There is a Private Company (PTY LTD) registered in South Africa (Company A)

It has the following:
2 Directors:
- Person A
- Person B
2 Shareholders (50% each)
- Person A
- Person B
2 Loan accounts (Company A owns to an individual)
- Person A (R500k)
- Person B (R500k)

The following occurred. Person A resigned as director. Making Person B the only Director of the company. Person B wanted to have 100% of company A and settling all things that Person B has with the company. (In this case his loan account of R500k)

It was agreed that Person A will sell all his shares to person B, and settle his loan account with the company. All for a lump sum of R300k. Therefore, the R300k payment to Person A will buy all his shares and settle is loan account with the company.

However, Person B had to ask Person C for assistance. It was agreed that if Person C gives R300k to the company. Person C will also be given 30% shares in the company once Person B becomes the 100% owner.

Thus, in accounting terms. Was Person A shares bought and transfered to Person B. The R500k loan account Person B had with the company was settled and the R200k. Is seen an a income in the statements as the company don't own person A anything anymore.

However, for saving of tax Person B and Parson C agreed. That the R200k remaining loan balance will not be seen as an income in the financial statement. But will rather be seen as the purchase of the R300k is ownership for Person A loan account. Which they agreed to split the remaing R200k balance among themselves. Thus making Person B having an R600k outstanding loan account balance with company A and person C having a R400k loan account with company A.

The reason for this is, that when a loan account is being paid back from the company to the individual. It will be paid after the company's tax at the net profit amount.

Making company A not paying taxes on it if it was declared as an additional R200k income originally.

At the end of the day there are 2 options with the above information.

Option 1:
The loan account is settled and company a declared an additional R200k income for settling the loan account below its original amount.
Company a has
- 1 director (person B)
- 2 shareholders (person B 70%, person C 30%)
- 2 loan accounts (person B R500k, person C, R300k)

Option 2:
The loan account is not settled but rather taken ownership of from person b and person C. The remaing R200k is split 50/50 and added to each person's loan account.
Company a has
- 1 director (person B)
- 2 shareholders (person B 70%, person C 30%)
- 2 loan accounts (person B R600k, person C, R400k)

Please provide legal financial answers as well as documents that will need to be in place for the above to be legally.

Answer rating: 100% (QA)

Option 1 In this scenario Person As shares are bought and transferred to Person B for R300k and the R500k loan account is settled with the remaining R... View the full answer