By Chrisna Strydom (Director l Attorney l Conveyancer l Notary)
Purchase on behalf of a company to be formed
It is possible to enter into a sale agreement on behalf of a company that still has to be established. The important factor is that the directors have an obligation to completely, partially or conditionally ratify or reject the contract within three months after the company has been incorporated. If the board of directors fails exercise the above, the company will be regarded as having ratified the agreement.
If the agreement is ratified or deemed as ratified, it will bind the company as if the company had been a party to the agreement when it was initially concluded.
The person who entered into the agreement of sale on behalf of the company, is held jointly and severally liable with any other liabilities emanating from the company’s pre-incorporation contract if the incorporation does not take place or incorporation does take place but the company rejects any part of the agreement of sale.
In all cases where the purchaser buys the property / land on behalf of a company to be registered, a special clause is usually inserted in an agreement of sale in order to protect the interest of the Seller. This clause will stipulate that the person who entered into the agreement of sale on behalf of the company, the representative, will be liable in his personal capacity if the company is not established within a specified period or if it is established, it rejects the contact within a certain period.
Purchase on behalf of a trust to be formed
Section 6(1) of the Trust Property Control Act 57 of 1988 provides that a person appointed as trustee of a trust shall act in that capacity only if authorized thereto in writing by the Master of the High Court. This means that the trustee can only act once he has received a letter of authorization by the Master. All act concluded by such a person in his/her capacity as trustee of a trust yet to be formed prior to the receipt of the written authority of the Master shall be null and void.
The above is purely a brief summary and proper advice should be sought should you find yourself wanting to purchase on behalf of a company or trust still to be formed.
