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Company or Close Corporation
Question

Should I buy property in a Company or Close Corporation?

Answer

To decide whether to register a property in a Company or Close Corporation will be determined by the purchaser’s needs, although there are similar characteristics to a Company and Close Corporation they do differ dramatically in certain aspects.

The biggest difference between a Company and Close Corporation is that in the event of a Company there can be a division between management and ownership. Therefore one person can manage the company (director) whilst another can own it (shareholder), this advantage is more attractive for those people choosing to register the property in a separate legal entity but who choose to follow the route of risk aversion in that he can still manage the Company as a director but can transfer the shares to this family trust, protecting the ownership of the Company against possible claims of creditors in his personal capacity.

This advantage is not available in the event of a Close Corporation as there is no division between management and ownership in that it is a requirement that member’s interest in a Close Corporation may only be registered in a natural person’s name.

Therefore there is no division between ownership of a Close Corporation and its management and this makes it more risky seeing that the individual person is the only person involved in the Close Corporation.

There are certain disadvantages to a Company in that it is subject to annual formal audits which a Close Corporation is not and the holding costs are generally more expensive than that of a Close Corporation.

Therefore the question of Company vs. Close Corporation can only be answered after the needs of any purchaser has been determined, and if the need is to enjoy the flexibility of a legal person (only selling the shares in the event of a Company or the member’s interest in the event of a Close Corporation in stead of a transfer of the property) but to safeguard the asset (shares) the company would be advisable. And if flexibility is the prime object and not safeguarding of the asset the Close Corporation might be the answer.

For all the advantages and disadvantages of the different entities a thorough consultation with your legal team is advised.

Article by: Menlyn Properties - www.menprop.com