SCI
1) What is the definition of an SCI ?
2) Why create an SCI ?
3) The family SCI ?
4) When should an SCI be created ?
5) How does an SCI work ?
6) How is an SCI taxed ?
7) How do I leave an SCI ?
8) How do you dissolve an SCI ?
9) FAQ
1) What is the definition of an SCI ?
What does "SCI" mean ?
SCI stands for in french "Société Civile Immobilière". Before setting up an SCI, you should know that it's a company made up of a minimum of two partners to manage one or more properties. The property becomes the property of the company. In return, all partners receive shares in the company.
This type of company is therefore to be distinguished from indivision.
What are the different types of non-trading property company ?
Before setting up an SCI, you should be aware that there are several different types of non-trading property company :
- The SCI for management or rental corresponds to the traditional société civile immobilière. It enables several people to buy a property, manage it and, if necessary, rent it out. Generally speaking, the main aim is to make a profit from one or more properties by renting them out ;
- The SCI familiale can be set up solely between members of the same family ;
- SCI construction-vente is used to buy a plot of land, build a property on it and sell it on ;
- SCI attribution is used to determine precisely which part of the property belongs to each partner ;
- SCI de jouissance à temps partagé is used to share the use of the property.
Please note : it's important to choose the type of company best suited to your project. If you have any difficulty in making this choice, you can enlist the help of one of our legal experts.
2) What are the advantages of setting up an SCI ?
Why set up an SCI ? Because the SCI - Société Civile Immobilière - is a very attractive form of company. It has certain shortcomings, but its straightforward legal framework is a considerable advantage. It allows associates to organize their relations flexibly in the articles of association (form and powers of the manager, decisions of associates, etc.).
Another advantage of the société civile immobilière is that it allows : a wide range of structures to be set up to manage both private and professional real estate assets.
Why setting up an SCI is ideal for real estate investments ?
SCI status can be the ideal way for several people to make real estate investments that could not have been made by one person alone. Investing in real estate through an SCI makes it easier to pool capital and financial resources, thereby increasing the financial capacity of the partners and making it easier to obtain external financing (particularly bank loans).
Good to know : you can also set up an SCI partner's current account to facilitate the acquisition of resources for your business.
This makes it easier to buy a property complex or rental property. If you have ambitious real estate projects, this can be an excellent way to finance them together.
Indeed, the advantage of this type of company is the pooling of capital, particularly if you wish to form a family partnership. In this case, one of the main advantages of the SCI familiale is its ease of borrowing, thanks to the indefinite joint and several liability of the partners.
It also enables you to pool the charges and costs associated with property ownership. It is important to understand, however, that it is not possible to carry out a purchase-resale activity within an SCI. This activity is considered to be commercial in nature, which runs counter to the company's corporate purpose, which must be civil in nature.
Buying through an SCI is an ideal solution for real estate investments, as it enables you to :
- Increase your ability to finance a property;
- make it easier to obtain external financing;
- Share the costs and expenses of owning the property.
You may also wish to consider buying a house with an SCI to live in.
Good to know : if you wish to carry out a purchase-resale activity, you can also take steps to become an estate agent.
The SCI and protection of partners' personal assets :
The creation of an SCI, i.e. a legal structure with its own legal personality and assets, has the advantage of limiting the liability of SCI partners. In the event of difficulties, creditors can only take action against the partners once they have taken action against the company. Only if the action against the partnership is unsuccessful will creditors be able to turn against the partners. In this case, the partners will be liable for the company's debts indefinitely (in proportion to their share in the capital).
Please note: unlike partners in other partnerships (such as SNCs), associates are not jointly and severally liable for the company's debts. In practical terms, this means that a creditor cannot demand payment of his entire claim from a single partner. The creditor must take action against each partner for the amount of their share.
Furthermore, if a partner's shares in a non-trading property company are seized by creditors, it is still very difficult to obtain the forced sale of the seized shares.
Last but not least, the SCI offers the advantage of discretion in your real estate investments. Investing through such a structure makes it more difficult for creditors to obtain information about the extent of a partner's assets.
For example : when searching for property transactions at the mortgage registry, only the name of the société civile immobilière appears on the property's "owner record".
The advantages of this type of company in terms of asset protection are therefore manifold. These include :
- The liability of associates is limited to the amount of their share;
- The difficulty of seizing shares;
- Discretion over the partners' real estate assets.
SCI and simplified asset management :
You may not be aware of it, but setting up such a company also enables a business owner to become the direct owner of the real estate required for his or her company's activity, rather than having to record it as an asset on the company's balance sheet.
To answer the question, what are the advantages of an SCI, here are a few examples :
- Financing the building through rental income, while at the same time deducting rental expenses in the operating company;
- Obtain additional income through rental income when the structure is no longer in debt;
- Facilitate the transfer of the SCI's real estate assets to children, by allocating them shares in the company or in the operating company, depending on whether or not they work for the operating company;
- Protect the company's real estate assets from professional creditors;
- Facilitate the sale of the business by reducing the sale price (the assets of the operating company will not include the building, and the value of the business will be correspondingly reduced);
- Reduce the taxes payable on the sale of the building by taking advantage of the personal income tax system.
Instead of selling the building, associates of this type of company will have the advantage of being able to sell their shares. As it happens, transfers of SCI shares do not have to be recorded in a deed drawn up before a notary. In fact, SCI shareholders can draw up the deed of sale themselves.
In practice, this entails lower costs than a direct property sale.
Another advantage is that sales of SCI shares are not subject to the urban pre-emption rights of local authorities (i.e., local authorities cannot claim priority purchase of shares).
There is one exception, however, when the sale concerns the majority of shares in a non-trading property company (société civile immobilière) whose assets consist solely of a building (or group of buildings).
In the latter case, these pre-emptive rights do not apply if the transfer of shares takes place in a société civile immobilière (non-trading property company) set up exclusively between relatives and allies up to and including the fourth degree (known as a family non-trading property company).
3) Family SCI
What is a family SCI ?
The SCI familiale is a special type of non-trading property company, since all the partners come from the same family. They may be related by blood up to the fourth degree, or by marriage.
What are the advantages of a SCI familiale ?
The SCI familiale allows family members to buy one or more properties together, avoiding the risks of joint ownership.
It's also an excellent way of organizing inheritance and optimizing transfer costs. Indeed, heirs do not receive the property as such, but shares in the company. It therefore facilitates the transfer of the property not only within the couple, but also to the children.
What's more, you can make early gifts and benefit from significant tax advantages.
The family SCI is therefore a particularly attractive form of SCI for building up and managing real estate assets as a family.
4) When should you set up an SCI ?
Now let's take a look at when you can set up an SCI.
While it's not uncommon to set up a non-trading property company (société civile immobilière) to acquire a property, it's also possible to do so after the property has been purchased. In the latter case, the property is contributed to the capital of the SCI, which then buys the property from the partners and becomes the owner. This is mainly the case, for example, when a principal residence already acquired is contributed to a newly-created SCI between parents and children. In this case, transfer duties are payable.
On the other hand, an SCI can be set up at any time. There's no one time of year that's more favorable than another. However, this type of company must not remain without a corporate purpose, i.e. without any real estate to manage. The real estate project must be completed fairly quickly after the SCI is set up.
5) How does an SCI work ?
To set up an SCI, at least two partners are required. These partners receive shares in the company in proportion to their respective contributions, with voting rights.
A manager is appointed to carry out the common acts of the company and to represent it. He is accountable to the partners.
For example : he or she may rent out the property, take out a home insurance policy, or open an electricity meter in the name and on behalf of the company.
Once a year, an Ordinary General Meeting must be convened in accordance with the provisions of the Articles of Association, notably to vote on the closing of the accounts.
Extraordinary General Meetings may be convened to take decisions of vital importance to the company, such as changing the manager, amending the bylaws or bringing in a new partner.
6) What is the SCI tax system ?
The SCI tax system is advantageous. The société civile immobilière (non-trading property company) allows partners to choose between income tax (IR) and corporation tax (IS). This can enable partners to optimize their personal tax situation.
SCI subject to income tax :
In principle, this type of company is subject to income tax. In this case, the SCI is said to be fiscally transparent, i.e. it is the partners who are taxed according to their shareholding.
Income tax is the most common option, but opting for corporation tax can be beneficial in certain cases.
Opting for corporation tax :
One of the main advantages of opting for corporation tax is that all actual expenses incurred in the interest of the company will be deductible, enabling the building to be depreciated, but subsequently increasing the capital gains tax base.
In other words, while opting for corporate income tax generally neutralizes tax during the depreciation period, it may result in higher taxation when the property is sold.
There are also specific rules governing SCIs and VAT, depending on the activity carried out. Take the time to find out !
Please note : if you are planning to set up a non-trading property company (société civile immobilière) for a seasonal rental activity, you will be subject to corporation tax (IS), unless the activity is of an irregular nature.
7) How do I leave an SCI ?
How do I sell an SCI? As with any company, it is possible to sell an SCI. The buyer buys the company's shares, not the property it owns. However, the value of the shares depends on the value of the company, and therefore of the property it owns, since this is the company's corporate purpose.
It should be noted that, depending on the company's articles of association and the presence of an approval clause, the shareholder may sell his or her shares to another partner or to a third party.
8) How do I dissolve an SCI ?
To dissolve a société civile immobilière (non-trading property company), i.e. to put a definitive end to its existence, it is necessary to convene an Extraordinary General Meeting. In the absence of a provision to the contrary in the bylaws, a unanimous vote of the associates is required.
A liquidator must be appointed. The real estate assets can be sold. The sale price can then be divided among the associates in proportion to their contributions, after payment of creditors. However, it is also possible to return the real estate to the partners, particularly if it has been contributed to the company's capital. In this case, capital gains tax applies.
9) FAQ :
Is one SCI required for each property ?
No. An SCI can own several properties, just as you can own several SCIs, each owning a single property. It's up to you to choose the most advantageous option for your needs.
What is the duration of a rental lease entered into by an SCI ?
If an SCI starts renting, the lease must be for a minimum of 6 years.
Can an SCI rent out furnished accommodation ?
Renting out furnished accommodation is a commercial activity, which does not correspond to the SCI's civil purpose. However, the law permits this activity, with the consequence that the company is automatically subject to corporate income tax.
Does the SCI manager receive any remuneration ?
Usually, SCI managers carry out their duties free of charge. However, the partners may decide to remunerate the manager.
Main legislative and regulatory sources :
Articles 1832 et seq. - Civil Code