This structure is known as a “property-owning company”, and it may be implemented for various reasons. When a property owned by a company is placed on the market, the property itself or the shares in the company can be transferred, depending on what the parties decide and agree on. It must be noted that the cost implications for both these structures will essentially be the same.
What about CIPC regulations?
Something to consider when deciding to create a property-owning company is that the Company and Intellectual Property Commission (CIPC) requires that every registered company submit an annual return, which the CIPC then submits to SARS.
As property-owning companies do not trade on a day-to-day basis, and management is likely limited to the expenses and costs of the fixed property it holds, the annual returns are sometimes not filed timeously or at all. This is problematic, as in these instances the CIPC will change the status of these companies from ‘in business’ to ‘deregistration pending’, and, after a certain period, to ‘deregistration final’.
A company can only trade if it has the status of ‘in business’. The Companies Act dictates that once deregistration takes place, the company can no longer legally transact in its own name – and all property belonging to the company will vest in the Republic of South Africa once deregistration is final. For obvious reasons, this has serious and far-reaching implications.
Re-instatement of a deregistered company
Under the previous Companies Act, the only way to remedy this type of situation was to make an application to court for the re-instatement of the deregistered company so that it could once again transact. However, due to the frequency of deregistrations, the CIPC introduced practice notes to accommodate re-instatement the latest of which is Practice note 1 of 2022: Requirements for Re-instatement in Terms of Regulations 4(2)(b), which outlines the following:
To re-instate a company from 1 January 2022, a re-instatement application form (CoR40.5) must be accompanied by the following supporting documents, regardless of the cause or date of final registration:
- A certified identity copy of the applicant (individual acting on behalf of the company) not older than three months.
- A certified identity copy of the owner of the CIPC customer code not older than three months.
- Sufficient documentary proof indicating that the company was in business or that it had any outstanding assets or liabilities at the time of the deregistration.
- A mandate from the applicant confirming that the customer may submit on his or her behalf.
In terms of this practice note, the CIPC will only consider re-instating a company if the company can provide proof that it was conducting business at the time of the registration or that it has any economic value. Once the re-instatement application has been successfully processed, all outstanding annual returns must be filed to complete the process. If the company fails to file all outstanding annual returns within 30 business days from the date of re-instatement, the company will be finally deregistered again without any further notice.
According to the CIPC, the process of reinstatement takes between six weeks and four months to complete.
Transfer of a property
It is important to note that no valid action can be taken by a deregistered company. This means that the transfer of a property owned by a deregistered company cannot take place until re-instatement has been completed by the company’s auditors and the sale has been ratified.
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