A civil real estate company (SCI) is a legal structure that allows at least two people to jointly own and manage one or more real estate properties. Each partner receives shares proportional to their contribution to the capital, and a manager appointed in the bylaws ensures day-to-day management. This form of company is distinguished from simple co-ownership or joint ownership by an organized contractual framework, governed by freely drafted bylaws among the partners.
Furnished rental in SCI: the tax trap that partners discover too late
Most guides on SCI mention its tax flexibility without mentioning a point that radically changes the game for rental projects. When an SCI engages in furnished or equipped rentals, it is automatically subject to corporate tax (IS). This change in regime is not trivial.
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Under the classic income tax (IR) regime, partners declare their share of rental income and benefit from the favorable regime for capital gains on real estate for individuals. The IS allows for accounting depreciation of the property, which reduces taxable income during the first few years. In return, the capital gain upon resale is calculated on the net accounting value, thus after deducting all these depreciations, which significantly increases the exit taxation.
To understand why creating an SCI remains relevant despite this constraint, it is essential to distinguish the project from the outset: unfurnished long-term rental or seasonal furnished rental. The choice of rental type determines the applicable tax regime, and therefore the entire wealth strategy.
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SCI and joint ownership: two opposing wealth strategies
Joint ownership is the default regime when several people inherit a property or purchase it together. Each co-owner can request a division at any time, which can force the sale of the property against the wishes of others. This structural fragility explains the often-cited adage by notaries: no one is obliged to remain in joint ownership.
The SCI replaces this precariousness with a stable contractual framework. The bylaws define the rules for transferring shares, the majority conditions for important decisions, and the lifespan of the company. A dissatisfied partner cannot demand the sale of the property: they can transfer their shares, but according to the terms set out in the bylaws, often with the approval of the other partners.
What the bylaws can lock in
- The approval clause requires that any transfer of shares be approved by the remaining partners, preventing the entry of an unwanted third party into the company
- The distribution of powers between the manager and the general assembly can be calibrated according to the profile of the partners (family, investors, couple)
- The terms for valuing shares in the event of a partner’s departure can be established in advance, avoiding conflicts of expertise
This statutory freedom comes at a cost: drafting the bylaws requires thorough reflection, ideally accompanied by a notary or lawyer. Poorly drafted bylaws create as many problems as the joint ownership they were supposed to avoid.
Real estate wealth transfer via SCI: the share donation mechanism
Transferring a property directly involves going before a notary for each donation, with fees proportional to the value of the property. The SCI allows for a gradual approach. Parents can donate shares to their children in successive tranches, using tax allowances that can be renewed every fifteen years.
The value of the shares includes the company’s liabilities. If the SCI has a bank loan, the net value of the shares decreases accordingly, which reduces the taxable base of the donation. This mechanism, sometimes referred to as “inheritance leverage effect,” works as long as the loan is ongoing. The earlier the donation occurs in the loan repayment process, the greater the tax advantage.
Severance of shares and maintaining control
Severance is a common technique in family SCI. Parents retain the usufruct of the shares (right to income, right to vote on current decisions) and transfer the bare ownership to the children. Upon the death of the usufructuary, the children regain full ownership without additional inheritance taxes on this reconstitution.
This arrangement assumes that the bylaws precisely organize the distribution of voting rights between the usufructuary and the bare owner. The Civil Code sets a default framework, but the bylaws can modify it. Without this precision, blockages can occur during general assemblies.
Transfers of SCI shares: an evolving framework
The Higher Council of Notaries has emphasized that the rules applicable to the transfer of shares in real estate-dominant companies are evolving to better secure operations and the associated taxation. This trend towards a strengthened framework for share transfers has a direct impact on strategies based on the sale of shares rather than the sale of the property itself.
Historically, selling shares instead of the property allowed for reduced registration fees. Successive reforms aim to align the tax treatment of the two operations. For partners considering a partial or total exit, the cost and timelines of the share transfer should be assessed in advance with a professional, even before the creation of the company.
Liability of SCI partners: limited protection
Partners in an SCI are indefinitely liable for the company’s debts, but proportionally to their capital contribution. If the company cannot honor a loan, a creditor can pursue the partners for their personal assets after unsuccessfully pursuing the company.
This indefinite and non-joint liability distinguishes the SCI from limited liability commercial companies. It constitutes the main legal risk of the structure. A partner holding half of the shares may be required to repay half of the company’s unpaid debt, beyond their initial contribution.
Creating an SCI remains a powerful wealth management tool for organizing the ownership, management, and transfer of real estate assets among multiple individuals. However, its relevance entirely depends on the quality of the bylaws, the initial tax choice, and the anticipation of exit scenarios. A poorly calibrated setup turns a tax advantage into a lasting constraint.