88 – Set up a separate entity for your business to keep it running after you’re gone

by | Nov 17, 2024 | Business, Financial Planning

Question

I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate of 41%. Is there anything that I can do to reduce this amount?

Answer

It is very important that you create a separate entity for the business. This will enable it to carry on functioning should you not be around.

Set up a company

You should consider setting up a company and running your business from it. 

There will be a small initial cost to set it up, as well as some statutory returns that must be done each year. 

These are, however, outweighed by enabling the business to continue functioning smoothly in your absence. 

Housing the business in a company will also make it a lot easier for you or your heirs to sell the business in years to come. 

Have the business valued

Most owners of small businesses severely underestimate the value of their businesses. This business has been giving you and your family a very comfortable income for many years, so it has a value. 

It would be a tragedy if this income-generating machine dis­appears when you are no longer around. I would strongly recommend that you have your business valued. This will enable you to put structures in place to retain the value of the business. 

Ownership

You would own all the shares in the company you set up, so there would be no real change in the ownership of the business. 

You can now, however, consider doing the following:

  • Nominate your spouse or child as alternate directors to take over should you die;
  • Set up a preferred compensation scheme to sell some of the shares in the company to key employees in the future.

Succession plan

You need to give some thought to who would run the business should you not be around. This could be your spouse, one of your existing employees or someone else. 

It is important that you think this through now and start setting up structures to transfer your knowledge and expertise so that the business can carry on without you.  

KENNY MEIRING IS AN INDEPENDENT FINANCIAL ADVISER

Contact him via phone, email or via contact phone on the financialwellnesscoach.co.za website

Read more of our articles on the Daily Maverick website or newspaper weekly!

Dec 02 2024

189 – Retirement and risk cover options for employees

Question I have a business with 20 employees.  I would like to put in some kind of retirement fund for them.  Is this financially feasible for our sized company? If so,...
Dec 02 2024

188 – Finding the right annuity for you takes thought

Question I recently heard someone talking about a with profit annuity.  I only know about living annuities and guaranteed life annuities.  How does a with-profit...
Dec 02 2024

187 – What to do if you get retrenched

Question I have just been retrenched and I'm feeling quite overwhelmed by all the decisions that I need to make.  Do you have any suggestions on what the big pitfalls...
Dec 02 2024

186 – Making the most of a medical aid on a budget

Question I would like to join a medical aid after not being on one for the past two years.  I’m 39 with a young child and can only pay around R3 500 a month. I’m...
Dec 02 2024

185 – To quell chaos, your business needs its own will

Question I recently heard someone talking about a will for a business. How does this work?Answer A will for a business documents what should happen to your interest in...
Dec 02 2024

184 – Products that can give employees peace of mind

Question A colleague has recently been diagnosed with cancer. He is going to be unable to work properly for at least three months.  The company will pay him his basic...
Dec 02 2024

183 – Measures to take to ensure that your offshore assets are protected

Question A friend’s husband passed away earlier this year, and the executor says it will take at least three years for his estate to be wound up because he owns shares...
Nov 20 2024

120 – The new two pot retirement fund

Question I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate...
Nov 20 2024

121 – Why you should have separate offshore wills

Question I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate...
Nov 20 2024

122 – How utilising a living annuity can maximise the financial health of your heirs

Question I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate...

Download the Life File