Inovatif

Category: Entrepreneurs

  • How A Buy-Sell Agreement Can Help Business Partners In The Future

    How A Buy-Sell Agreement Can Help Business Partners In The Future

    The following story is based on an actual series of events, with some names and circumstances fictionalised. Any similarity to any person’s name, character, or history is coincidental and unintentional. Business partners normally do well when the relationship and business are good, but what happens when either one passes away? This is how a buy-sell agreement can help all parties involved.

    Teh and Fong have had a successful joint venture called Advanced Computing Machines Sdn Bhd (ACM), distributing computers and accessories throughout Malaysia. Each had an equal share of 50% in ACM.

    Teh and Fong had been classmates since primary school and had a closer relationship with each other than with their siblings. They started the business in 1980 when the market was still new. Desktop computers were clunky, and laptops were unheard of.

    The entry of the ACM joint venture was based on their shared conviction that the market for desktop computers would be big as such machines became popular among corporations.

    As the manufacturing cost of computers came down, the market soon developed into a very competitive one. Fortunately, ACM, one of the early players, had a significant market share and could survive on razor-thin margins because of economies of scale and good teamwork between Teh and Fong.

    Teh excelled in marketing, and Fong was a strong operations man. The two blended well and grew market share successfully. Profit grew to exceed RM10 million on an RM900 million turnover.

    Teh brought in his son as his assistant, and Fong’s son joined shortly after as the company accountant. Their thoughts then were for their sons to be joint successors to the business.

    Over time, however, it became clear to Teh and Fong that the two sons did not get along. They often complained about each other to their father. The animosity between them grew, basically stemming from a lack of trust. Fong’s son, being a typical accountant, was always eager to check on business development expenses, while Teh’s son resented his constant querying.

    One day, Teh expressed his concern to Fong over a golf session. They both acknowledged that it would be a disaster for the business if both sons were to inherit what they owned. They decided to seek advice from me, whom they both knew as a financial planner for over a decade.

    After a few pleasantries, they met me over lunch and brought up the subject of their concern.

    Read: Money Caused Breakup Among Four Close Friends, That’s Why it Is Important To Plan For The Succession Of A Business

    Buy-Sell Agreement As An Alternative

    Teh started by asking: “Jo, as you know, we have equal shares in ACM that you helped bring to IPO, and we are concerned that if one of us dies, the share in the business will go to our family and disrupt the business.”

    Fong added: “The big worry is that our sons don’t get along. Sooner or later, there will be a fight, and the business will go downhill. Is there anything we can do besides leaving our assets in a will?”

    I said: “Yes. There are two routes you can choose from. One is to sell the shares wholly or by a majority to a party interested in further developing the business. The second is to sign a buy-sell agreement between you so that when you die or become mentally incapacitated, your representative can sell to the other at a pre-agreed price or price-fixing formula.”

    “But what if our successor refuses to honour the buy-sell agreement?” Teh asked.

    I replied: “This is where it would be useful to do this buy-sell agreement with an independent trust company to act as your attorney. The trust company can then enforce the provisions you have agreed to and ensure the sale proceeds go to the beneficiaries.”

    “What if my family does not have enough cash to buy?” asked Fong.

    “Two ways. The first way is you can agree beforehand on payment in instalments. Or second way, as commonly done, both of you can buy insurance for a sufficient value to cover the shares to be purchased when the time comes.” I said. “For the process and the tax implications, consult an experienced trust company,” I added.

    Shortly after, the buy-sell agreement and two insurance policies were put in place with the help of the trust company.

    Read: He Had Everything But Children’s Harmony In The Family Business

    Buy-Sell Agreement Put Into Action

    In 2020, Teh died from Covid-19 infection, and the trust company claimed the insurance proceeds, which were paid to the beneficiaries, and his shares were transferred to Fong.

    This was a happy ending for everyone involved, avoiding conflict and hardship for the next of kin. This is a good example of how a buy-sell agreement manages to help.

    Read: The Amazing Reconciliation Of Father And Son, And This Reflected Inside The Will

    About Rockwills International Group

    Rockwills International Group, now in its 28th year, pioneered professional will writing in 1995 and has since evolved into the leading estate planning specialist in the country. It is today the largest provider of solutions and support services in trusts, succession, management and distribution of wealth. It has shareholders’ funds exceeding RM50 million. It has done over 280,000 wills and 15,000 trusts and holds more than RM25 billion in assets under trust.

  • Tax Obligations For Self-Employed Entrepreneurs

    Tax Obligations For Self-Employed Entrepreneurs

    With the rise of self-employed entrepreneurs, here are some tax compliance obligations and common oversights.

    There has been a dramatic growth in recent years on the number of self-employed entrepreneurs in Malaysia. From 2017 to 2018 alone, this number increased from 2.57 million to 2.86 million, an increase of 11.3% (source: Department of Statistics, Malaysia). In 2018, the self-employed are the second largest category (19.3%) in the Malaysian workforce out of a total of 14.8 million working adults.

    Malaysia adopts a self-assessment system where taxpayers are responsible to determine their own tax liability and to submit their tax returns accordingly. As the number of self-employed entrepreneurs continues to grow in the Covid-19 economy, it is important for the self-employed to be aware of one’s tax obligations especially in the area of tax compliance. Failure to do so could result in penalties and additional tax payable.

    A self-employed person is an independent contractor or a sole proprietor. The self-employed consists of sub-contractors working in the trades or construction sectors to professionals such as doctors, lawyers, accountants, engineers, and management consultants. Recent iterations include freelancers working in the commonly named “gig economy” (such as e-hailing drivers).

    Here are some tax compliance obligations a self-employed individual should take note of:

    1. Registration of Tax Identification Number (TIN) and submission of tax return

    A self-employed individual should register for a TIN when the person has taxable income which exceeds a threshold of approximately RM28,000 per annum. A TIN can be registered at the nearest Inland Revenue Branch (IRB) branch or via e-Daftar at the IRB website.

    For entrepreneurs running a business, the income tax return (Form B) will need to be submitted by 30 June the following year (eg. Form B for the year of assessment 2020 is due by 30 June 2021*extended to 30 September 2021 due to Government movement control, IRB website)

    2. Estimate of Tax Payable

    Under the Malaysian tax regime, a taxpayer pays income taxes on a “Pay-As-You-Earn” basis. Where an individual taxpayer receives other than employment income, the IRB may issue a Form CP500 setting out the estimate of tax payable under an instalment scheme. The Form CP500 is determined based on the tax liability of the previous year. What should you take note of:

    • The tax estimate is six (6) bi-monthly instalments commencing from the month of March every year.
    • Each tax instalment payment needs to be made within 30 days from the due date.
    • The remittance slip (Form CP501) should be submitted together with the instalment payment.
    • Should there be a need to revise the tax estimate which affects the instalment amount, you must submit Form CP502 to the IRB not later than 30 June each year on the revision payments. The IRB will issue a Form CP503 if the application is successful.
    • The penalty for late payment of 10% shall be imposed on the unpaid amount if the tax instalment payment has not been paid within 30 days from the due date.
    • Where there is a difference between the revised tax estimate submitted and the final tax liability which exceeds 30% of the tax payable, the difference will be subject to a penalty of 10%.

    The following illustration shows the impact when an estimate of tax payable is inaccurate.

    3.Employer’s Responsibilities

    As an entrepreneur, you might hire employees to expand your business. In this case, you will be considered as an Employer for tax purposes. The responsibilities of an Employer are as follows:

    • The Employer is to inform IRB of any new employees within one month from the date of commencement of employment.
    • Submission of Return of Remuneration by an Employer (Form E) to the IRB on or before 31 March each year. <continues…>

    [ You may read the full article HERE ]