Close Corp' TAX IMPLICATIONS??

[REE]

HI

I HAVE A QUERY AND SCENARIO THAT I NEED ASSISTANCE ON:-

NOT TO BE LONG WINDED, BUT BASICALLY, A PERSON WORKED IN A CC(CLOSE CORPORATION) FOR OVER TWENTY YEARS AND HAS THE OPTION NOW TO PURCHASE A PORTION OF MEMBERS INTEREST IN THE CC.WHAT IS THE PROCEDURE TO ESTIMATE THE PRICE OF PURCHASE,eg:to purchase 10%??

ASIDE FROM THE CIPRO REQUIREMENTS OF THE CK2 AND RELATED DOCUMENTS FOR THE ADDING AF A NEW MEMBER, TO WHICH THE OTHER CURRENT MEMBERS, HAVE NO OBJECTION, WHAT WILL THE PUTATIVE "MEMBERS" TAX IMPLICATIONS BE FOR THE MEMBERS INTEREST???

PLEASE SOME FEEDBACK OR ASSISTANCE

[Dave A]

So the new member is buying an interest in the cc. Who is he buying the interest from, the cc or the current members? (Basically - who/what is getting the money?)

[REE]

HEY THERE

SORRY, HE WOULD BE PURCHASING THE INTERESTS FROM THE EXISTING MEMBERS....

[Dave A]

I think the existing members will be in for capital gains tax.

Putting a value on the transaction is always tricky without going into some depth, but ultimately the deal won't fly without a willing buyer and willing sellers, particularly if there is no system of valuation in place.

For example, in terms of our articles of incorporation for my companies, once a year at the AGM we agree the value of a share. This is ultimately to cover for any share transfers between shareholders that might arise during the course of the following year due to unforseen circumstances.

Something simple for this sort of thing is to base the value on book value, although that isn't always a fair market value.

[Dave A]

Just noticed this - Vince did an article on valuation of SME's a while ago.

[REE]

tax dilemma?!?

thanks for the help thus far Dave and the article reference

i think you are right but would the putative "new" member only be in for capital gains tax, or would he have other financial obligations before he may enjoy the transfer of the interest...ie: securities transfer????

also am i correct that CGT is still at 20% and due only at the end of a tax return year??

and one more, is that if CGT would be 10% for a special trust, it might not help as i beleive in a CC, only natural persons may hold the interest??

[dellatjie]

REE, I know this is very very late, but I am sure other members will find it helpful.

With regard to CGT, there is an exclusion in the following circumstances when an interest in a Small Business is being disposed of:
- When disposing, the proceeds should not exceed R900 000 (2010: R750 000).
- The gross asset value of the business should be less than R5 000 000.
- The natural person was a sole proprietor, partner or at least 10% shareholder for at least five years, is at least 55 years old, or suffers from ill-health, is infirm or deceased.

Hope this helps someone.