Buying Property For A Company-To-Be-Formed: Watch Your Wording! 


You have found the perfect property, at the right price – now can you buy it in the name of a company that has not yet been incorporated?


Indeed you can – a “pre-incorporation contract” is intended to bind the company as and when it is formed. But don’t – in the excitement of the
moment – sign anything until you have taken proper advice. It is essential to word the agreement so that the statuses of both the signatory and
of the proposed company are clear. Otherwise, as happened in a recent High Court case, you risk having to pay your legal team to argue
over complex legal issues with intimidating names like “stipulatio alteri”. In that case, a property sale agreement was held to be invalid for want
of strict compliance with the requirements of the Companies Act.



The old Companies Act applied there, but it is equally important to comply with the requirements of the new Act – if you don’t, you could lose the property altogether.


A risk of another kind is that the new Act specifically provides that, if a company isn’t formed or if, once formed, it rejects any part of the pre-incorporation contract, any liability created by the contract becomes the personal liability of the person entering into the contract for the company. It isn’t just the signatory at risk here – the Act puts at risk “any other person” – presumably referring to anyone acting for the proposed company in relation to the sale.


Another important new provision is that the contract will be “deemed” to have been ratified if the board of directors has neither ratified nor rejected it within 3 months of incorporation. Nevertheless, best avoid any doubt by formally minuting ratification by the board within the 3 month period.


The bottom line – don’t sign anything for a company still to be formed unless: –

  1. You are certain that the contract is correctly worded
  2. You are confident that the company will indeed be formed
  3. You are confident that the company will ratify the contract (or at least not reject or change it).

Note: Whether you should buy a property in the name of an individual, company or trust is a complex issue – take advice on which is best in your particular circumstances. If the advice is to use a trust, note that none of the above applies to trusts – no “pre-incorporation” contracts can be ratified, and stringent requirements apply as to registration of trust deeds and formal authorisation of trustees to act.


If use of a company is recommended, consider whether you should form a new company or acquire a shelf company (in the latter event the above rules do not apply because the company is already in existence).


Employers: Don’t Miss Your EMP501 Deadline!


Don’t leave your interim EMP501 Employer Reconciliation Declaration to the last minute. You must lodge by 31 October or face penalties, and you need to get to grips with new submission systems first: –  

  • If you use the online “e@syFile” system you must have the latest version of the software. Submissions using the old version won’t be accepted.
  • If you still use manual submission, blank reconciliation forms can be requested from the SARS Contact Centre or a SARS branch (the forms are no longer available at branches but instead will be posted to you).



Report Fraud! Court Crackdown Continues 


The trend towards a tougher stance on white-collar crime continues.


Fraud is a “serious crime” which is “endemic in our society” held the High Court recently in confirming an effective 5 year prison sentence (with a further 3 years conditionally suspended for 5 years) on a clinical psychologist – a first offender – convicted of five counts of fraud involving R720.000. She had, in order to obtain bridging finance for a property transaction, forged letters purporting to show her entitlement to funds from the sale of an overseas property.


This follows the Supreme Court of Appeal’s confirmation earlier this year of an effective 4 year prison sentence (another 2 years suspended) imposed on a motor dealership sales manager convicted of 157 counts of fraud and one of corruption. He was found to have been a “willing participant” in an “elaborate fraudulent scheme” which defrauded SARS of some R1.6m in output VAT.


If you become a victim of fraud, report it!