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Are Shareholders liable for tax debts of a company?

Thursday, 29 May 2014   (0 Comments)
Posted by: Author: Beric Croome
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Author: Beric Croome (ENS)

For as long as most of us can remember the debts of a company were not regarded as the debts of its shareholders.  This was in line with the principles set out in the Companies Act.  .  It may be a surprise to some that this principle does not apply to certain tax debts thanks to the Tax Administration Act. 

The government has indicated that its intention is not to punish shareholders, but to discourage them from asset or dividend stripping the company while it still owes taxes to SARS. This article will consider the circumstances in which a shareholder will be held liable for the debts of a company. 

Who is a shareholder?’

The meaning of shareholder is worth considering.  This is due to the fact that there may be those who doe not consider themselves shareholders, not knowing that they actually are.. Conversely, there may be others who believe they are shareholders while they are actually not. 

Shareholders are persons who hold a beneficial interest in a company. A beneficial interest exists where the rights of full ownership of any property are split into those of enjoying its use, fruits, or income.  Please keep in mind that the members of close corporations and co-operatives are also regarded as shareholders.  Shareholders do not necessarily have to own shares in the company.  Even if they have a beneficial interest in the company they may be regarded as shareholders.  These shareholders are not excluded just because they do not have shares and may also be liable for the tax debts of a company.

A registered shareholder who act in a nominee capacity would not be regarded as a shareholder for the purposes of this part of the Tax Administration Act because they do not receive any dividends in their personal capacity as, but on behalf of ‘true’ shareholders.

Shareholders of companies listed on the local or foreign stock exchanges recognised by the Minister of Finance are also no liable for the tax debts of the company.

Circumstances in which shareholders will be liable for company tax debt

1. The company must be undergoing voluntary (not compulsory) liquidation 

Voluntary winding-up of a company begins when a (special) resolution of the company is filed with the Companies and Intellectual Property Commission.

2. The company must have not satisfied an outstanding tax debt with SARS

The company must have been wound-up without having satisfied its outstanding tax debt. A tax debt is an amount of tax due or payable in terms of any tax act, but excludes customs duty. 

Where SARS have mistakenly refunded PAYE to a company, this is also considered a tax debt because the ‘mistakenly’ paid tax must be refunded back to SARS by the company. 

3. Only shareholders who receive company assets within one year prior to its winding-up are affected. 

Besides regular assets, intangible assets such as trademarks and other intellectual property is also included.   

Earlier it was mentioned that the government only wants to target those shareholders which strip a company of its assets while that company owes taxes to SARS. This requirement gives credibility to that fact. 


To summarise, where there is a voluntary liquidation of an unlisted company with an outstanding tax debt and its shareholders received any company assets within one year prior to its winding up, then those shareholders are liable for the tax debts of the company. It is clear that there are numerous restrictions that narrow the application of this section to a ‘targeted group’ of shareholders. Taxpayers must still be aware of circumstances that may be perceived as asset or dividend stripping by SARS, for example a ‘friendly’ liquidation of an unlisted company and consider, before the special resolution is filed, whether the company has any outstanding tax debts.



Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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