Understanding the French SCI: how can you own and manage property together?

Three key points

• The SCI owns the property; its members own shares in the company.
• The articles organise management and decision-making without removing statutory rules or the risk of disagreement.
• Members’ liability is not limited to their contributions, and an SCI does not automatically produce tax savings.

A société civile immobilière, or SCI, is a French civil company formed by at least two members for a property project of a civil nature. It acquires its own legal personality on registration. A “family SCI” is an SCI bringing together family members; that description alone does not confer a preferential tax regime.

A practical example

Fictional example. A sister and brother buy premises intended for letting unfurnished, holding 60% and 40% of the capital. The brother will also lend money for works. The SCI can organise management and each member’s exit, but the rights attached to the shares must be distinguished from the claim for repayment of the loan.

1. What do you own as a member of an SCI?

The company owns the property. You own shares representing your participation in its capital, with rights to profits and decisions under the applicable rules. Owning 40% of the shares does not make you the personal owner of a particular room or 40% of each wall. This distinction explains why selling the property and transferring your shares are different transactions.

Under direct joint ownership, known in French law as indivision, several people hold rights in the same property directly. An SCI organises ownership through a company. The management needs and constraints of each solution should be compared.

Keep the company’s finances separate from those of its members and retain supporting records. An advance on a member’s current account, or compte courant d’associé, is money lent to the company by a member. It does not by itself change the capital or voting rights. Its repayment terms should be clear.

2. Who makes decisions, and which powers should the manager have?

One or more managers, known as gérants, run the company. The articles define their appointment, operating arrangements and transactions requiring members’ prior internal approval. Loans, major works, guarantees and property sales should be addressed in particular. Simply holding a majority of the capital does not confer every power.

The corporate purpose, or objet social, describes the SCI’s activities and plays a central role: in dealings with third parties, the manager binds the company through acts falling within that purpose. Restrictions in the articles on the manager’s internal powers cannot, in principle, be relied on against third parties. An approval required between members may therefore be insufficient protection externally.

Decisions exceeding the managers’ powers follow the articles; in the absence of provisions, they require all members’ agreement. Notice, quorum and majority rules should be adapted to avoid obstructing the company’s operation.

The manager must report on their management at least once a year in writing. Keeping track of rent, expenses, debts and members’ advances helps inform members and prepare tax returns. The required level of accounting organisation depends in particular on the tax regime and the company’s circumstances. An SCI should not be left without ongoing administration.

3. Which risks do members bear?

Members have unlimited liability for company debts in proportion to their share of the capital, assessed under the statutory rules. Their exposure is therefore not capped at the amount contributed. Creditors must, however, first have pursued the company unsuccessfully before proceeding against members on this basis.

This liability alone does not make members jointly and severally liable, allowing the whole debt to be claimed from one because others do not pay. A personal guarantee or another separate undertaking can, however, extend the obligations of the person signing it. The financing agreement should therefore be reviewed alongside the articles.

A low share capital does not eliminate these risks. The budget should allow for vacancies, works, expenses and taxes. If rent is insufficient, examine possible funding without confusing a cash-flow forecast with an obligation already undertaken by members.

4. How should you prepare an exit or a transfer to the next generation?

A share transfer changes the company’s membership without directly selling the property. It remains subject to rules. Approval, known as agrément, is in principle required from all members. The articles may adapt this rule within the permitted limits. Exceptions, including family-related ones, should be checked against both the law and the articles.

You should also anticipate how the price will be determined, how the buyer will fund it and what will happen to members’ current-account advances. Transferring shares does not automatically repay an advance or release a bank guarantee. A member’s withdrawal has its own conditions; it is not repayment on demand.

For a family transfer, giving shares gradually may allow the timetable and rights transferred to be adapted. However, an SCI creates no general exemption from French gift or inheritance tax. Assess the shares’ actual value, debts and retained rights. Anticipate a member’s death and the admission of heirs as well.

5. What should you check before forming an SCI?

Start by defining the intended use of the property: unfurnished letting, occupation by a member, business premises or another project. A property management SCI should not be chosen without analysis for a mainly commercial activity. Furnished letting raises particular tax issues and can make the company subject to French corporation tax.

In the usual case of an SCI letting unfurnished property under the French partnership tax regime, individual members are taxed on their share of the result even if the funds remain in the company. Electing for corporation tax changes how profits are taxed and the consequences of a sale or distribution. The assessment should cover the whole project, not just its first financial year.

The main steps to prepare are:

• define the objectives, members and terms of use of the property;
• establish financing that allows for expenses and contingencies;
• compare the tax consequences of ownership, income and exit;
• draft consistent articles covering management, decisions and changes in membership;
• complete the incorporation formalities, then organise annual administration.

Must you already own a property?

No. An SCI can be formed to acquire one. If you contribute an existing property, you transfer ownership. This requires tax analysis and a French notary’s involvement for the deed and land registration formalities. Any existing loan must also be examined.

Can you personally occupy the SCI’s property?

The articles, required decisions and terms of occupation must be checked. Making the property available free of charge may have tax and financial consequences to examine before choosing an SCI for a home.

Scope of this article

This article explains the principles of a property management SCI under French law. Construction-and-sale companies and specific arrangements are not covered in detail. Whether an SCI is useful and its tax consequences depend on the property, its use, financing and members’ circumstances. These guidelines do not replace individual advice.

Please contact the firm if you would like to discuss your circumstances further.