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Buying Property In A Shelf Company? Pitfalls And Precautions

Shelf (i.e. pre-registered) companies can be very useful vehicles for the acquisition of assets, particularly property. Beware the pitfalls - who can sign and who can’t? Just make sure if you buy a shelf company that you don't sign any contracts for your new company before you are actually appointed as director – until then, only the currently-appointed director has the legal authority to bind the company.

Shelf (i.e. pre-registered) companies can be very useful vehicles for the acquisition of assets, particularly property.

Beware the pitfalls – who can sign and who can’t?

Just make sure if you buy a shelf company that you don’t sign any contracts for your new company before you are actually appointed as director – until then, only the currently-appointed director has the legal authority to bind the company.

The dangers of not observing this basic precaution were illustrated in a recent High Court matter where the purchaser of a shelf Close Corporation signed an agreement of sale to buy a property just two weeks before becoming a member.

Holding that the purchaser had no right to bind the CC before his appointment, and that the CC could not thereafter ratify the agreement, the Court declared the sale agreement to be invalid.

The agency authorisation

Note that if you must sign a property sale agreement urgently, i.e. before you replace the incumbent director, he/she can authorise you to do so accordingly as an authorised agent.  Such authority must be given to you prior to your signing and in writing.

Should you have any queries please contact Gerhard Retief on gerhard@gtlaw.co.za or 028 3123626.

© DotNews, 2005-2012. This newsletter is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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