Investing together: everything you need to know about the civil property company (SCI)

With property prices continuing to rise, it is not always straightforward to have the necessary funds or income for a property investment on one’s own. Likewise, building capital in property with family, for example, requires secure management in the event of disagreement or withdrawal by one of the members.

The civil property company was created with the idea of allowing a group (a minimum of two people) to invest together, simply and while maintaining flexibility to withdraw at any time. An ideal solution for building capital for retirement while sharing the risks associated with the investment.

A company dedicated to property investment

The civil property company (SCI) is a legal structure equivalent to a company, made up of shareholders, which pursues a property objective and not a commercial one. The assets acquired by the company are divided into shares, held by each shareholder in proportion to their contribution. There is no limit on the number of shareholders, and they share together the profits or losses made by the group, again in accordance with the shareholding proportion held.

The day-to-day management of the property or properties acquired is handled by a manager appointed by all the shareholders, without needing to consult them. The profits generated are taxable under income tax, with each shareholder required to declare their share in their rental income.

The SCI differs from co-ownership

Acquiring property through co-ownership is common: each co-owner contributes a financial amount which gives them a share of the property, in a similar way to how the SCI works. Co-ownership automatically applies in certain cases such as inheritance, for example.

The fundamental difference with the SCI concerns rights to the property: the rights of co-owners extend over the entire property, whereas the SCI shareholder only has rights to their own shares. A co-owner can thus completely block the sale of the property, unlike the SCI shareholder who can only retain their shares: they cannot oppose the sale of the property from the moment the shareholders holding the majority of the shares wish to sell.

The same applies to routine decisions, which require the agreement of each co-owner in co-ownership but which, in an SCI, can be taken by the sole manager if the articles of association grant them the authority in the relevant area.

Certain advantages for the investor

**The possibility of transferring shares **

As well as ease of management through the appointment of a manager whose powers are defined - and limited - by the articles of association, the SCI allows any shareholder to sell their shares whenever they wish, with the agreement of the other shareholders or the sole manager according to the rules set out in the articles of association: this is the approval procedure.

The transfer can be made to another shareholder or to a third party. In the absence of agreement, the other shareholders are compelled to buy back the shares: the shareholder cannot be retained against their will. They can also exercise their right of withdrawal and recover their initial capital, with the released shares then being distributed among the remaining shareholders.

Please note that in the event of a shareholder’s death, their shares will be passed on to their heirs, freely or with an approval procedure if provided for in the articles of association.

**Progressive exemption from capital gains tax **

In terms of tax advantages, the SCI allows for a reduction in capital gains tax, progressively according to the number of years of membership in the SCI. The advantage starts after 6 years, with a reduction of 6% of the applicable tax. After 22 years, the exemption is total! After 30 years, an exemption from social contributions on capital gains also applies.

Please note that it is the number of years of membership in the SCI that generates this advantage, and not the number of years of ownership of a property. Thus, a shareholder who has been a member for more than 22 years who decides to sell their shares will be exempt from capital gains tax even if the SCI has just acquired one or more properties!

**Easily transferring property to your children **

Finally, the SCI allows for successive donations of shares to heirs, which will open the right to successive allowances and a reduction in donation duties. The allowance on inheritance duties is only possible every 15 years.

Beware of the limitations of the SCI!

**Somewhat tedious creation **

The SCI is primarily a company: it is subject to the same rules as any other company, starting with the need to draw up articles of association, a task that can prove complicated for beginners. Their importance is however crucial: they will determine the rules for living within the company, such as the decision-making procedures by majority or unanimity, as well as those governing the exit from the SCI.

**Significant initial cost **

The drafting of the articles of association should be entrusted to a professional, able to include all the protections desired by the shareholders and to provide advice preventing possible future problems. Their intervention will have a variable cost, which can quickly reach several thousand euros. Also, the costs for publishing a legal notice will be between €170 and €300.

**Constraining operation **

Like other companies (excluding micro-enterprises), the SCI requires the holding of an annual general meeting of shareholders, with the obligation to draft minutes. Regarding management, the tax status of the SCI will determine the level of accounting that needs to be maintained.

**Unlimited liability **

The shareholders of an SCI are personally responsible for any losses, with no clause able to limit the risk involved. Consequently, it is essential to limit the decision-making power of the designated manager, on pain of unjustly paying for their management errors.

**How to create your SCI? **

Finally, if the above limitations have not put you off, you are ready to begin the concrete steps to create your SCI. You will therefore first need to put together your crack team of investors, two or more people, linked by a family relationship or completely unrelated. A minor can become a shareholder: freely if they are emancipated, with authorisation from their legal representatives otherwise. A minor is responsible in the same way as an adult for any losses.

The steps to follow will therefore be:

• draw up the articles of association of the company, by private deed or notarial deed, then sign them and register them at the tax centre;

• deposit the share capital;
• publish a legal notice;
• put together a registration file;
• file the registration application with the registry of the commercial court to which the registered office of the SCI belongs using a Cerfa form;
• obtain the K-bis.

Make sure you adapt the articles of association to your own situation: customisation is essential even if general overarching rules most often apply. The appointed manager must also be capable of sound and precise management of the company, and in particular ensure the preparation of accounting. This will subsequently be used to have the accounts approved by the shareholders and will serve to establish each person’s taxation: beware of errors!

The SCI is often used by members of the same family, to facilitate the management of a property or to prepare for inheritance. It is also gaining ground among groups of investors, for its power which allows investments to be multiplied and their property portfolio to grow more quickly, while limiting the risk involved. The key to the success of this company is probably the intelligent drafting of the articles of association: if they are relevant, it is possible to invest with complete peace of mind to become the owner of your own property empire. Why not yours?