Introduction
We often hear that people buying a property in South Africa through a company, can have several legal implications, and it’s 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 property through a company, it’s important to ensure that the company has the legal authority to enter into the purchase agreement. This may require obtaining the necessary approvals or authorizations from the company’s shareholders or board of directors.
Another legal consideration when purchasing 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’s 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 property in its 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 to limit the personal liability of individual shareholders in the event of any disputes arising or financial difficulties related to the property occur.
It is critical that the company is compliant with The Companies Act 71 of 2008 as amended (the “Act”). This includes ensuring that Company Records are up to date with the Companies and Intellectual Property Commission (CIPC) 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 of any liability for actions or omissions committed before the company was removed from the register.
Tax Compliance
Another consideration would be the tax implications. Firstly, companies pay more for transfer duty than private persons do. It is crucial that tax advice is sought.
If a property is part of the seller’s enterprise and they are 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 their enterprise, Transfer Duty will be charged.
Conclusion
In conclusion, purchasing property in South Africa through a company can have several legal implications. It’s 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 maximize the benefits of purchasing property through a company while minimizing the legal risks and implications.
Contact an Attorney at SchoemanLaw for assistance today!
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