BOND A PROPERTY WEALTH CREATION CLUB (BAPWCC) The investment tool for ordinary people Introduction Raising costs of living and health care cost, inflation, insecurity of employment, unreliability of pension funds and systems, increase in levels of education, enlightenment on the importance of money and money management have all resulted in greater attention being paid to wealth creation. Information and myths on the benefits of investing in the stock market and sometime in the real estate market are now wide spread. Unfortunately, not many people have the discipline to take immediate and constructive action by making regular investments in these outlets. The emergence of Investment Clubs may assist you in achieving your own wealth creation objectives. What is an Investment Club? An Investment Club usually consist of a group of individuals who pool their limited or stated funds on a regular basis and collectively invest these funds in a business enterprise like buying shares in the stock market or investing in the real estate market or investments in franchise concepts. Central to the success of most Investment Clubs is the necessity for members to share similar values and invest the same amount of money regularly. Benefits/Attributes of Investment Clubs 1. Collective financial education, research and enrichment of the members of the Club. 2. Enjoyment of the company/association of other members of the Club. 3. Long term networking outlet for members of the Club. 4. Indoctrination of a savings and investment culture among the members of the Club. Failure Attributes to Avoid 1. Failure of the members to have a long term commitment to the Club by attending Club meetings regularly, making contributions regularly, adhering to an agreed investment strategy, etc. 2. Failure to manage the Club as a business by ensuring flawless book keeping and security of their investments. Legal Vehicle of Investment Clubs Depending on the legal requirements in your jurisdiction, it is recommended that Investment Clubs should be created in the form of private limited liability companies. Some of the reasons for this recommendation for the creation of a private limited liability company include: 1. It limits the liability of each and every member of the Club. 2. It makes for continuity and easy liquidation of the investment of any or all the members of the Club in the event of an exit, for any reason, by any member of the company. 3. It makes for better tax management in the long term. 4. It makes for more growth potential for the investors and their investment. This recommendation of establishing Investment Clubs as private limited liability companies does not in any way bar you from establishing an Investment Club either as a limited partnership – which exposes the members to more liability - or as a company limited by guarantee – which is cumbersome and does not allow the members to earn profit. There no restriction on the number of Investment Clubs that you can join provided you make the regularly monthly contributions to each Club. Most Investment Clubs usually have an initial life span of five - ten (5-10) years. It is recommended that the members of each Club should consult among themselves to harmonize the tenure of their investments. Tax Management of Investment Clubs The desire to reduce tax liability has led some Investment Clubs to contemplate starting as limited partnerships or as co-operative societies or as companies limited by guarantee. The problem with the above tax strategy is that most tax laws in many countries require that, subject to exempted religious and charitable organizations which are non-profit based, all dividends, interest income, gains or any form of benefit deriving from any service or activity are liable to payment of tax to the government. The legal vehicle or description of the Investment Club is not relevant to the tax authorities because as already stated, all income from all sources, save for the ones exempted, are liable to payment of tax. To protect the members of the Investment Clubs from double taxation of their income in the hands of the company - under the Companies Income Tax regime - and in the hands of the members of the Club - under the Personal Income Tax regime - the members of the Investment Clubs would do well to either retain a part-time licensed Accountant who is also a Tax Practitioner or admit one as a member of the Investment Club The admission of a Tax Practitioner/Accountant as a member of the Club would ensure proper handling of the accounts of the Club and its members. The further advantage is that most of the members of many Investment Clubs render professional services to their Clubs free of charge. Savings would therefore be made by such an admission. The concept Members of the club buys shares in a (Pty) ltd at R500 per share, there will be 100 shares per company, a member needs to make a minimum monthly contribution of R500 per share which will be noted as a shareholders loan in the company’s books, and as such each shareholder will have a Loan Account. The monthly contributions will start @ R500 per month but a person can lend bigger amounts to the company for example R1500 per month or once off amounts, he/she will get prorate monthly interest on the amount of money in his loan account . Please note: if a member cannot for some or other reasons not pay his monthly contribution it will not disqualify him, he/she will just continue the next month, but we will make provision in the club rules that when a person miss 3 consecutive months we will advise him to rather withdrew and sell his loan account to someone else but we will not be able to force him, all that will happen is that his share of the monthly interest on the bond will be smaller. The above will not apply to a person who made a once off contribution of a specific amount example R10 000. The income from the clubs will be utilized to provide bonds for the clients of Bond A Property who provide bonds for person who has a problem obtaining bonds through the normal bank channels for whatever reason.. The individuals will receive a bond for 5 years, over a property of their own choosing, on which they only have to pay the interest monthly, repayment of capital is optional. Bond A Property do have all the necessary mechanisms in place to ensure that the money being received are properly secured against a bond on the property as well as a cession of the companies shares in which name all properties are bought as well as a Rental Insurance that will guarantee the monthly interest payment as well as cover all the cost should it be necessary to obtain legal help to evict a non paying person. The rental Insurance will cover payments for 6 months. At the end of the 5 years the borrower will have 3 options, 1) Sell the property and settle the bond 2) renegotiate for further term of 5 years or 3) get a bond with another financial institution and settle the Bond A Property bond. The client can sell his/her property at any stage and settle the bond and their will be no penalties for early settlement. The monthly contributions from the shareholders will be a shareholders loan to the company, there will be 11% interest payable on the loan and will be for a 5 year period. A shareholders agreement will be in place to make provisions for the rules to manage the company and also in the case when shareholders want to withdrew funds. We can also accommodate persons who has single (once off) amounts on which they want to earn 11% interest per year. From the monthly contributions an amount of 5% will be used for administration of the company. All monies received will be in a trust account held by an attorney/accountant according to rules and regulations of attorneys and accountants trust funds and all payouts will be paid on authorization from the club to whomever it is necessary. The club will be managed by a management committee selected by the members that will have meetings once a month and every 3 to 4 months a meeting for all members. Members will be kept up to date, with a monthly news letter Financial Management All the clubs financial management in terms of bookkeeping, loans accounts and receiving monies either on monthly basis or once off payments as loans from shareholders will be dealt with by an Accounting firm we are in the process of appointing. All monies will be paid into a trust account set up by the Accountants and they will also be responsible to distribute funds when and where necessary. Conclusion The benefits of encouraging the establishment of more Investment Clubs are enormous, both to the members of the Clubs and to the larger society.
Posted on: Sat, 28 Jun 2014 08:26:31 +0000
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