Why would you create an SCI for your real estate purchase in France?
An SCI, or “Société Civil Immobilière”, is a company that allows a number of individuals to share one or more real estate entities. The partners of the SCI can make contributions ‘in kind’; movable or immovable property that they already possess. These contributions, most often in kind or in cash, give entitlement to shares in the SCI based on the total capital to partners share accordingly the profits and losses of the company. The SCI can be administered by one or more managers who are chosen by the partners. The managers may be physical or moral persons, for example, a company.
1 – How does the SCI give you legal protection and inheritance relief?
One of the advantages of an SCI is that it can protect the assets of the partners. Registered in the Trade and Companies Register, it has a legal personality and a heritage that differs from that of an individual. The SCI is the sole owner of the property. Therefore, in case of a dispute, creditors will first turn against the company. If their action proves to be unsuccessful, they can then bring an action against the partners.
Only the shares can be seized by the creditors. In addition, it is difficult for creditors to sell the shares of another SCI associate or to know the extent of their wealth. In fact, the partners have an indefinite responsibility according to their participation in the share capital of the SCI, but not in solidarity. This implies that the creditors must act independently against each partner, to engage their responsibility.
SCI also gives parents the possibility to pass on their property to their children while maintaining the management of the property. They simply bring the property to the SCI and distribute the shares of the company to their children. They are the managers of SCI and thus retain control of the property. When parents and children of the same family are associated with an SCI, we are talking about creating a family SCI.
2 – What can a SCI offer to investors? (tax, business, value creation)
The SCI makes it possible to realize several real estate investments by gathering means, which can facilitate the obtaining of financing. It may indeed be intended, for example, to rent.
The SCI makes it possible to have advantageous taxation. The transfer of a property is normally subject to capital gains tax, with a tax deduction depending on the length of ownership, and a total exemption from tax after 22 years and 30 years for social security contributions. For the sale of the shares of SCI, the holding period is calculated from the date of subscription of the units and not from the date of entry of the property into the SCI. In addition, the transfer of shares is simpler than the sale of a building that must go through an authentic notarial act.
If you are a business owner, you may also want to use the SCI to acquire the real estate necessary for your business. SCI will collect rents while deducting rental expenses. This arrangement also allows you to allocate shares of SCI to your children without being in your company. In addition, the creditors of your company will not be able to attack the SCI, so real estate is protected.
3 – What are the costs engaged to create and run a SCI?
The biggest disadvantage with the SCI is its creation. You must complete certain formalities to create it, in particular:
- – the drafting of the statutes,
- – registration of statutes in the tax department,
- – the publication of the constitution of the SCI in a Journal of Legal Announcements (JAL),
- – the registration of SCI with the Registry of the Commercial Court,
- – the declaration of the beneficial owners of the SCI.
These operations have a cost especially if you go through a lawyer to write the statutes. As for the legal announcement, it costs about 200 €.
4 – What is the administrative work behind the running of a SCI?
You must comply with the operating rules of the SCI such as holding an annual general meeting of partners or the keeping of accounts. Accounting is more rigorous if you have made the choice to submit the SCI corporation tax. The accounts should be handed over to the registry every year.
You must also take into account the fact that as an associate of an SCI, you have an indefinite responsibility regarding the debts of this one. You commit your personal wealth in proportion to your shares in SCI.
The sale of shares of an SCI can be complicated if a clause of approval is provided for in the statutes. Indeed, if you want to sell, it will require the agreement of other partners.
To summarize, creating an SCI is a good option if you are planning to simplify transmission and protect real estate assets, it permits to be flexible in the choice of the tax system and it adds the possibility to sell shares easily with the agreement of the shareholders. But the procedure may seem complex, you must be rigorous regarding the law concerning the organization of the general assembly and the accounting.