Introduction
There are many ways individuals can hold properties that they buy. Some of the ways include:
- An individual being the property holder in his or her personal name.
- Using another individual such as a child or spouse.
- Using a company which the individual has control over.
- A trust such as a family trust.
Reasons for using a company to register an immovable property
There are many factors people consider before they decide to use a company to be the registered holder or owner of an immovable property. These include:
- Estate planning.
- De-linking or separating the beneficial owner and the property. This can be a safeguard against creditors in the event of financial challenges or an individual may simply want his or her identity in relation to the property not known.
- Tax consideration.
- Flexibility in borrowings.
- Flexibility in subsequent disposal of the property as one may simply sell the company and therefore in the process the immovable property.
How to use a company in the property transaction
The purchaser of a property can use the company in which he or she has beneficial or residual control as a party to an agreement of sale. The directors of that company will pass a resolution as to who will sign for the company. It is quite common to find the individual beneficial owner being a director of the company and therefore signing for the company. When title deeds are eventually processed they will be in the name of the company.
Ensuring effective control over the company
There are two common ways in which an individual beneficial purchaser of a property can ensure that he or she has effective control over the company being used to hold or register the immovable property. This is normally done through:
- Owning shares in the company, and
- Having control over the board of directors of the company.
An individual becomes a shareholder by being issued shares in the company. The individual may choose to hold the shares in his or her own name or through another company or a trust. Whatever the arrangement, the individual has to make sure that he or she is the beneficial owner of the company that is holding the immovable property. Shareholders in the company must be issued with share certificates for the shares they hold.
Control over the board of directors can be achieved through, for example:
- The individual funding the purchase of the immovable property becoming a director in the company, or
- As shareholder appoint directors of his or her choice.
Use of shelf companies
Many times aspiring property owners use shelf companies to buy and hold properties. This is an established practice. When a shelf company is used the following normally happens:
- An aspiring property owner purchases a shelf company from the founding subscribers of the shelf company who registered it.
- The shelf company is used as a party to an agreement of sale which the purchaser of the shelf company may personally sign on behalf of the shelf company.
- At times the directors of the shelf company are updated by removing the current or founding ones and appointing new ones as decided by the purchaser.
- Many people should but forget to change the shareholders of the shelf company.
Changing directors and shareholders
Directors and shareholders of a shelf company must be changed as soon one buys the shelf company.
Changing directors
Directors are changed by updating CR6 Form (register of directors) which is filed at the Registrar of Companies. The current directors should be removed and new ones appointed by the purchaser who is the shareholder in the shelf company.
Changing shareholders
Shares owned by the current or founding subscribers must be transferred to the new shareholders of the shelf company. Share transfer forms must be filled in and signed. Share certificates in the name of the current shareholders must be cancelled and new ones in favour of the new owners of the company issued. One can even go the extra mile of issuing more shares to significantly dilute the existing shares, file CR11 Form (Return of Allotment) and issue additional share certificates.
Buying a company that owns a property
This practice is widely used for convenience. Again shareholders and directors must be updated as explained above.
Conclusion
When a company is used to hold an immovable property always make sure the shareholders and directors are updated in favour of the beneficial purchaser of the property.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), CA(Z), MBA(EBS,UK) is a legal practitioner / conveyancer, chartered accountant, corporate rescue practitioner, registered tax accountant, consultant in deal structuring and business valuer. He is also a director with Investacare International (Private) Limited. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
