At one point, you have to sell your business, and it seems the right thing to do. Perhaps you have created something successful, and it’s time to cash in. Or maybe it is time to retire, or you are just ready to take on a new challenge. It is a big task to sell a company in South Africa, regardless of the reason. It entails legalities, taxation and proper planning. However, with proper knowledge and good advisors, it is just a matter of control.
The two alternatives: Share sale vs. asset sale
You need to first and foremost determine what you are selling. A sale of shares refers to the process of selling your ownership shares to another person. The company does not lose all its assets, contracts, and liabilities. All that the new owner does is to walk into your shoes.
An asset sale involves the sale of particular items such as equipment, inventory or goodwill, although the company may be liquidated later. Share sales are easier to make, and transfer all historical liabilities to the purchaser. Asset sales allow you to pick and choose, and are more complex and can be subject to other tax treatments. Arguing with an expert advisor on this early is better.
The legal framework
The Companies Act of 2008 of South Africa regulates the sale of businesses. The CIPC is the company that keeps the public register. At the time of selling, you are required to inform CIPC and update the records of the company.
In case your company is a regulated company, you might need some extra requirements. New changes imply that a private firm is considered regulated when the number of its shareholders is ten or above, and it attains some financial requirements. Provided this is the case, your deal might require the Takeover Regulation Panel, that safeguard minority shareholders.
Getting your business ready to sell
The labour starts way earlier than you get a buyer. Arrange all your paperwork, the financial statements, legal documents and records of compliance. Make sure that you are meeting all the laws in your business. Buyers will make their investigations, and skeletons will come to light. You also have to find out the value of your business. This involves a one-on-one evaluation of assets, liabilities, cash flow, profitability and growth potential. This step is outsourced to a number of sellers who employ professional valuators or business brokers.
Due diligence
When you have a serious buyer, he/she will carry out due diligence. It is an end-to-end review to check value and risk. They are going to scrutinise your money books, typically not less than three years. They will verify tax returns with SARS, scrutinise contracts with suppliers and clients and check lease and employment contracts. Take this examination in ill grace. It is the buyer just safeguarding his or her investment. The best answer is to ensure that everything is set and open.
The sale agreement
You now proceed to the sale agreement, having done due diligence. This is to be a comprehensive document that explains the purchase price, payment conditions, what is and is not in it and their representations and warranties regarding the business. Warranties are promises to you, e.g. the accuracy of financial statements and the non-existence of hidden liabilities. It is during the negotiation stage that deals are made or broken. Make it very clear to you what is most important to you, be it price, timing, or that you still want to be involved. But be realistic. When both sides of the deal win, the deal has a higher chance of closing.
Tax implications
Tax is a major consideration. In the event that you are selling shares, then you are likely to pay Capital Gains Tax. In the case of individuals, 40 percent of the gain is taxable, and this results in an effective rate of up to 18 percent. In the case of businesses, it is 80 per cent, and the total is approximately 21.6 percent.
In case you sell assets, the treatment is more complicated. Taxing various assets may be different. Goodwill is considered a capital asset that is liable to CGT. Equipment can give rise to recoupments subject to tax as income. The rate of VAT is 15 percent except for a transfer of a business as a going concern, using no VAT, where there are specific circumstances.
Professional advice here is not a choice. An effective tax practitioner assists in designing the transaction in order to reduce the tax and fulfil all the requirements to SARS.
Professional advisors
The process of marketing a business is not an individual undertaking. A business broker may assist you in selling your business, identifying buyers and negotiating. To write the agreement and provide legal consistency, an attorney who is a specialist in the field of corporate law will be engaged. Implication and structuring are facilitated by a tax advisor.
These professionals are expensive, yet they are worth all the money. They assist you in preventing expensive lessons and making your way through the South African law.
After the sale
After signing the deal, you have to make filings with CIPC to revise the company records. Pay all other outstanding taxes and submit the last final returns with SARS. In case you issued warranties, you can have continuing obligations.
The other one is the emotional side. You need to have time to adapt and celebrate what you created.
Conclusion
The preparation is rewarded by selling a company in South Africa. The juridical structure is also transparent and is founded on the Companies Act and CIPC control. There are also tax consequences that need consideration and capital gains rates. But nothing is impossible of this. Begin with an option on whether you are selling assets or shares. Make the proper preparation and valuation. Cooperation with the senior people. Openly operate through due diligence. Avoid compromising, but make a deal that benefits all. Do all filings and get yourself out of town. When you have created value in something, you should be able to move on with that value. Slow down, seek good advice, and see the process through. The end justifies the means.
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