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TOPIC: To Merge or not to Merge

To Merge or not to Merge 10 years 11 months ago #3556

  • Wessel
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Good day All,

Trust that you are all well.

I'm a noob to the forum and it already has my attention. So much information, it's going to keep me busy for a while.

A client/friend of mine owns a wholesale/distribution company and recently acquired a e-commerce company as well. He is now wanting to merge the two companies into one. The reasons for this, less overheads, central admin system meaning "less work" e.g. pay VAT once, TAX once etc.. and better cash flow.

I think my question in the end will be why not? I don't think it's a good idea, but can't really say why.
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To Merge or not to Merge 10 years 11 months ago #3557

  • Matthew Haddon
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Hi Wessel

Depending on his circumstances, by merging both organisations into one, he might then qualify as a small business according to the income tax act.

This alone could save you friend as much as R70,000 per year in income tax alone. As a small business he can then still run the company as two separate branches, but under one controlling entity. Just a thought. Obviously it all depends if he can qualify as a smme first.

Cheers,

Matthew
Simpletax
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To Merge or not to Merge 10 years 11 months ago #3558

  • Wessel
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Hi Matthew,

Thank you for the reply. Luckily the companies are set up in such a way to benefit from small business tax. I do like the idea of running two separate branches under one controlling entity. That means registering to trading as names for the one entity?

I'm just still trying to figure out the positive side as well as the negative side of this, hence the reason for the post. Somewhere someone has some insight that will make the light bulb go on.
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To Merge or not to Merge 10 years 11 months ago #3559

  • Matthew Haddon
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One of the main qualifying requirement of smme's are that the members must be natural persons and only a member of one company. If your friend takes ownership on the second entity, both companies will no longer qualify as smme's.

The down side is the new companies act does not allow "trading as" companies any more. The legal name must be the same as the trading name as far as possible. You can brand the companies separately though so there is something to consider. One of the companies will need to change its name which may alienate clients considering their supplier has a new owner and a new name.

The silver lining is new brooms sweep cleaner so it might be a chance to do some positive pr spin. Hope these give you something to think about.
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