 There are many different forms of property ownership, each with it's own set of implications. In Part One of this article, we looked at who can own immovable property, and also ways to own property without the property physically being registered in your name.
In Part Two, we have an Overview of the different legal entities in which to own property
What is a...
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Natural Person
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Company
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CC
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Partnership
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Trust
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A Natural Person is defined as not a Company, CC or Trust. If you purchase property in your own name, it is bought as a Natural Person.
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A Company is a separate legal entity or personality.
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A CC is a separate legal entity or personality.
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A Partnership is NOT a separate legal entity or personality. When purchasing property in a Partnership, all partners enter into the contract as Natural Persons.
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A Trust is not a separate legal entity or personality, although contracts are concluded in the name of the trust (represented by the trustees).
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Natural Person
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Company
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CC
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Partnership
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Trust
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The property is registered in the name of the person/s stated on the Offer to Purchase document.
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The property is registered in the name of the company. If the property that you want to buy is registered in the name of a company, you can either buy the property and register it in your own name, or buy the company. In the latter case, the transaction does not involve a change of registered owner of the property, but the rights and obligations of the entity that owns the property become your rights and obligations (as new owner of the entity).
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The property is registered in the name of the cc. If the property that you want to buy is registered in the name of a cc, you can either buy the property and register it in your own name, or buy the cc. In the latter case, the transaction does not involve a change of registered owner of the property, but the rights and obligations of the entity that owns the property become your rights and obligations (as new owner of the entity).
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The property is registered in the names of the partners. The names of the partners must be recorded in the contract, even if the partnership acts under a specific partnership name, and it must be stated that they are acting as partners.
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When immovable property is acquired by a trust, the property is registered in the names of the trustees.
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Natural Person
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Company
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CC
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Partnership
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Trust
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Any person who is fit to enter into a legal contract can do so.
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A person authorised to represent a company in concluding contracts of sale and lease on behalf of the company can either be, for example, a director authorised by the board of directors or another authorised official of the company, i.e. an employee or an outsider authorised to do so, such as an estate agent in possession of a resolution authorising him to do so.
The company is bound by a contract entered into by an authorised person. The company's name (as seller, buyer, lessor or lessee) must be cited on the relevant contract.
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Any member of a cc may conclude any contract on behalf of the cc, provided the contract is connected with the cc's business.
However, an Association Agreement can restrict one or more of the members' contractual capacities.
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Every partner has the authority to conclude contracts on behalf of the partnership, as long as the contract is connected with the partnership's business.
All the partners must sign the contract or one partner duly authorised to represent the partnership.
Written authority must be given to a person who is not a partner in the partnership, to conclude any contract on its behalf.
If a partner concludes a contract on behalf of the partnership, and it is outside of the scope of the partnership's business, the partnership is not bound by the contract.
A contract concluded between two partnerships, which have the same partners is Null and Void.
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The trustees authorised by the Master of the High Court, in terms of the trust document (or the deed of trust), may conclude any contracts, which bind the trust. All trustees must sign the Offer to Purchase document and give their consent to buy or sell a property.
If a trust wants to purchase immovable property and register a bond over the property, the trustees' powers must include the authority to buy property in the name of the trust, borrow money for the purpose of buying property as well as the authority to encumber trust assets as security for obligation of the trust.
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ADVANTAGES AND DISADVANTAGES
Natural Person
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A Natural Person is personally responsible for his creditors. Natural Persons who purchase property together are jointly and severally liable for any creditors. If legal action is taken against one of the owners it affects the other owners as well.
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The property of a Natural Person who passes away remains a part of his estate and is subject to estate duty.
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For properties with a purchase price of up to R 500 000.00, there is NO Transfer Duty levied. From R 500 000.01 to R 1 000 000.00, Transfer Duty is calculated at 5% on the value above R 500 000.00 (So, you don't pay Transfer Duty on the first R 500 000.00.) From R 1 000 001.00 upward, Transfer Duty is calculated at 8% on the value above R 1 000 000.00, PLUS a flat rate of R 25 000.00.
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The income of a Natural Person is taxed at a rate applicable to varying income levels, not at a flat rate charged on a company or cc.
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An individual selling a primary residence, for under R2m, is exempt from CGT. Where the sale proceeds exceed R2m, an exclusion of R1.5m gain/loss will apply. The maximum effective rate of CGT is 10% on natural individuals.
Company
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Creditors cannot take legal action against you, as director and/or shareholder, in your personal capacity for the payment of the company's debts. However, if the company wants to finance a property, the bank will want the directors and/or shareholders of the company to stand Surety, in their personal capacity, for the loan.
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If a shareholder or director dies or resigns, the company continues to exist as a legal entity. The property is not automatically transferred into the name of the heirs, but the deceased's share or interest in the company does become part of his estate, unless stated otherwise in the shareholders agreement.
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The buyer can no longer save costs on Transfer Duty and attorneys' fees when buying a property registered in the name of a company. In fact, the transfer duty imposed on a company buying property is higher than on a natural person. When purchasing a property in the name of a company there is a flat rate of transfer duty of 8% on the purchase price of the property. The maximum transfer duty payable by a natural person purchasing property, is R 25 000.00 + 8% of the value of the purchase price above R 1 000 000.00.
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Companies are taxed at a standard rate of 28%. Keep this in mind if you are expecting the property to generate an income.
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Any costs incurred on the upkeep of the property can be written off against tax.
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There are no exceptions or rebates for companies on the payment of Capital Gains Tax when selling property, and the rate is higher than that of an individual. Maximum effective rate of CGT is 14% on companies & CCs.
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Companies are expensive to run and require annual audited financial statements to be submitted to the South African Revenue Services.
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The transfer of shares from one person to another is subject to Stamp Duty and is now also subject to Transfer Duty at the rate of 8% of the value transferred.
Closed Corporation
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Creditors cannot take legal action against you, as a member, in your personal capacity for the payment of the cc's debts. However, if the cc wants to finance a property, the bank will want the members of the cc to stand Surety, in their personal capacity, for the loan.
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If a member dies or resigns, the cc continues to exist as a legal entity. The property is not automatically transferred into the name of the heirs, but the deceased's interest in the cc does become part of his estate, unless stated otherwise in the association agreement.
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The buyer can not save costs on Transfer Duty and attorneys' fees when buying a property registered in the name of a cc. In fact, the transfer duty imposed on a cc buying property is higher than on a natural person. When purchasing a property in the name of a cc there is a flat rate of transfer duty of 8% on the purchase price of the property. The maximum transfer duty payable by a natural person purchasing property, is R 25 000.00 + 8% of the value of the purchase price above R 1 000 000.00.
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CC's are taxed at a standard rate of 28%. Keep this in mind if you are expecting the property to generate an income.
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Any costs incurred on the upkeep of the property can be written off against tax.
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There are no exceptions or rebates for cc's on the payment of Capital Gains Tax when selling property, and the rate is higher than that of an individual. Maximum effective rate of CGT is 14% on companies & CCs.
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CC's are not as expensive to run as companies and do not require annual audited financial statements to be submitted to the South African Revenue Services.
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The transfer of member's interests from one person to another is not subject to Stamp Duty.
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The transfer of member's interests from one person to another is subject to Transfer Duty at the rate of 8% of the value transferred.
Partnership
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Partners of a partnership are jointly and severely liable for any debt the partnership may incur, and most importantly, if one partner is declared insolvent, all the other partners are at risk of losing everything. If legal action is taken against one of the partners it affects the whole partnership.
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The value of the property registered in one of the partner's names is subject to estate duty when he dies. It forms part of his estate.
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Transfer duty is charged at the rate applicable to an individual, which is less than the 8% rate charged to companies and cc's.
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The income of a partnership is taxed at a rate applicable to an individual at varying income levels, not at a flat rate charged on a company or cc. This is because a partnership is not a separate legal entity. The partners pay tax in their personal right.
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Capital Gains Tax applies to a partnership in the same way as to an individual.
Trust
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The trust assets are protected from the founder's, trustee's or beneficiary's creditors, unless the trust has been bound as surety for such debt.
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If a founder, trustee or beneficiary dies, the trust still exists as an entity.
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A property bought by a trust is not the property of an individual and it does not fall into his estate.
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The buyer can no longer save costs on Transfer Duty and attorneys' fees when buying a property registered in the name of a trust. In fact, the transfer duty imposed on a trust buying property is higher than on a natural person. When purchasing a property in the name of a trust there is a flat rate of transfer duty of 8% on the purchase price of the property. The maximum transfer duty payable by a natural person purchasing property, is R 25 000.00 + 8% of the value of the purchase price above R 1 000 000.00.
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When there are changes in the beneficiaries of a trust - Transfer Duty is also payable.
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The income of a trust is taxed at a rate applicable to an individual at varying income levels, not at a flat rate charged on a company or cc.
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There are no exceptions or rebates for trusts on the payment of Capital Gains Tax when selling property, and the rate is higher than that of an individual. Maximum effective rate of CGT is 20% on trusts.
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The founder of a trust may also be a trustee or a beneficiary or both. The founder may not be the only trustee, however he may be the only beneficiary. A trustee may also be a beneficiary, even the only beneficiary. But when the trustee is the only trustee he may not also be the only beneficiary.
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