Buying a property through a South African company

24 Mar 2023

Introduction

Buying a property in South Africa through a company can have several legal implications, and it is essential to understand them from the outset.

There are also a number of aspects that should be in place and if not, could cause delays or have an unforeseen cost impact.

Corporate governance

When purchasing a property through a company, it is important to ensure that the company has the legal authority to enter into the purchase agreement. This may require obtaining the necessary approvals or authorisations from the company’s shareholders or board of directors.

Another legal consideration when purchasing a property through a company is the potential impact on personal liability. While owning the property through a company can limit personal liability for legal claims or financial liabilities, there are circumstances in which personal liability may still be a concern. For example, if the company cannot meet its financial obligations, creditors may seek to hold the company’s shareholders or directors personally liable.

It is also important to consider the potential impact on the company’s assets and liabilities. For example, purchasing a property through a company can impact the company’s balance sheet and financial statements, which may have implications for future financing and investment opportunities.

Company compliance

A company is a separate legal entity from its shareholders and can own a property in its own name. This means that the company will be the legal owner of the property and will be responsible for all costs associated with the property. This can be advantageous, as it can help limit the personal liability of individual shareholders in the event of any disputes arising or financial difficulties relating to the property.

It is critical that the company is compliant with the Companies Act 71 of 2008, as amended. This includes ensuring that Company Records are up to date with the Companies and Intellectual Property Commission and ensuring the Annual Returns are filed up to date.

De-registration of a company

Another aspect to be aware of is what happens when a company is deregistered. When CIPC removes a company’s name from the Register of Companies, it deregisters the entity, which means that it no longer exists as a separate legal entity. Consequently, all assets and property belonging to the company are considered bona vacantia (which is Latin for ownerless goods) and are transferred to the State under the law.

It is essential for directors, shareholders, and members to note that deregistration does not absolve them from any liability for actions or omissions committed before the company was removed from the register.

Tax compliance 

Another consideration is the tax implications. It is crucial that tax advice is sought.

If a property is part of the seller’s enterprise, who is a registered VAT vendor, VAT will be levied. Conversely, if the seller is not a registered VAT vendor or if the property is not part of the business enterprise, transfer duty will be charged.

Conclusion 

In conclusion, purchasing a property in South Africa through a company can have several legal implications. It is essential to ensure compliance with company and tax regulations and to ensure that the company has the necessary financing and resources to purchase and maintain the property. By working with reputable professionals and making informed decisions, you can maximise the benefits of purchasing a property through a company while minimising the legal risks and implications.

Contact an Attorney at SchoemanLaw for assistance today!

See also:

• Should I own my primary residence in my name, a trust, or a company?
• Costs to budget for when buying property
• New rules for the property sector
• Your rights when purchasing a property – Interest rates and insurance costs

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)