court when they are all fully aware I am no longer the owner.


and that's EXACTLY what they will do. They ( and the law ) don't care if you are or aren't the current owner. Nor do they care at all if you ever were the owner. All they care about is the surity document in black and white. You "Mr J. Soap" signed surity for ABC cc registration number xxxx for it's debts to the supplier. That surity remain in force, irrelevant of whatever else you e-mail or send them, until they release you from that surity in writing.

Same as if you signed surity for your buddy in the pub to buy a car. You're not related to him. You don't even know where he lives. But if he defaults, you'll be paying the bill.

----------


## daveob

after thought .. by now, I think we'll have to agree that there is a potentially very dangerous pitfall here. Without the proper legal guidance, we could bounce possibilities forwards and backwards for weeks.

Bottom line is that you have had a potential problem pointed out - now you need to get professional advice about this and make sure that all bases are covered before you proceed.

Sorry if it sounds like I'm giving you a hard time about this, but honestly, I really don't want to see anyone paying for someone elses mistakes, or getting well and truly Hidley'd.

----------


## Dave A

> I don't imagine that any other agreement that you, as the signature on the surety, has with a third party, would have any influence on the surety you signed for me ( unless I had previously accepted the transfer ). How would the supplier be able to verify the credit worthiness of the new owner without being made aware of the fact ?


Well there's the key right there.

What you need really is a release from suretyship from each of the suppliers at which you are a surety for the cc. I'd suggest getting the same from the bank too. And then keep them somewhere really safe.

Obviously the goal is to ensure as smooth a transition as possible, which gives a perfectly valid reason for you to be active in the process; going to each of the creditors, introducing the new owner, making sure any necessary amendments are made to the contracts of the cc, and *getting your signed release!*  :Wink:

----------


## AndyD

> ....or getting well and truly Hidley'd.


*Higleyed* or *Higley'd*, past tense of _higley_,

*Pronounciation*; _hig-leed_

*Synonyms*

    * robbed
    * conned 

*Verb*

*Infinitive*
to higley


*Third person singular*
higleys


*Simple past*
higleyed 


*Past participle*
higleyed


*Present participle*
higlying

*Definitions*

   1. (transitive, slang) To trick or defraud, usually for personal gain.(often over the internet but not necessarily).

----------

daveob (18-Feb-10)

----------


## eitai2001

I don't have the time to go to the suppliers and fill in forms ... I'm busy with honours. However, I will ensure I get a copy of every new application that they fill in and send to the suppliers signing surety ... in any case ... I think I only have credit with about 6 suppliers and the bank ... for the rest of them, they need to pay COD or fill in a new app for credit.

I spoke to a lawyer already though, and she said the contract covers me. In terms of my assets ... I do not own anything besides a computer and a playstation and a bed :P ... the car is my mom's and I still live at home, everything else belongs to by mom's boyfriend who isn't related to me.

To be honest, not sure why everyone gave me credit in the first place, especially the bank ... I never signed over any security ... except a life insurance thing.

I heed and thank you for your warnings ... I'm pretty sure I've got it covered ... but I will fax each accounting department a letter of resignation as a shareholder in a CC, and perhaps a request for a letter to be released as surer to be faxed back to me.

I will make sure I get copies of all new contracts signed by the new owner.

Regards

Itai

----------


## daveob

> Higleyed or Higley'd, past tense of higley,
> 
> Pronounciation; hig-leed
> 
> Synonyms
> 
> * robbed
> * conned


Good going Andy.  I see we've moved from the denial stage where we all wished for a positive and 'happily ever after' ending, to complete acceptance. Forum Therapy working again !!

----------

Dave A (19-Feb-10)

----------


## AndyD

:Rofl:

----------


## wynn

I am not sure of the tax implication advantages when you sell under the conditions you describe?
I would rather reccommend that you get the buyer to register his own vehicle and sell it to him.
The reason I say this is you have probably forgotten what and where (Banks most likely) you have signed surety, there is no more sobering jolt than finding out five years later that the sherrif is looking for you for debt incurred by the buyer of your cc.

 :EEK!:

----------


## eitai2001

> I am not sure of the tax implication advantages when you sell under the conditions you describe?
> I would rather reccommend that you get the buyer to register his own vehicle and sell it to him.
> The reason I say this is you have probably forgotten what and where (Banks most likely) you have signed surety, there is no more sobering jolt than finding out five years later that the sherrif is looking for you for debt incurred by the buyer of your cc.


It will complicate things to get him to register his own CC ... a lot! Firstly, he can't use the same businessname cause the CC is registered in the name. Secondly, on the online shop world, age is trust ... if he registers a new company, he will lost a lot of trust.
Thirdly, there will be a lot of issues revolving around all the merchant accounts I have to receive money, not to mention the hosting, etc, etc.

In any case, I have not forgotten where I have signed surety ... I have only signed surety with the suppliers, the 1 bank account (I only have 1 bank account) and I think Vodacom for the contract. No where else.

And in terms of the suppliers, most of them are of a COD basis ... the ones with credit I will make sure they fill in new contracts ... in any case, its part of the suppliers T & C that if a shareholding change takes place with a CC, new forms must be filled in.

----------

Dave A (19-Feb-10)

----------


## Dave A

> I am not sure of the tax implication advantages when you sell under the conditions you describe?


One of the interesting parts of this deal is the assessed tax loss is actually an asset of the cc which might have affected the sales price. Knowing that the first _x_ of your profits will be tax free is certainly a sweetener.

----------


## eitai2001

Hi. I have another question relating the sale ...

When submitting the CK2 Form, what is the best way to do this, and the way that will yiel the quickest CK2 receipt from Cipro? I have the ability to submit online, but is this best? The reason I ask is when I sell the company, I need to remove myself as a signatory at the bank and make the new owner a signatory, and the bank says they need a CK2 ... which I hear can take up to 6 weeks. So now what do we do ... how is the new owner expected to conduct business with continuity if he cannot access the banking initially when he takes over ... or is there an exception you know of the the bank didn't tell me that will allow us to change over?

----------


## Dave A

You could always go into the CIPRO offices (I'm sure they're in Pretoria) and get it done on the turn, seeing as you're in JHB.

----------


## eitai2001

> You could always go into the CIPRO offices (I'm sure they're in Pretoria) and get it done on the turn, seeing as you're in JHB.


Is that possible? Won't they just tell me come back in x days?

----------


## eitai2001

Another situation has arised ... my business relationship manager says that WRT the overdraft, I will be liable for it until its paid off, even if she signs surety? Can this be the case? I am leaving the company, and somebody with more security is willing to take over suretyship ... surely there is something that can be done?

----------


## Dave A

Welcome to the wonderful world of banks. Once they've got you by the balls, they don't let go unless they're forced to.

Have the CC open a new bank account at another bank and close the account you're a surety for.

----------


## eitai2001

> Welcome to the wonderful world of banks. Once they've got you by the balls, they don't let go unless they're forced to.
> 
> Have the CC open a new bank account at another bank and close the account you're a surety for.


Problem is we have an overdraft in use ... and so part of the deal is they take over the overdraft. After requesting to speak to their legal department, they changed their tone and now she must submit a personal balance sheet, and they'll look at changing.

They're dorf if they don't .... I have no assets in my name, everything in my mom's name ... so I'm sure they'll switch over surety, cause the new owners have personal assets.

----------


## Dave A

Just make sure you get a letter of release from the surety at the end of it all. Bankers love their belts and braces and in their view there's no harm in having you still tied in "just in case."

----------


## jinxster

Ok my 2c, with the overdraft, moving the bank account is still a good idea.

What I would do is, sell the company like you have, then instruct the new member to move the account within 6 months - 24 months depending on various factors you can decide.

Then check in periodically with the new owner to see how it is going until the account is moved.

Even if you use the same bank with another account. At least after 2 year you wont ever have a problem.

----------


## eitai2001

> Ok my 2c, with the overdraft, moving the bank account is still a good idea.
> 
> What I would do is, sell the company like you have, then instruct the new member to move the account within 6 months - 24 months depending on various factors you can decide.
> 
> Then check in periodically with the new owner to see how it is going until the account is moved.
> 
> Even if you use the same bank with another account. At least after 2 year you wont ever have a problem.


Why though? If I get a letter from the bank releasing me as a surer, I don't see why. You must remember that a lot of our customers have our bank details saved on their internet banking, plus we will have to organize new merchant accounts and stuff ... it really is a big thing to change the account. I thought that once I get the surety changed, it should all be fine?

----------


## jinxster

Peace of mind? Probably isnt necessary that much

----------


## eitai2001

> Peace of mind? Probably isnt necessary that much


Well once I get the letter from the bank, I will have the letter as a legal document, and a contract from the new owner as a legal document ... but more so the bank letter ... I think all should be fine thereafter. Remember, the bank account is held by a separate legal entity being my company.

----------


## Dave A

> ...then instruct the new member to move the account within 6 months - 24 months depending on various factors you can decide.


I'd suggest post transfer-of-ownership requirements are quite tricky to enforce and should be avoided at all costs. The honeymoon period tends to wear off quite quickly when it comes to sales of business.

----------


## eitai2001

Well guys ... after pushing the bank a bit ... they have finally agreed to transfer the surety  :Smile:  ... now just waiting on the CK2 so we can fully transfer all supplier accounts and the actual bank account.

----------

