Chocolate Teapot? 5 Mistakes Buying Property in a Company
Okay, so you've decided to buy property in a company. Lekker. Now here's how people quietly undo the whole point of it.
The five most common mistakes are registering the company after signing the offer, leaving a default MOI that doesn't fit, mixing personal and company money, signing surety without reading it, and forgetting the company's annual compliance. A company protects you for as long as you run it like a company.
None of them are complicated. All of them are avoidable. Number three is the one I see most.
Mistake 1: Registering the company after you sign the offer
You find the deal. You sign in your own name because the seller wants an answer today. Then you try to swap the buyer for a company you haven't registered yet.
Depending on the wording of the offer, that swap can be treated as a second sale. A second transfer. A second set of costs.
The fix: register the company before you look at property. If a deal lands before you're ready, talk to your conveyancer about the buyer's name before you sign anything, not after.
Mistake 2: Leaving the default MOI when you need more
The Memorandum of Incorporation is the company's rulebook. The standard version is fine for one person owning one company.
It's often not enough when there are two shareholders, an outside investor, or a partner who brings money while you bring time. Who decides what? What happens if one wants out? The default doesn't answer those questions the way you'd want.
I've got partners on our biggest deal, and we're three very different people. Jacques is the numbers guy, down to the last cent. Leroy is the wheeler-dealer. I'm the one who thinks fastest on his feet. We shout at each other sometimes. That's fine: you fight in the change room, not on the field. What stops it becoming a war is that we rely on the shareholders' agreement and the MOI, not on a handshake.
The fix: if there's more than one of you, get the MOI and a shareholders' agreement looked at before money moves.
Decide the container before the deal. The Directors Fortress shows you how to set up the company and buy in it. R99 once off. Start here
Mistake 3: Mixing the money
This is the one I see most.
Rent paid into your personal account because it's easier. The plumber paid from your own card. A personal expense on the company card.
Here's why it matters. A company is a separate legal person. That separateness is the wall. If its money and your money run together, it stops looking separate, and a court can look through a company that's being used as an extension of its owner.
The fix: one company, one bank account. Company money in, company money out. Every expense with a slip.
Mistake 4: Signing surety without reading it
When a company borrows, the bank asks the director to sign surety. That's normal, and it's how a new company gets finance.
What isn't normal is signing without reading. Is the surety limited to an amount, or unlimited? Does it cover this one loan, or everything the company ever owes that bank? Those are very different promises.
The fix: read it. Ask what it covers. Ask whether it can be limited. Have your attorney look at it if you're not sure.
Mistake 5: Forgetting the company exists
You register. You buy. You get busy.
A company has to file an annual return with CIPC every year, submit tax returns and keep proper records. A company that stops filing can eventually be deregistered. A deregistered company that owns a property is a serious problem to unwind.
The fix: put the annual return in your calendar the day you register, or hand it to your accountant. And keep your own records tidy, because other people's often aren't. Body corporates are a good example: I've paid the same thing twice during a sale while they "looked for it", then had to chase my money back. Don't let your company be that sloppy.
What I'd watch for
Even run perfectly, a company isn't a magic shield. Surety means the bank debt can reach you.
Running a company costs money. Accountant, annual returns, bank fees.
Directors have duties. The Companies Act expects you to act in the company's interest and keep it solvent.
Fixing these later costs more than avoiding them now.
Where the company fits
A company protects you for as long as you run it like a company. Treat it like a label and it behaves like one.
The secret to buying property through a (Pty) Ltd isn't a secret at all. It's doing the boring parts in the right order. The Directors Fortress includes the director training for exactly this: what running a property company involves once it exists.
FAQ
Is it a good idea to buy property through a company in South Africa?
It can be, if you plan to own more than one or two properties and want the risk separated from your personal assets. It adds cost and admin, so it isn't right for everyone.
Can I pay personal expenses from my property company?
You shouldn't. Mixing personal and company money weakens the separation the company is there to provide and creates tax and accounting problems.
What is the biggest mistake when buying in a company?
In my experience, mixing money. Signing the offer before the company exists is a close second.
Do I need a shareholders' agreement?
If the company has more than one shareholder, strongly consider one. It sets out decisions, exits and disputes before they happen.
What happens if my company is deregistered while it owns property?
The property doesn't simply return to you. Restoring the company takes an application and time. Avoid it by filing annual returns.
Related reading
Start with the container
The Directors Fortress gives you the investor-friendly offer to purchase, the blueprint for registering the entity, and a walkthrough of the structure I use. R99 once off, yours to keep.
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: gov.za · CIPC, annual returns: cipc.co.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.
