Splitting up your company for B-BBEE and Small Business tax perks

One of my clients has a company with branches in Jhb, CT and Durban. The turnover is about R25m and he has three adult children. This is how and why we decided to restructure the business.

His intention was to pass shares on to his children as he approaches retirement. We figured that we should form three new companies, one for each branch and each owned by one of his children, but with him as the sole director of all of them. He can relinquish the directorships when he retires.

The existing company has certain accreditations which require additional specialised facilities to be attached to each branch and which perform other services different to, but related to, the main branch activities. He will remain as the shareholder of  the original company and it will supply the specialised services to the other companies.

That gives us four independent companies, each with a turnover of less than R10m and each qualifying as an Exempt Micro Enterprise Level 4 for B-BBEE. That solves his first problem. Is it fronting? No. Because it is being done for sound business and family reasons and the B-BBEE benefit is incidental.

The next benefit is that all four companies are Small Business Corporations as defined in the Income Tax Act. This results in a tax saving of R380 000 each year! (R95 000 x 4) - enough to pay my fees (which are zero) for this and any further meetings with R380 000 left over.

Great meeting, it cost the client nothing, sorted out his retirement plans, got back his Level 4 B-BBEE rating and saved him R380 000 per annum tax. Value for money? The only downside is that he has lost the benefits arising if the companies were owned by a trust. You can also see me at no charge. You can access my diary and book on line here.

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South African Institute of Chartered Accountants. Designation CA(SA)  Internationally Accredited Financial MediatorsIndependent Regulatory Board for Auditors. Designation RA<Engineering Council of South Africa. Designation Pr(Eng) Member of MENSA, the High IQ Society




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