Moonstone Monitor 16 October 2008 : Business continuity
Business Continuity on Incapacity of Key Individual
We still receive many enquiries from readers on this issue. Hereunder is the view of the FSB as expressed in their FAIS Newsletter number 5.
One of the areas of concern is the business approach and business continuity plans of “small” FSPs. 29% of FSPs visited operate and are registered as sole proprietors. During the visits to these FSPs, it became evident that the majority of sole proprietors have not made plans for their own retirement/future of the business. This poses a real threat to the relevant FSP and the FSB. The above is also true for other “small” FSPs such as close corporations, but they will be able to sell the business, or appoint other people on their behalf should they wish to. It is important to take note of the following in case of the passing away or any other limiting factor of a key individual:
a. Sole Proprietors
The sole proprietorship is attached to the key individual. If the key individual passes away or any situation occurs that will lead to the key individual not being able to perform his/her duties in terms of the FAIS Act, the license will be lapsed and the business will cease to exist. The FSB needs to be informed of the above situation or of the passing away of the key individual. The license can not be transferred to another person. The license can therefore not be inherited by anyone. The sole proprietor can make an arrangement with another FSP to take over his client book in the case of the above circumstances occurring and clients must be notified of this transfer.
Please note that this refers to "clients", not the business. This means that your heirs are in the hands of others as far as your practice is concerned.
b. Close Corporations and Companies
A close corporation is a legal entity. The business is therefore not attached to the key individual. In a close corporation with more than one key individual the passing away or occurrence of any situation that will lead to the key individual not being able to perform his/her duties in terms of the FAIS Act will not have any affect on the status of the FSP.
Where the close corporation only has one key individual and one of the above circumstances occurs the business will continue to exist. For this business to continue as an authorised FSP, a new key individual will have to be appointed and authorised as such by the FSB. It is important to take note that the FSP is not allowed to perform any regulated function until such time as the new key individual is approved by the FSB. The same principle applies to companies.
This opens up a number of interesting variables. For guidance on this you are welcome to e-mail Louise or Lauren of Moonstone or phone them on 021 883 8000.
