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

Comment on the Expropriation Bill, 2020[post_view before=""]

This article seeks to highlight some aspects of expropriation of land by looking at the current section 25 of the Constitution and the Expropriation Bill 2020, issued by the Department of Public Works and Infrastructure.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Legislative Guidelines

Land claims and their impact on the registration of mortgage bonds[post_view before=""]

When it comes to commercial lending transactions, the lender – usually a commercial or corporate division of a bank – may require confirmation that there are no land claims in process in respect of the property or properties that will form part of the security to be registered in the lending structure.

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

Legal victory for heterosexual life partners[post_view before=""]

In the recent decision of Bwanya v The Master of the High Court and others, the court discussed the legal status of heterosexual life partners, specifically the rights of a surviving life partner to the proceeds of a deceased partner’s estate.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Legislative Guidelines

Private companies and the restriction on transferability of shares[post_view before=""]

A requirement of the previous Companies Act of 1973 was that a private company must restrict the ‘right to transfer’ its shares, by way of the company’s articles of association, however, more recent legislation (Companies Act 71 of 2008) revised this. Now, a Memorandum of Incorporation (MOI) of a private company must restrict the transferability of any company’s ‘securities’ which includes both instruments such as shares as well as debt instruments such as debentures.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Legislative Guidelines

What does the new Airbnb law mean for Cape Town property owners?[post_view before=""]

Cape Town has approved new legislation that will have a significant impact on how short-term and holiday rentals will operate in the city, enabling property owners to financially benefit from the tourism industry.

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.