A SCI family (real estate company) allows members of the same family (relationship or alliance) to be owners, in different proportions or not, and manage one or more real estate together, for a non-commercial purpose. SCI makes it possible to eliminate the application of the rules of joint ownership and pass on an inheritance to the heirs while reducing the amount of donation or inheritance tax.
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What is SCI family?
An SCI is a company in which members of the same family, who so wish, contribute a portion of a building they own, and it is then the company which becomes the owner, each contributor recovers shares in return, which correspond to its contribution. The contribution can also be carried out in cash, which is a sum of money. SCI brings together members of the same family up to the 4th degree: child, parent, grandchild, brother/ sister, great-grandparent, uncle/aunt, nephew/ niece, great uncle/ great aunt, first cousin , great-nephew/ great-niece, etc. SCIs are regulated by the provisions, which are common to all companies, set by articles 1832 and following of the civil code, as well as by articles 1845 and following.
Nevertheless, it has some specific features due to the ties of kinship or alliance between the partners. For example, it doesn’t involve the qualification of professional lessor when it leases a property to third parties or to the partners of the SCI. It remains a private lessor who can enter into a lease for a minimum period of 3 years instead of 6 years.
On the other hand, it loses its family character upon entry into the SCI of a partner who has no connection with others.
It often happens that several people, who did not choose this at the beginning, become owners of the same property (e.g. in case of an acquisition under the separation estate system, in case of a divorce or legal separation, in the event of death…). This is when the rules of joint ownership apply. All the owners of the building must then learn to manage the aforementioned building together and agree to make mutual decisions.
However, everyone is free to leave this joint ownership at any given time: this often results in selling the aforementioned property. Otherwise, disagreement put down roots and leads to a dead end. It is therefore strongly advised to plan the constitution of a real estate company, to avoid these issues, mainly during an inheritance.
SCI allows you to take advantage in many ways, such as easy management and transmission. Creating an SCI offers the possibility of entrusting the management of real estate assets to a single person in order to avoid family conflicts related to a disagreement. Moreover, it guarantees the sustainability of the heritage over several generations. SCI excludes the forced sale of the property. The partner who wishes to leave can only sell his shares to the partners. If he wishes to sell his shares to a third party, he must obtain the prior approval of the other partners.
SCI also makes it possible to break up the ownership of shares, to assign variousrights to the shares. Bare ownership confers political rights relating to management while usufruct gives enjoyment of the property, which includes income.
Moreover, an SCI shares’ donation is more advantageous than the donation of traditional real estate. For example, when parents make a donation to children, they benefit from tax deductions (100,000 euros every 15 years. Therefore, it is possible to combine the dismemberment of property and the allowances through the help of successive donations, to be exempt from transfer taxes in the case of a transmission.
If the SCI has taken out a loan to finance the acquisition of real estate, its assets are reduced, which makes it possible to transmit the shares at a lower cost to one’s descendants, mainly through the bare ownership system. Upon the death of the usufructuaries, the bare owners become complete owners of the shares without having to settle inheritance rights.
SCI is also a solution for involving one’s children in an acquisition project, to build up real estate for them or for Civil Union partners. Cohabiting partners can use it to secure their situation in the case of death. For this, they need to carry out a cross-ownership dismemberment of the shares. Therefore, the surviving spouse will retain the enjoyment of the main residence upon the death of his spouse.
How does SCI work?
Two people are enough to establish an SCI.
The law does not set a maximum or a nationality condition, like in certain other forms of companies. It is even possible for a minor to be associated in an SCI because it does not have a commercial vocation. It must be said that its corporate purpose cannot be of a commercial nature. It is imitated in the management of real estate. It is also not about Purchasing to resell.
Its lifespan is 99 years, at the most.
The statutes govern its operation. These must be drafted by a legal professional. One is usually given free rein, when it comes to the drafting, but it is important to include certain clauses relating to these, for example the extent of the manager's mandate, the majority rules during voting at meetings, at times limiting the right to vote to parents only, providing specific regulations in the event of a sale or exchange of shares, providing approvals in the event of entering or exiting the company…
The partners of the SCI have an unlimited liability, not joint and several, with the debts of the SCI. This unlimited liability is in proportion to their participation in the share capital. The creditors of the SCI can turn against the partners in the case of default by the company, but only in proportion to the share of each partner. They cannot turn against a single partner for the entire debt.
When the SCI generates profits, they are redistributed to the partners or allocated to the reserve in order to leave resources for the company. If the partners have opted for an income tax (IR) SCI, the profits are distributed among the partners and they must declare them on their income tax. They must be declared even in the absence of distribution. The SCI can opt for corporation tax.
Who manages the SCI?
A manager is appointed to deal with current affairs, the most important decisions being generally taken at a meeting (dismissal of the manager, transfer of shares, etc.), according to the majority set by the statutes.
The latter is designated in the articles of association or in an annexed act setting out the scope of its powers. It is possible to appoint several managers. The manager can also have administrative tasks: drawing up annual accounts, balance sheets, etc.
In a SCI family formed only between parents and children and where the parents are co-managers, the duration of their mandate is generally not specified and terminates on their death or at the end of the SCI’s existence.
How to establish a SCI?
It shall initially be advisable to approach our usual notary to have the statutes of your SCI drawn up and this, in order to avoid any issues, as drafting these is rather sensitive. The notary will take care of all the required formalities for you: registering their constituent instrument, legal publicity, registration at the Business Formality Center…). It will also be required to contact a notary while selling shares.
It should be remined that its constitution is not only reserved for the management of a family patrimony but can also be used to carry out a building construction operation, manage a professional patrimony or benefit from tax advantages.