HOW TO SET UP A FAMILY SCI TO OPTIMIZE THE MANAGEMENT OF YOUR REAL ESTATE ASSETS?

Do you want to pass on your real estate assets to your children in the best possible conditions?

Do you own a family building in joint ownership and are looking for a more flexible regime to anticipate tensions and blockages?

Do you want to pool your savings with those of a member of your family to grow them through rental investment? 

Have you decided to buy a holiday home with your cousins?

In these cases, it may well be that the creation of a family SCI is the most appropriate solution.

If you would like to discuss your project with one of our experts, do not hesitate to book a slot, it’s quick and it’s free.

WHAT IS A FAMILY SCI?

DEFINITION

Just as the square is a particular rectangle, the family SCI is a particular SCI, in which the partners have family or alliance ties between them.

Now let’s see what is hidden behind these three letters: SCI 

Drum roll…

SCI for “real estate civil society”!

  • Company? Understand business, or legal entity as we say legally.
  • Civil? To be opposed to a commercial company. The goal will not be to sell goods or services… Our apologies to the grocers.
  • Real estate? The company’s corporate purpose (its reason for being) will consist of the management of a common real estate portfolio.

A family SCI is therefore a company which owns and manages one or more buildings and whose partners come from the same family.

Note that while in common parlance, the term building corresponds to collective housing, the legal term refers to all types of real estate imaginable. For example, although it may seem counterintuitive, a house is a building.

This distinction made, it is necessary to understand that it is the SCI which owns the real estate assets, and not the partners. The latter distribute the shares (or social shares) of this company, according to their contribution. 

This nuance is important since it ensures the sustainability of the ownership of the property by the SCI, without preventing changes in partners.

This indirect ownership right, so to speak, guarantees that the property will remain in the family, unless all the partners wish otherwise.

MAIN CHARACTERISTICS OF A FAMILY SCI

Lifetime

When it is created, the lifespan of an SCI must be indicated. This cannot exceed 99 years. Upon expiry, the SCI is automatically dissolved. 

The good news is that it is possible to extend this duration by decision of the partners.

And here we go again…

Management

An SCI, and even more so a family SCI, is managed by a person appointed by the partners to administer and represent the company.

The manager must be part of the family and is most often one of the partners.

There can also be several, although this is rare.

In any case, the manager is responsible for the day-to-day affairs of the SCI:

  • He keeps the company’s accounts;
  • As a representative, he ensures relations with banks;
  • He summons the other partners to the general meeting and more generally takes care of all administrative acts related to the SCI;
  • In the case of rental, he organizes visits, draws up the lease and collects the rent.

It is therefore a question of choosing your manager carefully, firstly because you must be able to assume all these responsibilities, then because you must want to, given that it takes time.

Keep in mind that the manager cannot decide to sell a property without the agreement of his partners.

The duration of his mandate may be specified in the statutes. It is in any case revocable for “just cause”, that is to say in the event of serious abuse.

Indefinite but not joint and several liability

One of the characteristics of the status, which may seem frightening at first glance, is that the partners are indefinitely liable for the debts of the company. 

Indefinite means that their liability is not limited to their contributions. In the event of financial difficulties of the SCI, the creditors can take action against the personal assets of the partners.

This liability is however not joint and several; the partners are liable for the company’s debt in proportion to the shares they hold.

Example: The SCI in which I hold 20% of the shares has a debt of €100,000. Since the liability is not joint and several, even if my partners default on payment, I am only liable for €20,000.

Before reviewing the advantages and disadvantages of the family SCI, let’s quickly look at the key stages of its creation. Who? How?

HOW TO CREATE A FAMILY SCI?

WHO CAN CREATE A FAMILY SCI?

To create a family SCI, at least two people must join together.

No offense to Rousseau, we do not create a civil society with ourselves. 

The number of associates, however, is unlimited.

As indicated above, the partners of a family SCI must have family or alliance ties. 

Family ties can go up to the 4th degree . More concretely, we can associate with our parents, our children, our brothers and sisters, our uncles, aunts, nephews, nieces, grandparents, and even first cousins.

As for the bonds of alliance, they are synonymous with marriage. A married couple who have chosen the separation of property regime can create a family SCI to acquire common property. In the event of the death of one of the two, the other will be able to recover full ownership.

Let us add that nothing prevents minors from holding shares, which makes it possible for young children to join an SCI with a view to gradually passing on real estate assets to them.

WHAT ADMINISTRATIVE PROCEDURES MUST BE CARRIED OUT?

We’re not going to hide it, creating a family SCI is not child’s play, especially if you want to draft the statutes yourself. 

Actually, the steps are the same as for starting any business.

We distinguish four of them. 

Drafting the statutes

The statutes govern the organization and operation of your SCI.

In addition to certain mandatory information such as the name of the company, its corporate purpose, its head office, its lifespan, the names and contributions of the partners, numerous clauses can be added. 

Needless to say, the exercise is technical and requires good legal knowledge. 

However, there are models for writing them yourself, which has the advantage of being free and the disadvantage of being risky if you do not understand the content.

Otherwise, you can have them written by a professional (lawyer, notary, etc.) or rely on a specialized platform.

The choice will depend on your level of expertise, as well as the time and money you have available.

Deposit of share capital with the bank 

Once the statutes are drawn up, you will need to deposit your share capital into a bank account in the name of your SCI.

The share capital includes all the contributions of the partners, which can be:

  • in cash (a sum of money)
  • in kind (movable or immovable property)

Although there is no minimum and you can create a family SCI with one euro of share capital, if the objective is to acquire a property, it is preferable to inject a larger amount to give confidence to credit institutions.

Publication of a legal announcement in the official journal 

Now is the time to submit an advertisement in the legal notice journal (JAL) of the department where your headquarters is located.

This process aims to bring the creation of your company to the public’s attention. 

The constitution and filing of the file with the registry of the Commercial Court 

Last step, the creation and submission of your registration file to the registry court.

This file includes the famous M0 form , to be completed for any business creation, the statutes, the certificate of publication in the JAL, the certificate of deposit of share capital, in short, the proof that all the previous steps have been validated, to which are added a few additional documents.

Have you overcome all these obstacles without weakening? 

Congratulations, you will shortly receive your K-bis, the precious sesame which attests to the existence of your company.

Now that we have said what an SCI is, mentioned its main characteristics and listed the formalities to be completed to create it, let’s come to the advantages. Isn’t that what interests us the most? Why create an SCI? What are the good reasons to do so?

WHY CREATE A FAMILY SCI? WHAT ARE THE ADVANTAGES?

MANAGEMENT OF SHARED REAL ESTATE MADE EASIER COMPARED TO JOINT OWNERSHIP

The management of the buildings owned by the SCI is ensured by the manager, who does not need to consult the other partners as long as his actions relate to day-to-day business. 

In addition to streamlining decision-making, by preventing blocking situations linked to joint ownership of the estate, management entrusted to a single person saves time for the other partners.

The acquisition or transfer of property, the revocation of the manager or the modification of statutory provisions, must, on the other hand, be submitted to the vote of all the partners during a general meeting, which, as we have said, guarantees the unity of the family assets.

The majority rules and quorum (minimum number of shareholders present for a meeting to be able to validly deliberate) are included in the statutes.

PREPARE YOUR SUCCESSION AND BENEFIT FROM TAX ADVANTAGES FOR THE TRANSFER OF YOUR PROPERTY

In terms of transmission, the family SCI is advantageous in more than one way.

Family donations

Let us first recall that in the case of parent-child donations, the donor is exempt from inheritance tax up to a limit of €100,000 per parent and per child, every 15 years. This limit falls to €31,865 for grandparent-grandchild donations.

By involving their children in the family SCI and making successive donations (3 in 30 years for example), the parents gradually transfer the shares while taking advantage of the reduction provided for by law, i.e. without paying tax.

Dismemberment of property

With a view to their succession, parents have an interest in dismembering the real estate assets of the SCI  in order to transfer only the bare ownership to their children, while remaining usufructuaries.

In accordance with the statutes of the SCI, they can remain sole managers of the assets thus transferred, which prevents their children from doing anything with them during their lifetime without their consent.

The bare ownership will become full ownership upon the death of the usufructuaries, without having to pay transfer taxes, which can represent up to 45% of the value of the property in the case of a normally inherited property.

The best thing is to combine successive donations and dismemberment of property. This represents a fiscally unbeatable solution for passing on your real estate assets at a lower cost to your heirs. 

Next to

Finally, since the shares of a family SCI are considered assets that are difficult to sell given that the partners must belong to the same family, after calculating their value, a discount of 10 to 15% is applied. This means that the sum of the shares is less than the real value of the property. In other words, the €100,000 exempt from transfer tax that I pass on to my child can thus be worth €115,000…

INCREASE YOUR BORROWING CAPACITY TO ACQUIRE REAL ESTATE

As mentioned above, one of the advantages of the family SCI is that it allows people from the same family to pool their capital to make real estate investments. 

As a result, it constitutes a real lever for real estate acquisition. 

Borrowing through an SCI rather than individually increases borrowing capacity and makes it easier to obtain bank loans.

This is due to the indeterminate and non-joint liability inherent in the SCI. Indeed, if the SCI no longer repays the loan taken out in its name, the bank can turn against each of the partners and pay from their personal property, in proportion to the shares of the SCI available to them.

For this reason, to exaggerate, it considers the borrowing capacity of all the partners, prorated to their respective shares, and adds them together to determine the borrowing capacity of the SCI.

SIMPLIFY THE TRANSFER WHILE AVOIDING THE FORCED SALE OF THE PROPERTY

As we have seen, a family SCI makes it possible to avoid the forced sale of a property which can occur in the case of joint inheritance through the auction-partition procedure. A procedure which, in addition to removing the property from the family fold, is long and costly.

However, it is possible and even easier to sell a property in a civil property company. All that is needed is for the majority of partners, as defined in the statutes, to agree. In joint ownership, unanimity must be obtained, or legal proceedings must be taken…

Now, within the framework of a family SCI, if only one partner wishes to sell his shares, the others will be able to pre-empt them. They can only be sold to a third party, a member of the family, following an approval procedure.

A lesser known advantage in the event of a transfer consists of the possibility of circumventing the cities’ right of pre-emption. In fact, this cannot be exercised if more than half of the shares are sold at once. 

Let’s say that three brothers share the shares of a SCI (civil property company) in one third; if one of them buys out the shares of the other two, the municipality will not be able to pre-empt the pretty family home to build an ugly building in its place!

Now that we’ve covered the pros, it’s worth looking at the less pleasant aspects, for the sake of honesty.

WHAT ARE THE DISADVANTAGES OF A FAMILY SCI?

KEEP REGULAR ACCOUNTS

Like any business, an SCI must keep regular accounts. Doing it yourself can be tedious; delegating it to an accountant can be expensive.

UNABLE TO TAKE ADVANTAGE OF THE ZERO RATE PLAN

In the case of an investment subscribed through a family SCI, certain schemes reserved for individuals such as the zer-interest loan (PTZ) are not accessible, because the SCI is a legal entity.

Interest rates may be higher than if you borrow in your name. This reservation should not be taken literally either, knowing that the rates depend on many other parameters.

CONVENE GENERAL MEETINGS

The general meeting, which aims in particular to bring together the partners to approve the accounts, take important decisions, the sale of a property for example, or submit statutory modifications to a vote, must respect precise formalism. 

It is held at least once a year and goes through formalities such as summons and minutes which entail a certain administrative burden.

PROHIBITION ON CARRYING OUT COMMERCIAL ACTIVITY

Furnished rental (seasonal, Airbnb, etc.) being included in the spectrum of commercial activities, it is prohibited for an SCI, as a civil company. 

It is therefore impossible to benefit from the tax-advantaged LMP or LMNP regimes.

A FEW WORDS TO FINISH

Without going so far as to say that you know everything about SCIs, you are now able to say whether this structure is suitable for your project. 

Remember that while the formalities may seem daunting, it is possible to delegate all the technical tasks and get by for around €250.

A small sum compared to the benefits you can get from it, particularly in terms of management, conservation and transmission of family assets.

You don’t have any assets? You want to build some? The family SCI is an option, investing jointly with a loved one can allow you to access credit that you would not have been able to claim alone. 

Please note that many other solutions exist, which are the subject of specific training at LiveMentor, supported by the CPF, focusing on personal finances.

If you liked this topic and want to start your own business, LiveMentor has developed its training on personal finances , co-created with the great Yoan Lopez .

If, however, you would like to find out more about this subject, I advise you to take a look at the LiveMentor blog, you will find various articles on this topic such as:

  • 10 investment principles for an entrepreneur /independent
  • 22 passive income ideas to generate money alongside your activity
  • Investing on eToro : a good or bad idea?

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