Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors
Search Products
Filter by Categories
B-BBEE
Blog
Company Secretarial
Featured
General Business
General Interest
Investing in Property
Marketing
Personal Growth
Personal Wealth
Tax
Trusts and Estate Planning
Uncategorized

When your trust is to own your trading and investment companies, you need to carefully consider how they should all be interconnected.

Most advisors will tell you that the trust should own a holding company that in turn should own the trading and investment companies like this –

TrustHoldTradeInvest

But that is not ideal, because, although the trading company can declare its excess after tax profits to the holding company as dividends, the holding company then has to lend the money to the investment company so that it can buy more investment assets.

Here’s a much better way –

TrustTRadeInvest

 

The risk sits with the trading company, so any excess after tax profits are sucked up to its shareholder, the investment company, in the form of dividends. There is no Dividends Witholding Tax because the shareholder is a company, and also the dividend flow is a one-way street. The creditors of the trading company cannot pull the dividends back down provided the trading company’s assets exceeded its liabilities when the dividends were declared.

This way the value of the trading company can be kept close to zero, so there’s nothing for its creditors to grab if things go sour. The investment company holds the money and is free to use it to grow its property (or share) portfolio.

There are two possible refinements.

  • If the trading company needs premises, the investment company can buy them, and rent them to the trading company.
  • If the trading company needs production assets, such as machinery or vehicles, the investment company can buy them, and rent them to the trading company.

In both cases money flows to the investment company as rental instead of dividends, which is simpler, but the main reason is that if the trading company goes belly up, the production assets are not lost.

0 comments

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Looking for even more informative content? Check out the books I have written which have proved to be very popular.

Need help with your Trust or Business?

Contact us today or set up a free meeting with our CEO, Derek Springett. We have been offering expert advice and business services since 1971. You can also view see our full list of services.

Do you want to leave your cart?

Your cart is awaiting your next purchase, so please proceed to the Home page and continue shopping. If you are leaving your cart because of problems, why not give us a call on our 24 hr numbers 063 866 8928 or 011 805 0030 (subject to load shedding)? If all else fails, call Derek, our CEO on 082 552 9696. We’ll do what we can to help