Posted November 7, 2023 at 12:20 pm.Updated November 7, 2023 at 12:27 p.m.
This legal structure, decorated with numerous advantages, is experiencing real popularity. When used correctly, it offers an ideal framework for managing and transferring real estate while reducing taxes. Our advice on how to take advantage of it without falling into its traps.
Dare to SCI! Civil society in real estate (SCI) conveys many preconceived ideas and fantasies. While some see it as a panacea, others identify a vehicle reserved for the informed and wealthy elite. However, this last statement is far from reality. Almost a hundred thousand SCIs are created in France every year. Which, according to the official statistics of commercial court officials, represents 15% of company registrations. This broad success can be explained by the advantages of SCI – it responds to relatively specific and common inheritance issues, such as the management and transfer of rental properties, partner protection, separation of professional assets from use or optimization taxation – as well as the particularly easy conditions for establishing such a company. Let’s keep in mind that to create such a business you only need a minimum of two people and a minimum initial investment… 1 euro. This makes it accessible to everyone, business leaders, freelancers, employees, young retirees, etc.
A very flexible legal tool
Another great advantage of SCI is its operational flexibility. The articles of association give the founding partners great freedom in adjusting the powers of the executive or executives. Therefore, it is important to design them well when setting up a company, in order to add fuel to management and avoid possible conflicts. The role of a manager, who is not necessarily a partner, can be limited to the absolute minimum, i.e. management of current affairs. Or, conversely, accept broad privileges to gain full authority to conduct strategic operations on behalf of partners.
The articles of association further specify the rules that apply to the collective decision-making of the general meeting, especially when it comes to the acquisition or sale of property, and especially the exit conditions and approval of the shareholders. Let us recall that partners do not necessarily have to be natural persons. This enables sophisticated arrangements integrating one or more holding companies. In this file, which we wanted to be practical, you will find six very specific cases in which the use of SCI takes on its full meaning. Whatever your family, professional or financial situation, you probably fall into one of these categories. Or in the more or less near future you will be. Provided, of course, that you own one or more properties or nurture this ambition.
Tax exemptions to be used wisely
SCPI is often credited with eliminating rental income taxation or inheritance taxes. If this is ever true, be careful to create a structure with this sole tax purpose. In certain cases, tax authorities may find misconduct and report abuse of law. This can happen when personal property is resold to a family SCI that will charge you a reduced rent and generate a land deficit for you by doing the work.
Further disappointment threatens SCI partners when it is diverted from its primary function of managing one or more properties. Hence the interest in being particularly conscientious in the management of this company, respecting a few simple rules. Finally, it should be noted that SCI comes with limitations and disadvantages. The main pitfall of this form of business: unlimited liability of partners for debts.
This is why at the end of this file we will review alternatives to SCI, such as the SARL family, which are more protective at this point. All of the legal structures listed have advantages and disadvantages that must be considered in order to determine the most appropriate option for your situation. Be aware of this and research them carefully before making a decision.