Impact of moving the Shares of a Company to a Trust?

In a previous article I explained the various entity types to trade in.  Today I will explain the importance of the timing of the issue of shares and the impact of the moving or selling of the shares of a company. 

Clients generally decide to start trading in a company with shares kept in their personal capacity. Mainly for costs as well as the potential income tax benefits of a small business corporation. 

At some stage, you do want to transfer these shares to a Trust, for various reason.  Most important reasons, limiting your personal risk and growth of your estate.

---

The problem arises when you traded for some time and increased the value of the business, and in essence the shares.  Transferring the shares at later stage will trigger two complications:

• Potential capital gains tax payable on the sale or deemed sale to the Trust. The shares need to be transferred to the Trust at a market related value.  Potential capital gains tax will be triggered on the date of the transfer of the shares (which will also be the date of the sale or deemed sale of the shares).   
• If the Trust, and in all likelihood it will, can not afford to pay the amount of the sale or deemed sale, a loan account will be created between the Trust and the current shareholding (which will be the individual).  The loan account, apart from some other complications.  will still form part of the estate / balance sheet of the individual up to the point it does received the actual funds.  

My general suggestion, for a start-up, is to trade for a few months to evaluate and monitor the growth of the business.  If you work closely with your accountant, and evaluate the value of the shares continuously, you will be able to transfer the share to your Family Trust at little costs, limited capital gains tax and not a massive loan account to be concerned of.

 

---

This Form cannot be submitted until the missing fields (labelled below in red) have been filled in
General Enquiries
Please note that all fields followed by an asterisk must be filled in.
First Name*
E-Mail Address*
City*
Business Phone*
Cell Phone*
Enquiry / Comments
Please enter the word that you see below.