Real Estate Civil Society is the most fashionable social form.
It is the most widely used, after the LLC, and represents 30% of the total number of companies, or more than one million.
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They are often used in a family setting as legal support for real estate.
If necessary, it is possible to create as many real estate companies as you have buildings or types of buildings.
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Basically, the company is dematerialization of the building, now represented by shares.
Plan de l'article
- What is an SCI?
- Why Create a Real Estate Civil Society ?
- How to establish an IBS?
- What about taxation?
- A tool for the protection and transmission of heritage
- Are there different types of IBS?
- What are the pros and cons?
What is an SCI?
First of all, it is a group of private persons who unite in order to pool one or more real estate in order to manage them for profit.
The purpose of such a legal form is then lucrative.
It is then a partnership, which has legal personality from from the time it has compliant and regularly registered statutes.
This means that it acts in its own name and in accordance with its social purpose.
The object of society is civil .
She cannot have a commercial activity.
On the other hand, if the bare tenancy is considered a civil activity, the furnished rental is considered a commercial activity.
This does not prevent an IBS from leasing furnished property, but it will have an impact on its tax system.
Nor can the company buy goods for the purpose of reselling them quickly, real estate speculation is akin to a commercial activity of merchants of goods, not compatible with such a structure.
However, it has the capacity to sell the buildings it holds, as long as such a transaction remains exceptional.
Why Create a Real Estate Civil Society ?
Creating a Real Estate Civil Society has interests in several respects: property management, taxation and the transfer of assets.
Incidentally, it may happen that several family members unintentionally find themselves owners of one or more buildings.
The latter are then undivided .
This can happen, for example, in the event of acquisition by a couple under the separation of property, or in the event of divorce, or in the event of death.
In such a particular situation, the rules of indivision must apply.
The different owners must manage the building (s) together, and agree on all common decisions.
This can raise difficulties, since any person can decide to get out of the indivision .
Such output often results in the sale of goods undivided real estate .
Conversely, if the sale is not decided, a situation of blocking decisions may arise and impede the management of the property.
To prevent this annoying situation, it is advisable to establish an IBS with family members who own the same buildings.
The interest is to define a functioning that is peculiar to the company and to adapt rules adapted to its own needs: powers of the manager, divestments of shares…
It is a conflict prevention.
Incorporating the company makes it almost impossible to sell the buildings since each of the partners will only be able to claim the rights in respect of the shares they hold.
The creation of such a structure is of interest in relation to the transfer of assets, particularly in the case of donations to children of real estate.
In general, the donor of a property also transmits its management, which is not necessarily adapted to donations for minors .
On the other hand, if a taxpayer gives shares of SCI to their child, it allows the donor to retain the management of the property while transferring ownership.
Fiscally, and apart from the taxation of profits, SCI makes it possible to optimize the transmission of wealth.
The formation of such a company allows the transfer of its shares to be spread over time, benefiting from the renewal every 15 years of the €100,000 allowance on donations per parent for each child.
How to establish an IBS?
The company contract is the cornerstone of the creation of an SCI: they are articles of association that express the consent of the partners to create such a legal structure.
The articles of association materialize the contract of company.
They must be drawn up in writing, which may be under private or notarial signature.
On the other hand, the intervention of the notary is compulsory when the statutes recognize the contribution of an immovable .
Partners, who must be at least two, must sign and initialize the articles to materialize their consent to the company contract.
After signing the statutes, the following formalities must be completed:
- Inserting in a legal ad log;
- Filing of the company’s registration file at the competent Centre des Formalalités des Entreprises (CFE);
- Since August 2, 2017, it is necessary to file a document relating to the beneficial owners of the company;
- Filing a declaration of existence with the CFE.
A review of the application will be carried out by the Registrar to ensure that regularity.
It registries on a clear working day.
Registration gives the company the company the unique identity number of the company, i.e. SIREN, and gives it legal personality.
A more or less long time interval separates the moment when the founders had the idea of forming an IBS, and the date on which the formalities required for this company to operate were completed.
The costs of creating the company are relatively low .
Like any company, it is the company contract that provides for the rules of operation, that is, the articles of association.
But they can’t foresee everything.
It is necessary to first understand the rules of operation with regard to management and then with regard to the partners.
There may be one or several managers.
When drafting the articles of association, the partners have great freedom to organize management as they wish, both in terms of the appointment of managers and their powers.
But this freedom is not complete, since the hereditary devolution of stewardship is, for example, impossible.
Managers may be associated or not, natural or legal persons, French or foreign.
Managers may be appointed by the articles of association or by a subsequent decision of the majority partners, unless the articles provide for other voting rules (e.g. unanimity).
Managers are deemed to be appointed for the duration of the company, but the Civil Code provides rules for revocation:
- They are revocable to a majority of the partners, unless otherwise stipulated in the articles of association;
- They are entitled to damages if revoked without a pattern;
- The dismissal of a manager does not result in the dissolution of the company, unless otherwise stipulated in the articles of association;
- Managers may be revocable in court for legitimate cause at the request of any partner.
The functions of managers can be free of charge or remunerated.
With respect to the partners, they have the power to perform all management acts required by the interest of the SCI and which fall within its corporate object, subject to the limiting clauses of powers which may be inserted in the articles of association.
These clauses may, for example, provide for the transfer of an immovable: is it an act of management under the authority of management or does it imply the consent of the partners?
The articles must provide for such assumptions.
With respect to third parties, the managers only engage the company by acts falling within the corporate object, hence the importance of to delineate the latter well.
Otherwise, they incur their personal responsibility.
About the associates
The members of an SCI pay social debts indefinitely in proportion to their share capital holding percentage on the debt due date.
The debt obligation is joint : the creditor must act against each of the partners and claim from everyone only his share in the debt.
On the other hand, the obligation to debts is subsidiary , which means that the creditor must sue the legal person beforehand.
He will only be able to turn back to the partners if he does not obtain satisfaction after formal notice, legal action and seizure proceedings.
Associates can divest their shares.
On the other hand, the articles may provide for the consent of the partners if an accreditation clause is contained in the statutes.
The death of a partner leads to the transfer to the heirs of the shares of the company.
Associates have a right to information : once a year, they have the right to obtain communication of books and social documents and to ask questions to the management who must answer them.
They read the management report.
Partners also have the right to vote : each partner has only one vote, but the articles of association may provide for giving one vote per social share.
Decisions shall be adopted unanimously unless otherwise provided in the statutes.
Decisions are made by general meeting or written consultation, or signed by all partners.
Partners are entitled to the profits of the SCI in proportion to their shares.
If the IBS is at the IS, they will be entitled to dividends if they decide to pay them and if it is in the IR, all profits will be taxed in the hands of the partners for property income.
What about taxation?
Creating an SCI allows you to manage your tax.
It is possible to choose between tax transparency (taxation on income tax) or tax opacity (taxation on corporate tax).
If the SCI chooses to tax on income tax (IR) , profits will be taxed in the hands of the partners in proportion to the shares held in the capital of the corporation.
In addition, social levies of 15.5% (17.2% from 1 January 2018) are added.
If the partners are not heavily taxed, this election may be sensible since the SCI will benefit from the real estate gains regime that applies to individuals in the event of a subsequent transfer .
If SCI opts for corporation tax (IS) , this will result in taxing the corporation itself, without taxing the partners directly.
It will be able to deduct the depreciation of certain fixed assets, that is, the wear value that a property loses over time.
It can be taxed at a reduced rate of 15% on the first €38.120, then 33.33% above, if considered an SME.
As a reminder, the SI rate will gradually decrease until it reaches the rate of 25% in 2020.
This solution is beneficial to taxpayers with significant wealth
This allows them to erase a large part of their rental income (and therefore will not be taxed as property income).
On the other hand, in the event of a sale, the capital gain is determined on the basis of the purchase price, minus depreciation, and without allowance for the duration of detention.
It is then taxed as a profit to the IS (professional surplus value).
It is possible to switch from IR to IS during social life.
On the other hand, the reverse is not possible: the IS option is irrevocable .
Moreover, whether you choose to impose the SCI on the IR or the IS, holding your property through an SCI reduces the taxable base at the SFI (or the IFI as of January 1, 2018): the Tax Authority tolerates a discount on the value of the shares of SCI in relation to real estate held online, ranging between 10% and 30% due to the lack of liquidity.
A tool for the protection and transmission of heritage
Creating such a society would make it possible to organize during its lifetime the transmission of real estate.
The interest would be for parents to pass on a good real estate to their children while retaining the management of the property.
Indeed, as said earlier, the parents appointed managers then retain control of the property.
Nevertheless, combining a donation with a dismemberment of SCI’s shares can prove advantageous.
Parents can create an IBS to which they bring a building.
They then give the bare ownership of the shares to their children but retain their usufruct.
This is intended to optimize the amount of transfer duties calculated according to the age of the usufructuary (Article 669 of the CGI).
Parents, as usufrucaries, collect the income from the rental or dispose of the property if it is not rented.
Children, as nus-owners, will receive full ownership of the property without any inheritance rights from their parents since they have already paid the transfer duties during the donation.
Finally, compared to the direct donation of an immovable property, the donation of shares has several tax advantages:
- The assets of the SCI can be transferred more easily through successive donations of shares. This can possibly allow you to benefit from several allowances for donations to children: €100,000 per parent and per child every 15 years.
- In principle, the value of the shares transmitted is a discount in relation to the real value of the property when the donation rights are calculated. This discount is justified because the shares are more difficult to sell than a building.
- Finally, the value of the units corresponds to the value of the real asset minus its liabilities (ex: borrowings), that is, a net asset. The value of a share is equal to that net asset divided by the number of shares. In direct donation of immovable property, no liabilities decrease the value of the building.
Are there different types of IBS?
Creating such a legal structure requires careful reflection, especially since several types of Real Estate Civil Society exist.
First of all, the question is whether one wishes to create a company with fixed or variable capital, and then choose the type of company you want to create.
Fixed Capital SCI
This is the most common form.
The amount of its capital is decided upon its inception and is entered in the company contract.
If a capital change is envisaged, the partners must meet at a general meeting to amend the articles of association, publish a legal announcement, and send them to the appropriate Registry or CFE.
Variable Capital SCI
It offers some advantages thanks to its great flexibility.
Indeed, this structure allows you to change the distribution of capital without having to change the statutes.
The latter include a minimum and maximum amount.
The specified capital is distributed among the partners.
In addition, the anonymity of associates can be retained in this type of company.
What kind of company?
The rental SCI
Its purpose is to acquire and manage one or more buildings.
This is the most common form of SCI.
Management is facilitated through such a structure.
Problems of possible indivision are avoided.
It aims to manage and transfer one or more buildings within the family circle.
Family SCI is particularly used by individuals who wish to manage real estate assets while ensuring that taxation is optimized at the time of transmission to heirs.
They are sometimes referred to as “multi-ownership companies” or “multi-ownership”.
They give their partners a period of occupation according to their contributions to the share capital.
This type of company is used, in practice, to manage second homes.
Moreover, this societal form reveals a significant risk of litigation between partners (e.g. all partners wish to visit the residence during the summer).
The SCI Attribution
It aims to build or acquire a real estate complex in order to divide the company between several partners.
The company is dissolved at the time of sharing.
The SCI build-sale
These are the favorite instruments of real estate developers.
They aim to construct buildings in of their resale.
On the other hand, if these transactions are repeated, this type of activity can quickly be considered commercial.
What are the pros and cons?
Designing such a structure does not allow to avoid all taxes.
This is not a miracle solution.
On the other hand, in some cases, it has significant legal and tax advantages.
Our advisors are at your disposal to advise you on the opportunity to create an SCI and, if so, to help you shape this structure to your own needs.