Establishing, managing, or even transferring real estate assets can seem complicated. Members of the same family may also find themselves co-owners of a property without having planned for it (in the event of the owner’s death), sometimes leading to very complex situations.
There is a form of civil company that allows for the optimization of the management of a family’s real estate assets, from its creation to its transfer. This is the family real estate company (SCI familiale).
According to the French Ministry of Economy and Finance: an SCI “is a legal structure composed of at least two people, each having the status of partner, to manage one or more real estate properties.
The real estate assets are owned by the civil real estate company, and each partner receives shares proportional to their contribution.” A family SCI can be defined as follows: “It is a company founded by members of the same family, up to the fourth degree inclusive. It allows for the organization of the management of one or more real estate properties.”
But is there a real difference between these two companies?
In reality, there is no significant difference between the two; the family SCI is subject to the same rules. However, there is an advantage for the family SCI: it benefits from the status of private landlord in the context of renting real estate properties. Thus, it avoids being classified as a professional landlord and can, for example, enter into 3-year leases (like an individual) instead of the 6 years required for a non-family SCI.
Note that the SCI immediately loses its family character and the associated advantages if a partner without a family relationship (up to the fourth degree) joins the SCI.
It avoids the regime of joint ownership for heirs in the event of death. The assets of the estate then belong indistinctly to all heirs without their respective shares being materially individualized. When heirs inherit properties previously held directly, they become co-owners by default, and since no one can be forced to remain in this state, insoluble problems can arise in case of disagreement… If the heirs receive SCI shares, they must agree on how to manage and/or dispose of the assets or buy out the shares of those who wish to exit. The family SCI, in a way, forces heirs to be more reasonable…
The statutes of the family SCI allow, for example, the management of its properties by a family member or even a third party to avoid any conflict.
The family SCI also allows multiple members of the same family to purchase a property together, thus avoiding joint ownership.
Each person’s contribution can be made in cash or by directly contributing a property and transferring ownership to the company. The SCI can supplement the contributions of its partners with one or more loans to finance the investment(s). The properties are owned by the SCI. Qlower’s advice is, in almost all cases, to favor the SCI when planning to partner for a real estate purchase, even within the family!
Moreover, this allows for bypassing the rule of unanimity found in the joint ownership regime. Thus, situations of blockage are avoided, and unanimity is only necessary in principle during extraordinary general meetings (AGE) when partners have not provided for a more flexible majority.
Finally, one of the main reasons for its success lies in the transfer of assets. Indeed, the donation of SCI shares is very advantageous compared to a classic real estate donation. Parents benefit from a tax allowance of €100,000 every 15 years in the context of a donation.
Parents can thus create and transfer real estate assets to their children through successive donations. Moreover, it is possible to optimize the process through a dismemberment of ownership, allowing specific rights to be assigned to the shares. For example, the bare ownership of shares can be transferred to the child while the parents remain usufructuaries, thus remaining managers of the real estate until their death. At that time, the bare owners of the shares will become full owners without having to pay inheritance taxes.
Attention, such a decision must be detailed in the statutes of the SCI… and it is advisable to consult an excellent notary or tax specialist.
There are nevertheless some disadvantages, mainly related to the civil form of the company. Indeed, in the family SCI, there is unlimited liability for partners, meaning that they are liable beyond their sole contribution. This is a commitment to the company’s debt, which will be repaid from each partner’s personal assets.
Moreover, despite a certain freedom granted to partners in drafting the statutes, it is essential to surround oneself with experts to guard against numerous risks that become apparent in case of subsequent problems…
It is fundamental (and many investors forget this…) to give legal existence to the SCI (family or not, by the way!) over time. It is not enough to file the SCI’s income tax return once a year; a balance sheet and income statement must be prepared, partner current accounts must be kept up to date, and general meetings (ordinary once a year to approve the accounts and extraordinary if necessary) must be materialized and signed.
The effort is worth it, especially if the partners intend to make multiple investments…
Qlower also assists SCIs in their daily management, accounting, and taxation!
Do not hesitate to consult our specialists; they will help you in your reflection and recommend the right contacts!
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