Most founders think about tax in the context of an exit the way most people think about estate planning: something to address when the moment arrives, with the help of an accountant who can optimise whatever structure exists at the time. The problem with this approach is that the moment an exit becomes real is precisely the moment when the options for structuring it tax-efficiently narrow dramatically.
The decisions that determine how much of a sale proceeds the founder and selling shareholders actually receive are made years before the transaction – in how the company is structured, how value has accumulated, and what instruments have been used along the way. By the time a buyer is in the room, most of those decisions are fixed.
Capital gains tax: the number that changes with structure
South African capital gains tax on the disposal of shares is not a flat cost that applies uniformly to every exit. The effective rate depends significantly on who is selling and through what structure. An individual selling shares held directly pays CGT at a different effective rate than a corporate entity disposing of shares in a subsidiary. A company that qualifies for the participation exemption on the disposal of shares in another company may pay no CGT at all on that disposal, subject to the requirements being met.
This is not a detail to negotiate with a buyer. It is a consequence of how the ownership structure was set up years earlier. Founders who hold shares personally, through a trust, or through a holding company each face materially different tax outcomes on the same transaction. The right structure depends on individual circumstances and objectives – but it needs to be in place well before exit, not assembled in response to an offer.
Holding company structures: the opportunity and the timing constraint
Interposing a holding company between the founder and the operating company is a common exit preparation step for good reason: it creates flexibility in how proceeds are received, can defer personal tax liability depending on how the structure is used, and enables cleaner separation between the business being sold and assets that the founder wants to retain. It can also create complications if it is done too close to a transaction – both in terms of the time required for the structure to be effective and in terms of how a buyer views a corporate restructuring that occurred immediately before a sale process.
The same principle applies to any restructuring of the business in preparation for exit: unbundling assets that are not part of the core business being sold, separating IP ownership, rationalising dormant subsidiaries. Each of these is easier, cheaper, and more credible to a buyer when it has been done as part of a deliberate, ongoing housekeeping process rather than as an obvious pre-sale cleanup.
Commercial contracts: the change of control provisions most founders have not read
Beyond the tax question, the exit-readiness work that most directly affects what a buyer is actually acquiring is a review of the company’s top commercial contracts for change of control provisions. A significant customer contract that terminates automatically on a change of ownership – or that requires counterparty consent before it can be assigned to an acquirer – is not just a legal complication. It is a valuation question. If a buyer is paying for a revenue stream and that revenue stream requires the consent of a third party to transfer, the buyer will either seek a price reduction that reflects the risk or make the consent a condition of closing.
Key supplier agreements carry the same risk, with the additional dimension that a critical supplier who discovers that a change of control is pending has leverage that they did not have before. Exclusivity arrangements, distribution agreements with territorial restrictions, and joint venture or partnership agreements all need to be assessed for the same question: does a change in ownership trigger any right in the counterparty that affects the value of what is being sold?
The timeline that actually works
The honest answer on exit preparation timing is that the work that makes the most difference – tax structuring, holding company setup, commercial contract review – needs to begin at least twelve to eighteen months before a sale process is intended to start. The work that can be done in the thirty days before a data room opens – corporate records cleanup, employment contract review, licence confirmation – is useful but is not where the value is created or lost.
Founders who engage with exit readiness early enough to make structural decisions are the ones who close on their terms. Those who begin when a buyer appears are optimising around a structure that is already fixed.
Caveat Legal works with founders and shareholders on exit structuring, commercial contract review, and transaction readiness. If you are planning a sale or capital raise in the next two years, the tax and structural questions are the ones to start with — before the commercial conversations begin.
