a Trust (need some business advice)

[Random Hero]

Hey guys,

My brain is a bit fried and I feel supper strained from stuDYING...

Just need some help in understanding exactly what a trust is...

Can not even understand this for the life of me.

So I have this idea to create a trust that will be split equally between me and a partner.

then there we intent to start up a business of which this trust will have 51% equity.
The remaining 49% equity will then be split up between 3 share holders (including me and the one partner.

So the structure will look like this:

51% - The trust
12,5% - Me
12,5% - Partner 1
12,5% - Partner 2

The remaining 11,5% will be held for any third party that comes on board. if the company expands and more shareholders come on board I intend to only dilute the shares divided from the 49% equity split.

The trust is suppose to function as a holding company that will hold a majority stake in any future projects.

The other idea is to register a business as a holding company shared between me and the one partner. Then this company will hold the 51% stake in the new business.

Which option would be the best route?

 

[AchmatK]

I would opt for the holding company over a trust.

Recently trusts have come into the spotlight by SARS including the recent reform of the Income Tax Return for trusts.

I cannot think of any major benefit of a trust over a company.

 

[Random Hero]

I would opt for the holding company over a trust.

Recently trusts have come into the spotlight by SARS including the recent reform of the Income Tax Return for trusts.

I cannot think of any major benefit of a trust over a company.

Wont a trust help alleviate taxes...

 

[Nicodeamus]

Wont a trust help alleviate taxes...

yes it will. A trust is also a legal entity on its own where as for a company the shareholders hold more responsibility. Getting a trust registered is sometimes the problem however.

 

[AchmatK]

Wont a trust help alleviate taxes...

To a certain degree yes. There are however a number of benefits for a company before the full 28% tax rate kicks in. The holding company will not be generating any income, with the subsidiary already taking on the tax liability. It therefore does not make much difference if the holding entity is trust or a company.

The costs however in creating a trust and administration is higher than a PTY. Any changes to the trust deed, letter of authority, etc must be lodged at the Master of the court and only original documents can be submitted. While CIPC does have its delays, their online platform does work without the need to physically submit any documentation.

 

[IzZzy]

Wont a trust help alleviate taxes...

It's in fact the opposite.

Far easier to maintain a trust (although Master interactions are a bit of pain) with quicker turnaround times.

Real question is what benefit you think a trust gives you as opposed to a company?

 

[AchmatK]

yes it will. A trust is also a legal entity on its own where as for a company the shareholders hold more responsibility. Getting a trust registered is sometimes the problem however.

I would contend that the trustees of a trust is equally responsible ad the directors of a company which is also legal entity in its own right. Directors and shareholders are not terms that are interchangeable with shareholders(depending on their % holdings) having less responsibility than directors. I am a shareholder in a number of companies on the JSE through my investment portfolio. Does not make me responsible for the company and its mismanagement.

 

[Nicodeamus]

I would contend that the trustees of a trust is equally responsible ad the directors of a company which is also legal entity in its own right. Directors and shareholders are not terms that are interchangeable with shareholders(depending on their % holdings) having less responsibility than directors. I am a shareholder in a number of companies on the JSE through my investment portfolio. Does not make me responsible for the company and its mismanagement.

Trustess are more on the same level as shareholders, they only appoint directors as well. And trustees also are not always beneficiaries of the trust. Shareholders are in a company. Which is probably the biggest difference, I manage a trust for example where my parents are beneficiaries, it will be difficult if I am dead for any debt collector to touch that money.

Dismantling a trust is far more difficult for legal authorities (however it can be done if an illegal transaction has been done). The bottom line is, if you're doing something illegal and stupid, then whatsever financial structure won't help you.

 

[Chris The Man]

*Puts on huge glasses and uses American Accent* According to the Business Studies and Accounting textbook(s) you should focus on starting the business regardless of financial issues.

 

[Chris The Man]

*Puts on huge glasses and uses American Accent* According to the Business Studies and Accounting textbook(s) you should focus on starting up the business regardless of financial issues.

 

[Chris The Man]

Just pretend you didn't see my last two posts.