"We are buying the property through our company. Does that mean we personally own it?"

Two business partners decide to purchase a shop lot for RM1.2 million.

Instead of buying it in their personal names, they use their operating company as the purchaser. The company pays the deposit, obtains financing and signs the Sale and Purchase Agreement.

One partner contributes most of the money. The other manages the company’s daily operations.

A few years later, they disagree about the business. The partner who funded the purchase says:

“I paid for most of the property. My name should be added to the title.”

But the registered owner is the company.

Buying property through a company is not merely a different way of writing the purchasers’ names. It affects who owns the property, who controls it and what may happen if the company, its shareholders or its directors encounter financial or commercial problems.

1. The company owns the property - not its shareholders or directors

A company is a legal entity separate from the individuals who own or manage it.

If the company is named as the purchaser and becomes the registered proprietor, the property belongs to the company. It does not belong personally to the shareholders merely because they own shares in that company.

Similarly, a director does not acquire a personal share of the property simply because the director:-

• Paid the booking fee or deposit.

• Signed documents on behalf of the company.

• Provided a personal guarantee for the financing.

• Managed the renovation or collected the rental.

• Holds most of the company’s shares.

The shareholders own shares in the company. The company owns the property. Those are legally different interests.

If a shareholder wants a personal entitlement relating to the property, the intended arrangement should be properly considered and documented before the purchase.

2. Who has authority to approve the purchase?

Before signing the Sale and Purchase Agreement, the company should confirm that the transaction has been properly authorised.

Depending on the company’s structure and documents, this may involve:-

• Reviewing its constitution.

• Passing a directors’ resolution.

• Obtaining shareholders’ approval where required.

• Confirming who may sign the transaction documents.

• Recording the purpose and commercial terms of the acquisition.

• Checking whether any shareholders’ agreement imposes additional approval requirements.

The lawyer acting in the transaction may also require company searches, board resolutions and certified corporate documents.

If the purchase is financed, the bank will ordinarily require further resolutions approving the facility, financing documents and security package.

A director should not assume that having access to the company’s bank account gives that director unrestricted authority to commit the company to a property purchase.

3. Personal payment does not automatically create personal ownership

Sometimes a director pays the deposit first because the company does not have sufficient available cash.

That payment needs to be properly recorded.

Was it:-

• A loan from the director to the company?

• Additional capital introduced into the company?

• Payment made on behalf of the company, to be reimbursed later?

• Part of a separate arrangement between the shareholders?

Without proper documentation and accounting records, disagreements may arise later about whether the director is entitled to repayment, additional shares or an interest in the property.

The fact that money came from a director’s personal account does not, by itself, change the identity of the purchaser stated in the transaction documents.

4. Company financing may expose more than the purchased property

The bank may require a legal charge over the property. It may also require:-

• A debenture over the company’s assets.

• An assignment of rental or insurance proceeds.

• A fixed deposit or other cash collateral.

• Personal guarantees from the directors.

• A corporate guarantee from a related company.

This means that the financing risk may extend beyond the property itself.

Where a registrable charge is created by the company, the applicable particulars generally need to be lodged with the Registrar within the period prescribed by the Companies Act 2016. The company, its solicitors and company secretary should coordinate the registration and completion requirements.

A shareholder who sells his shares or a director who resigns is not necessarily released from a personal guarantee. A separate written discharge from the bank may still be required.

5. How will the property be used?

The title and planning conditions should be checked even if the company’s business activities appear suitable for the premises.

Relevant matters may include:-

• The category and express conditions of land use.

• Restrictions in interest.

• Requirements for State Authority consent.

• Existing charges, caveats or leases.

• Whether the proposed business use requires local authority approval.

• Renovation, signage and licensing requirements.

• Management rules if the property is within a strata development.

Ownership by a company does not override restrictions attached to the land or building.

If the purchaser is a foreign company or a Malaysian company treated as foreign-controlled for the relevant purpose, additional approvals or State requirements may also need to be considered.

6. What happens when the shareholders disagree?

A property can become the company’s most valuable asset.

If the shareholders later fall into dispute, one shareholder cannot ordinarily sell “his half” of the property merely because he owns half of the company’s shares.

Decisions concerning the property must be made through the company in accordance with the law, its constitution and any shareholders’ agreement.

Problems may arise where:-

• Two shareholders each hold 50% and cannot agree.

• One director wants to sell while the other wants to retain the property.

• The company needs cash but the property is charged to a bank.

• One shareholder wants to leave the business.

• The shareholders disagree about rental, renovation or refinancing.

• The property is used by a related company without a written tenancy.

Before purchasing, the owners should consider how important decisions will be made and what happens if they stop agreeing.

7. Selling the shares is not necessarily the same as selling the property

If the company sells the property, the registered ownership is transferred to the buyer through a property transaction.

If the shareholders sell their shares in the company, the property remains registered in the company’s name, but control of the company may change.

These structures can have very different legal, tax, financing and due diligence consequences.

A buyer acquiring shares may indirectly assume exposure to the company’s existing liabilities, contracts, disputes and compliance history. A direct property buyer is acquiring the asset under the terms of the property transaction.

The appropriate structure should therefore be determined before documents are signed, with legal, tax and accounting advice obtained where necessary.

Buying through a company can be commercially suitable, particularly where the property is intended for business use or investment.

However, it should not be treated as a convenient name to place on the Sale and Purchase Agreement.

The purchaser will be the company. The funding, ownership, management and exit arrangements should all be structured on that basis.