The Basics of Asset Protection

The world is constantly in a chaotic state, however, there are moments that make people realize and internalize that fact. With the turmoil brought about by COVID-19, and the Russian and Ukraine dispute, which has culminated in there now being supply chain issues (especially the supply of petroleum products) which detrimentally affect various industries leading to many retrenchments and job losses. This has woken people up to the interconnected nature of the world (which has heightened the level of chaos) and filled people up with anxiety and fear pertaining to the assets that they have taken years to build and accumulate for themselves. An important question to ask now is, “How can I protect my assets?”

We all have a basic understanding that assets owned in our own name is typically risky (depending on the circumstances). The reason as to why that is the case is because the assets are directly linked to your name (in your capacity as a natural person) and therefore, those assets can be taken away from you (should your personal financial circumstances change). What you essentially want to do is separate the ownership from the enjoyment of the asset. The method that the financially savvy tend to use is that the ownership of the asset belongs to another entity (a juristic person with a separate legal personality), while those assets are still enjoyed by the financially savvy (the natural person). Thus, their assets are indirectly linked to their name, through the use of juristic persons (or an entity with a similar function). We will be taking a brief look at these different juristic persons and providing insights on each (which are malleable subject to legislative changes).

1. Companies

A company is a juristic person with a separate legal personality, meaning that that company is a separate entity and thus can be held liable for legal, financial, and tax consequences. In most cases, people would register a private company and place themselves as a sole director and sole shareholder of that company. Their assets would then be moved to that company and thus those assets would be owned by the company and not by that particular person. Consequently, those assets would be directly owned by the company and the company would be directly owned by the shareholder(s). Therefore, the ownership of those assets belongs to the company, while the shareholder (natural person) will still be able to enjoy the use of those assets. The directors of a company do not necessarily own the company (unless they are also the shareholders), they control the company (for the shareholders). For more information regarding the relationship between shareholders and directors, please read this article.

Please note that there are different forms of companies, which do not operate like a private company (as shown in the above). Therefore, for more information regarding which form is more appropriate for your circumstance, kindly contact Tokyo Ndlela Attorneys Inc (info@tnalegal.co.za).

2. Trusts

A trust does not fully operate like a private company, in that there are no shareholders and directors. Rather there are trustees and beneficiaries. Trustees are like directors, as they control the trust (in terms of the Trust Deed). Beneficiaries are similar to shareholders, as they benefit from the trust (as described in the Trust Deed). Yet there are instances when a trust can be treated as you, meaning that the assets of the trust will be seen by the courts or relevant regulatory authority as directly linked to your name. For example, where you are a trustee to the trust and a beneficiary to the same trust. A trust is not regarded a juristic person, since the trust is simply a collection of assets and liabilities (held by the Trustees for the sake of the beneficiaries). For more information on how your trust should be constructed, please contact us.

3. Others

There are other juristic persons that can hold assets, such as Non-Profit Organisations (registered with the Department of Social Development), Public Benefit Organisations (registered with the South African Revenue Services), and Non-Profit Companies (registered with the Companies and Intellectual Property Commission). However, assets owned by these juristic persons cannot be indirectly linked to you, as they belong to those juristic persons for purposes of fulfilling their objectives (outlined in their respective constitutions and memorandum of incorporations) for the public. Thus the enjoyment of those assets belong to the public

There are situations that can weaken the protection of the ownership of your assets, even if it is owned by a juristic person. Let us guide you in ensuring that your assets are protected.

Written by Tokyo Ndlela, Managing Partner of Tokyo Ndlela Attorneys Inc.