Buying a property in the name of a company or trust – the pros and cons

There is much written about the sale and transfer of property by individuals in their personal capacity. But transactions involving the purchase by a legal entity such as a company, trust, or close corporation are dealt with slightly differently.

The ins and outs of subject to bond approval clauses

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.

Follow Snymans on Facebook for more legal information, tips and news about property.

Recommended for you

Minors and immovable property
Legislative Guidelines

The advantages of a life right[post_view before=""]

The Housing Development Schemes for Retired Persons Act 65 of 1988 introduced life rights as a formal form of ownership for retired people in South Africa. This legislation was implemented not only in response to the growth in the retirement village sector but also to provide legal protection to the elderly.

Read More
My name has changed - what happens to my property’s title deed?
Legislative Guidelines

Muslim marriages: A welcome Constitutional Court decision[post_view before=""]

In a long-awaited and groundbreaking decision in the area of family law, the Constitutional Court of South Africa (CC) confirmed the order of constitutional invalidity of the below mentioned Acts, granted by the Supreme Court of Appeal. This decision was confirmed on 28 June 2022.

Read More
Minors and immovable property
Legislative Guidelines

Selling a property without approved building plans[post_view before=""]

It’s often the case that a seller would like to sell – and a purchaser would like to buy – a property without approved building plans or an occupation certificate. But what does the law say?  In terms of the…

Read More
My name has changed - what happens to my property’s title deed?
Legislative Guidelines

The Divorce Act and marriage out of community of property without accrual[post_view before=""]

In this article, we explore the issue of the constitutional validity of section 7(3)(1) of the Divorce Act in respect of marriages entered into after 1 November 1984 and excluding the accrual system.

Read More
Amendments to the Financial Intelligence Centre Act (FICA)
Legislative Guidelines

The Money Laundering and Terrorist Financing Report 2022[post_view before=""]

In March 2022, the Financial Intelligence Center (FIC) published a report dealing with the assessment of the inherent money laundering and terrorist financing (MLTF) risks for legal practitioners.

Read More

Need more Snymans content?

Sign up for our monthly newsletter.

Buying a property in the name of a company or trust – the pros and cons

There is much written about the sale and transfer of property by individuals in their personal capacity. But transactions involving the purchase by a legal entity such as a company, trust, or close corporation are dealt with slightly differently.

The ins and outs of subject to bond approval clauses

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.

Follow Snymans on Facebook for more legal information, tips and news about property.