Buying a property in a company or trust

Transactions involving the purchase by a legal entity such as a company, trust, or close corporation are dealt with slightly differently in terms of the process.

August 29, 2017

There is much written about the sale and transfer of property by individuals in their personal capacity.

While most of the general steps involved in a property transfer remain unchanged, when a legal entity, such as a company or trust, purchases a property, the process differs slightly, particularly regarding the required documentation in order to complete the transfer.

The transfer process

Most significantly, in order for a legal entity to purchase a property, an individual or individuals must be empowered by all its members, directors or trustees, by way of resolution (written “decision”) to sign the offer to purchase on behalf of the company, trust or close corporation. This means that such an individual is given the necessary capacity to represent the legal entity in the transaction by way of resolution. The statutory documents of the legal entity will on its part provide authority for entering into a transaction of such nature.

When it comes to the signing of the transfer documentation, the authorised individual will again sign documents on behalf of the legal entity.

The documentation required is far more extensive when dealing with a property transfer where a legal entity, rather than an individual, is the buyer. These will include additional affidavits, resolutions and an auditor’s certificate confirming that all financials are in order.

The pros and cons of purchasing as an entity

There are a number of benefits that come with purchasing a property in the name of a legal entity rather than as an individual. For example, it provides protection against personal insolvency since a property that is in the name of a legal entity will not be affected or attached should the private individual, such as a trustee or director, become personally insolvent.

In addition, the tax implications can be advantageous. If the legal entity selling is a VAT vendor, transfer duty will not be applicable and VAT may be reclaimed in certain circumstances, and if both the seller and purchaser are registered for VAT, the transaction may be taxed at a zero rate in certain specific circumstances.

However, there are also potential negative impacts relating to tax when it comes to the later sale of the property. In particular, if the property is not a primary residence, the sale will be subject to Capital Gains Tax and the percentage charged is significantly higher than that for an individual. Secondary tax on companies STC and dividend tax may also apply in certain circumstances.

Reselling the property

Because the property is owned by a legal entity, the shareholders, members or trustees will have to act on its behalf in a proposed sale once a vote to proceed with such a sale has been held. A resolution will need to be passed, and an individual given power in order to sign the transfer documents as was done during the purchase process. If the property being sold is the only asset owned by company, there will be certain additional requirements to be met in terms of the Companies Act.

Each situation comes with its own nuances, and as such, working with experienced professionals will ensure that all relevant legislation is complied with and that the transfer process proceeds smoothly.

Written by Wessel de Kock

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