their personal assets are exposed to any such claim. On the flip side, the business could also be prejudiced by a claim emanating against the individual in their personal capacity. So a great business is lost because of claim against the individual that has nothing to do with the business!
So, any business failure will result in all or most assets being executed upon.
Sole Proprietorship is a one-man show and is inherently and completely dependent upon the natural person. On the event of the death or sequestration of the natural person the business terminates and there will be a limited possibility of continuity because the Sole Proprietors assets are frozen on the event of their demise. This makes it very difficult to continue the business, pay personnel, collect debt etc. the business dies with the individual.
The Sole Proprietor is in many cases the victim of their own success. Sole Proprietors pay tax at a maximum rate of 41 %. If the business is carried out in a juristic structure the business can avail itself of the Small Business Corporation tax rates this will result in 0 % tax a maximum of 28 % tax( and possibly subject to dividends tax of 15 %).
On the death of the Sole Proprietorship there will be a range of financial consequences, namely:
1 Barring the capital gains tax exemption of R 300,000 and the small business relief mentioned above if the business does not qualify for the relief there would be a capital gains tax levied at a maximum rate of 16.4 %.
2 The Sole Proprietorship will also be subject to estate duty at a rate of 20 % in the event that the business is in excess of R3, 5 million rand or the combination of personal assets and the business exceeds 20 %.
3 In the event that the business or assets are sold, such sale will be subject to Executor’ s to fees at a maximum rate of 3, 5 % plus VAT if applicable of the gross value of the sale( not the net! amount)
4 Whilst the business is frozen any income that flows from the business will be subject 6 % fees to the Executor.
Sole Proprietorship may be easy to get into and administer but it is peppered with far too many vagaries! A proper corporate structure is advisable.
There you have it. Is an SP Easy or business suicide?
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