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How To Dissolve A Business Quickly And Effectively?

Here are a few key points to consider, should you ever need to dissolve a business quickly and effectively.

Ya-Fan Wong

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Most business advice out there is on how to start and grow a business. And although this is crucial for obvious reasons, it’s also good to understand how to dissolve your business, should the need ever arise. Sad but true, not all businesses will last. In fact, between 70% to 80% of small to medium sized start-up businesses will dissolve within the first three years, for whatever reason.

Here are a few key points to consider, should you ever need to dissolve a business quickly and effectively:

Know your options

There are two ways to dissolve a business. Closing or dissolving a business means that your business is ceasing to operate due to either:

  • deregistration; or
  • Liquidation.

Related: The Legalities Of Shutting Down Your Business

Deregistration vs Liquidation

When a business deregisters with the Companies and Intellectual Property Commission (“the CIPC“), it implies that the business is no longer registered and has no legal standing since it’s not doing any business, nor has any assets or liabilities. In essence, the entity concerned is removed from the CIPC database and ceases to exist once the CIPC application process has been finalised.

On the other hand, when a business undergoes a voluntary or compulsory liquidation (also known as “winding-up”) it involves the process of selling all the assets, paying off creditors, issuing any remaining assets to the main or parent company, and then simply closing the business. Liquidation or the “winding- up” of a business may happen in various ways, including the following:

  • when a business is unable to pay its debts;
  • as a result of a legal court process;
  • by application of the creditors; or
  • voluntarily, i.e. by application of the members.

Advantages of proper dissolution

As long as your business exists, it is liable to pay taxes and other fees. If you want to avoid those unnecessary expenses, it is important to ensure that the business is dissolved properly. Until you do so, your business will be held liable to file all relevant tax returns. Failure to file these returns will result in heavy penalties and fees associated with the late filing.

Another consideration to take into account, is that even if you have already stopped your business operations, legally the company/close corporation, directors, and officers (in some cases also shareholders/members) will still be considered as personally liable for certain aspects of the company business – unless you file cancellation legally.

Related: 5 Different Types Of Businesses

What happens to the employees of the company?

There is obviously a need to protect the employees of a business that is undergoing dissolution. In the past, the termination of contracts of employment meant that employees were not considered as dismissed and therefore they did not receive any protection or benefits the law offered e.g. severance pay in terms of the Basic Conditions of Employment Act or the right not to be unfairly dismissed in terms of the Labour Relations Act.

The amendment to Section 38 of the Insolvency Act applies to the insolvency of individual employers who trade in their personal capacity and to companies and close corporations wound up due to insolvency, with the effect that:

  • contracts of service are suspended on the insolvency of the employer from the date of the winding-up order;
  • during the suspension of the contract, the employee is not obliged to render any services to the employer, and the employee is not entitled to receive any pay or employment benefits arising from the contract;
  • the employee whose contract has been suspended is deemed to be unemployed and is entitled to claim UIF; and
  • an employee whose contract is suspended is terminated due to the employer’s insolvency is entitled to claim compensation for loss suffered by suspension or termination of the contract of service.

Furthermore, the trustee / liquidator may not terminate contracts of services unless he has consulted with:

  • persons as required to by virtue of a collective agreement;
  • a workplace forum;
  • a registered trade union representing affected employees; or
  • the affected employees themselves.

If the trustee / liquidator has not already terminated the services of employees, the contracts will automatically terminate after 45 days of the trustee / liquidator having been appointed.

Related: Small Business Start-up Guide

An employee whose services has been terminated in this manner is entitled to claim severance benefits as if he/she were dismissed for operational reasons, from the employer’s insolvent / liquidated estate in terms of section 41 of the Basic Conditions of Employment Act. Also in terms of section 197A of the Labour Relations Act, if a transfer of business takes place between an old employer and a new employer in the circumstances above, the new employer is automatically substituted in the place of the old employer in all contracts of employment in existence immediately before the old employer’s winding-up.

In conclusion, dissolving a business doesn’t have to catch you off guard or end in a power-struggle. If done properly, it can be a quick and simple process. Talk to a legal professional from the start, be transparent and make sure you follow the necessary steps.

Ya-Fan served his articles at Dommisse Attorneys and was admitted in 2015. He is currently in our Corporate and Commercial division, and is responsible for the firm’s company secretarial unit, offering a value-added service to clients, beyond just the incorporation of a company, to include maintaining of share and director registers and assisting with annual returns.

Leading

What A Grade 1 Sticker Business Taught Me About Business

It’s the very fundamentals that are frequently overlooked amid ambition and “blue sky thinking” – yet, these remain the most crucial element of any business.

Grant Field

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When I was a kid, my father believed that instead of getting pocket money, my brothers and I should learn how to make money. Stickers were the school craze when I was in Grade 1, and we wanted a collection for ourselves, so Dad said if we wanted to buy the stickers, we needed to make the money. So, logically, we started a sticker trading business. Dad gave us the start-up money and took us through the basics of business.

We had a cash float for purchases, and learnt about cost price, mark-up and selling price – very basic accounting. We kept recycling that money, making extra and using it to buy more stickers. Then we worked out that if we increased the mark-up, we’d make a bigger profit – so why not make the mark-up as big as possible? The obvious happened. Our prices were too high, and we lost customers.

Valuable business lesson learnt, we came back down to a mark-up that other kids were willing to pay for.

More lessons to learn

Then people came to us and asked if they could take a sticker today and pay us tomorrow. We saw no reason not to trust them. Guess what? They didn’t pay us back. We had bad debt on our hands. When we sold out of stickers, we had cash-flow issues and couldn’t buy more stock. Dad was there to help us out, though, so we received another capital injection to get back off the ground. And this time, if we did extend credit, we loaded it for the privilege of “buy now, pay later” – another lesson learnt.

We ran a proper ledger for the business, tracking our inventory, sales and profit. Even if our “bank” account was a piggy bank, we had a clear record of what was going on. When I look back on it, none of what I learnt was irrelevant.

Today, I run a leading financial services company with billions of rand running through our bank accounts. Even though the finances of the business are run on a much larger scale, the principles of business – those basic principles that we learnt trading stickers – still power our company. And when I see entrepreneurial ventures failing, or when friends come to me for advice because their business is struggling, it’s almost always because they haven’t got these basics right.

Related: Successful SA Entreps Share Their Most Valuable Business Advice Ever Received

Clarity

One of the most important lessons I’ve learnt is that if you don’t fully understand how the money is being made, walk away. Whether you are dealing with stickers or financial services, the business principles should be straightforward: money coming in, money going out, and profitability.

Every day, I look at an Excel statement of my company’s forty bank accounts. Every day, I look at the cashflow, and unusual big-ticket items get a note so I know what’s going on. It’s just like that Grade 1 business, only on a bigger scale.

Entrepreneur, thwarted

Once the other kids saw the success of our sticker business, they started to want to get in on the action, so they came to market with their own competing products. At first, we were able to innovate as the competition squeezed our margins and started to impact on our profits. Eventually, the whole situation got completely out of hand and the school banned sticker trading for profit.

While I didn’t become a sticker magnate, the lessons I learnt in Grade 1 remain central to every business I am involved with – get the basics right.

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How To Handle A Director Who Always Says No

Diverse opinions on a board is a good thing — but is it boosting your business, or hindering growth and decisions?

Carl Bates

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Do you have that director on your board who always says ‘no’? Regardless of what the issue is, regardless of the context, who raises it or whether or not it is indeed a good idea, their response is either a simple ‘no’ or an elongated perspective on why they disagree? It can even feel at times that they are actively working against the company and against the board. Although they obviously do not see it that way.

Experienced directors will have multiple war stories related to this subject. Aspiring directors should be aware of how to approach these situations when they arise and how to avoid becoming the subject of such stories.

Develop a culture of trust, candour and professionalism

A board’s conduct must be characterised by trust, respect, candour, professionalism, accountability, diligence and commitment. It is the board’s collective responsibility to build this culture and to engage with one another in a productive and effective way.

Dissent should be welcomed when it is constructive and engaging. The idea of being the ‘devil’s advocate’ for the sake of it however, is not the best way to approach this. Dissent should be based on a real belief that the issue has not been fully debated or creates a real challenge for the company going forward.

If you have a director who genuinely believes a different path is right for the company, hear them out and engage in the discussion. In my experience, this often opens up an issue or changes a detail that when taken as part of the whole, improves the decision-making outcome for the board and the company.

Related: Contributing In The Boardroom

Remove the politics from the boardroom

At the heart of this issue is often politics. Politics between directors, who are also shareholders or executives. Politics between the ‘new guard’ and the ‘old.’ Regardless of the genesis, politics really do not have a place in the boardroom and directors who engage in it should be called out by the chairman or another senior director.

In local government I have heard stories of councillors who always vote ‘no,’ so that whenever something goes wrong, they can say “I told you so,” and show the public why they should be re-elected. But that is indeed politics. The boardroom is a very different space. It is private and discussions should be confidential.

Board rotation, a simple solution

While the removal of an errant director should never just be left to resolve itself, there is a simple solution that can support the easy removal of the most difficult directors. The challenge is that it requires forward planning prior to the appointment of any new director.

Directors should only ever be appointed for a predefined term, with automatic rotation at the end of that term. This does not stop you from reappointing a director for a further period. It is, however, always easier to ask someone to consider a further term than it is to tell them that their time has come and they should resign from the board.

Having a predefined term for a director essentially ensures an automatic resignation period. A simple rotation policy for directors is not just good governance, it is a practical step you can take to provide a way out of a sticky relationship.

Ultimately the board as a whole must address issues that detract from the board fulfilling its function as and when they arise. A rotation policy might provide an effective backstop. A high-performance board is one that will tackle the issue head-on.

Read next: How Diversity Drives Board Performance

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The Power Pose: Using Body Language To Lead

Use the way you move and stand and interact with others to become a better entrepreneur and leader.

Howard Feldman

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In 2012, the power pose became a global sensation. A Ted Talk by Amy Cuddy hit a staggering 46 million views and became the second most popular Ted Talk in history. The premise was simple – hold a powerful pose and it will not only affect the way you behave but it will even change your body chemistry. Since the talk, the power pose has met with heavy criticism and been labelled as nothing more than pseudoscience. Fortunately for believers, they were proven right. Amy Cuddy released further research this year and it fundamentally proves that this bold stance works exactly how she said it did back in 2012.

The power pose isn’t something that you’d adopt in a meeting or around the office but the science behind it shows how important it is to pay attention to your body language as it can fundamentally change how you are perceived.

Notice how you are noticed

People spend a lot of time reading one another’s body language and the way a person stands or holds their hands or moves can influence how others see them. It’s very natural to judge someone else’s posture, but what about the way they are judging yours? Few people look at how their body language is affecting the way people engage with them.

Related: [Quiz] How Good Are You At Reading Others In Business?

So, what are you supposed to do?

Fake it until you make it

Want to know how can you adapt to become a better leader? You can fake it.

The power pose isn’t the only way to change your mood. Research has shown that whether you laugh naturally or put on a smile and make yourself laugh, your body still releases the same levels of serotonin.

Whether you are really laughing or just pretending to laugh doesn’t matter – they both have the same impact on your demeanour.

Change how others see you

Think about the pose that every athlete adopts when they win a race or achieve something that’s been physically taxing. They hold their hands outstretched in the air. Even blind athletes hold the same pose. It’s big, it’s bold and it’s a physical manifestation of success.

Now consider the defensive pose. The tight hunched shoulders or inward curve of the spine. These poses immediately make a person look nervous, afraid and lacking in confidence. Like the porcupine curling in on itself for protection.

The same ideas apply to daily business life. While the power pose and the athlete pose are not necessarily a team activity, ensuring that you hold your body upright and with confidence means that you’re conveying an attitude of strength. You come across as confident and capable and positive. You are ready to take on anything and overcome the odds.

By contrast, if you are hunched and withdrawn, you come across as nervous and lacking in confidence and these are not the qualities you want associated with you as an entrepreneur and a leader.

Related: (Slideshow) 5 TED Talks That May Change Your Perspective on Life

Body language for entrepreneurs

  • Shake hands like a hero. The way you shake hands with someone is very significant in terms of establishing equality. Be even, be firm but don’t pull people towards you or turn their hands under your own. This makes them feel like you are trying to establish dominance.
  • Create an atmosphere of openness. Maintain eye contact, say hello to people with warmth while holding a strong posture. A warm and open greeting is essential to establishing trust.
  • Do the power pose for two minutes before any meeting or interview. This will get those chemicals stirring and make you feel confident and in charge.

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