Asset Protection for Property Investors in South Africa
Like a lot of South Africans who got into property, I learnt the rules from Rich Dad Poor Dad. Assets put money in your pocket. Liabilities take it out. Buy assets.
True. But it's missing a line nobody puts on the balance sheet: every asset in your name is also a liability in your name.
A rental in your own name earns for you, and it can also be claimed against you. A company is a separate legal person, so claims from tenants, contractors and disputes generally land on the company, not on your personal assets. But it's not a magic shield, and I'll show you exactly where it leaks.
Why is a rental in your own name a liability?
Because it can be claimed against you. Personally.
A tenant slips on a loose step and sues the owner.
A contractor says he wasn't paid and goes after the owner.
The geyser bursts on a long weekend, wrecks a tenant's things, and they want compensation.
When you're the owner, "the owner" means you. Your car, your savings and your pozzie sit on the same side of the line as that rental.
I've had tsotsis hanging around one of my buildings near Zonnebloem, harassing the tenants. It came close to an eviction, and in the end one email from my lawyer sorted it. But weeks like that make you think very hard about whose name is on the title deed.
Okay, so how does a company change that?
Under the Companies Act, a company is a separate juristic person: it has its own rights and obligations, separate from the people who own and run it. A shareholder isn't liable for the company's obligations just because they're a shareholder.
So when the company owns the property:
The company is the landlord on the lease.
The company is the party a tenant or contractor generally has a claim against.
Your personal assets are separate from the company's.
I think of it as a wall with one door. The claim stops at the company's wall.
See how I set up the wall. The Directors Fortress walks you through my structure. R99 once off. Start here
Ja, but what can't a company protect you from?
This is the part most people selling company structures leave out. I won't.
Surety. When a company borrows from a bank, you usually sign surety: you personally stand behind the company's debt. If the company can't pay the bond, the bank can come to you. That's the one door in the wall, and you opened it on purpose.
Anything else you sign personally. Personal loans, personal credit, anything a supplier asks you to sign for in your own name.
Abuse of the structure. Section 20(9) of the Companies Act lets a court disregard a company's separate personality where it's used to abuse that separation. Mixing personal and company money, or using the company to dodge obligations, puts the wall at risk.
A company limits your exposure. It doesn't eliminate it. Anyone who tells you it makes you untouchable is selling you something.
Try this tonight: the 4-minute exposure map
On a piece of paper, draw three columns: everything you own, whose name each item is in, and which debts you personally signed for. Then draw a line from any rental to everything that shares its name. Every line is a door a claim can walk through. The full walkthrough is here: the 4-minute exposure map.
What I'd watch for
Keep the company separate. One bank account per company, every expense recorded, no personal spending on company money. That's exactly the kind of mixing section 20(9) is about.
Insure properly. A company limits how far a claim can reach. Insurance pays for the damage. You want both.
Get advice on your structure. Bigger portfolios and family situations may need more than one entity. That's a conversation for a structures specialist, not for the braai.
Where the company fits
The cheapest time to build the wall is before you need it, on a quiet Tuesday when nothing is wrong. Restructuring after a claim is expensive and often too late.
For the deeper side, structures and entities and how mine is put together, that's covered inside The Vault.
FAQ
Does buying property in a company protect my personal assets?
It generally separates claims against the property from your personal assets, because a company is a separate legal person. But debts you sign for personally, like a bond you stand surety for, can still reach you.
What is limited liability?
It means a company's shareholders aren't liable for the company's debts just because they own shares. The company's obligations are its own.
Can a court ignore my company?
Yes, in cases of abuse. Section 20(9) of the Companies Act allows a court to disregard the company's separate personality where it has been misused.
Do I still need insurance if my property is in a company?
Yes. Insurance covers the cost of damage and liability claims. The company structure limits how far a claim can reach.
Build the wall first
The Directors Fortress gives you the investor-friendly offer to purchase, the entity blueprint and a walkthrough of my setup. R99 once off.
Education only. This article is general information, not tax, legal or financial advice. Speak to a registered tax practitioner, attorney or financial adviser about your own situation.
Sources
Companies Act 71 of 2008, sections 19 and 20(9): gov.za
About the author
Michael Bowen co-founded ZAHomes. He bought his first property in 2003 on the outskirts of Amsterdam, with a 100% mortgage, at the wrong point in the cycle, and lost over €14,000 on it while sanding the floors himself in a heatwave. Twenty-odd years, 40-odd countries and a lot of property school fees later, he lives in Cape Town and teaches South Africans to buy and hold property inside a company. His view hasn't changed: an investor's greatest assets are the lessons from their failed deals.
