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Why forming a Real Estate Company (SCI) in France?

Home > French Real Estate | Published 2010-11-17

France possesses a specific institutional category called “Société Civile Immobiliere (SCI)” whose purpose is to manage real estate assets. The first constituent assembly meant to mount an SCI to transmit its legacy remains an extremely interesting topic as there are increasingly more voices that advocate for its institutional ascent.

Buying ones own SCI primary or secondary residence or forming an SCI residence out of a property one already owns has many unique advantages.

An individual’s inheritance management may be drastically simplified, mostly by avoiding applications of a system of ownership after death, divorce, or separation. Such an organization would still allow traders, industrialists, artisans, entrepreneurs and independent professionals to keep their personal assets separate from those of the business.

An SCI can protect entities on an individual level. This is the case when an SCI is formed between spouses. A provision in the articles of an SCI may allow the continuation of the SCI even after the death of one spouse. In the case of children from different marriages, the SCI system prevents the heirs of the deceased partner from asking the surviving partner to leave the property.

Thus, an SCI can ease the transfer of an inheritance and may better distribute the shares of an estate thereby simplifying the partition of a property; even if said property is seemingly indivisible and unorganized.

Critically, an SCI’s transmission of capital incites a tax optimization transaction for which the assistance of a lawyer is strongly advised.

Indeed the transfer of a property via SCI allows the value of the shares in question to take into account the companies liability deductions. This comes with the added benefit of administrative practice that allows a discounted value of transferred shares. This allowance arises from the fact that these shares are not traded in a market and are difficult to sell to individuals other than shareholders.

The decision to create such an association should not be taken lightly. Like any system, good or bad, it has several drawbacks.

On the one hand, during the formation of any company, a number of obligations related to corporate status must be respected, which inevitably incurs costs. In addition to the formalities of incorporation, such as writing articles or advertising which may be organized by counsel, the constitution of an organization often leads to managerial problems, such as bookkeeping, the organization of General Meetings ...

On the other hand, we should always remind those who would be interested in such an arrangement that, under any and all circumstances, the building belongs to the shareholders, while you are responsible for the formation of an SCI property. As a member of an SCI, it is possible to claim ownership of shares.

Consequently, the freedom of decision making regarding the building and the power to dispose of it are significantly reduced because the partners must agree in all relevant decisions. Consequently, it is important to note that a difference in opinion can block the functioning of the organization and hinder the interests of the whole.

Finally, despite the aforementioned tax benefits, the transfer of value of a share of SCI is possible since it is a taxable capital gain.

In any case, you will need the assistance of a global law firm in France and of French real estate attorneys.

This article is available online for public information purposes. It is updated regularly, as needed. Due to the constant evolution of the laws and the legal system, we cannot guarantee that the information in this article is still applicable. We invite you to contact us with any legal questions or concerns you have regarding this topic at +33 1 56 79 11 00. In no way can this firm be held liable for articles that contain inaccuracies or are now out of date.

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