Thursday, 1 December 2011

COST SAVING MEASURES IN PURCHASE OF PROPERTY OWNED BY A LIMITED LIABILITY COMPANY

INTRODUCTION

Purchase of property/land in Kenya is subject to costs such as valuation costs, costs for obtaining various consents depending on the location of the property and registration regime, registration costs, costs for obtaining searches before and after the transfer, and fundamentally, costs for Stamp Duty.

These costs must be paid, whether the purchaser is an individual or a corporate entity. The question therefore, arises, as to what are the cost-saving measures available to a purchaser of poperty or land owned by a limited liability company. In this series, we will endevour to explore these isssues with a view of advising you and or generating debate thereon.

OPTION I: ACQUISITION OF SHARES

Company law permits free sale and transfer of shares, subject only to such restrictions as a the company's constitutional documents may dictate. In this regard, one of the easiest and cheapest way for acquiring land owned by a company is to purchase such shares in the company as are equivalent to the value of the consideration being offered.

Transfer of shares will involve preparation of Share Sale and Transfer Agreement, Share Transfer Deed (in the event of a transfer) or Return of Allotment of Shares (in the event of an allotment). The stamp duty costs incidental to share transfer are minimal and currently stand at 1 % of the consideration, usually, the value of the shares being sold. For instance, where the subject property is valued at Kshs. 300 Million and owned by a company whose shares are Kshs. 100.00 each, and the company has, say, 1,000 shares, 500 of which have been alloted to the current shareholders, the purchaser may be alloted the remaining 500 shares, for a consideration of Kshs. 50,000 (and not Kshs. 300 million). Whereas the consideration for the 500 shares will attract a stamp duty of Kshs. 500.00 only! the stamp duty on the Kshs. 300 million would be Kshs. 12 Million if the property falls within a municipality or Kshs. 6 million if the property falls within agricultural area.

The transfer or allotment of shares would subsequently be followed by a subdivion to be registered by the company as the applicant. The property can then be placed at the disposal of the purchaser on such terms as regards liability as the company may agree with such a shareholder.

CONCLUSION

Sale of shares is a viable option for acquisition of property, and will often result in saving costs on stamp duty.

This approach to acquisition of property will only work where the value of the company/its assets are predetermined as the company may own other assets other than the subject of the purchase. As such, a valuation of the company would be necessary to determine the proportionate shares to be transfered/alloted vis-a-vis the consideration being offered by the purchaser.

For further enquieries on cost saving measures in property acquistion transactions, please contact our Teddy OKELLO at stralexgroup@gmail.com for assistance. You may also call us on +254 773 865 798.

For: Taxlex Consulting Group Limited

Teddy OKELLO
MD & Group CEO

* Taxlex Consulting Group Limited is a participating consultancy in the SLS Group of consultancies, with specialty in tax and related advisories. 

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