SCI lawyer Paris: articles of association, partners, share transfers and property disputes.

The property holding company (SCI) allows several people to hold real estate together while avoiding co-ownership in undivided shares (indivision), which often paralyses management. The SCI has legal personality, signs leases in its own name, collects the rent and pays the charges. The partners hold shares in the company, not fractions of the building. This structure eases succession planning, allows new partners to join through share transfers and permits tax optimisation through split ownership (bare ownership and usufruct). It also protects the partners' personal assets: liability for the company's debts is proportionate to each partner's share of the capital and subsidiary (Articles 1857 and 1858 of the Civil Code), but not capped at the amount of their contribution. In most estate-planning cases, the family SCI is the standard tool for managing a building between spouses, parents and children, or brothers and sisters.

The standard templates of articles of association available online do not cover the variety of estate-planning situations. They often omit essential clauses: approval procedure, limits on the manager's powers, management of split ownership, a partner's exit. Standard articles of association end up aggravating most disputes between partners. A poorly formed SCI weakens the whole chain of wealth, from the rent collected to succession. The firm drafts articles of association adapted to each situation: SCI between spouses, SCI between parents and children, rental investment SCI, single-partner investment SCI, SCI set up to acquire a single building, SCI subject to corporate tax for tax optimisation. Each draft takes account of the succession strategy, the relationships between partners and any plans to sell.

Article 1845 of the Civil Code allows an outside manager who is not a partner to be appointed. In practice this remains rare: in 90% of family SCIs the manager is a partner, often one of the parents in a parent-child SCI. An outside manager can be considered where the partners disagree, where a professional is to be put in charge of management (property manager, chartered accountant, ad hoc representative) or to defuse a family conflict. An outside manager's mandate must be carefully framed: term, remuneration, extent of powers, procedure for removal. The articles of association set out these rules. An outside manager's civil liability is the same as that of a manager who is a partner, under Article 1850 of the Civil Code.

Article 1861 of the Civil Code requires, unless the articles of association provide otherwise, the unanimous approval of the partners for a transfer of shares to a third party outside the company. The articles of association may provide for approval by a majority, exempt transfers between partners from approval, or allow transfers between spouses, ascendants and descendants freely. The procedure follows a strict sequence: notification of the planned transfer to the company and to each partner, and the partners' decision. If no offer to purchase is made to the transferor within six months of the last notification, approval is deemed given, unless the other partners decide, within the same period, on the early dissolution of the company (Article 1863 of the Civil Code). If approval is refused, the partners may acquire the shares; failing that, the company may have them acquired by a designated third party or buy them back with a view to cancelling them, under Article 1862 of the Civil Code. The Court of Cassation, commercial chamber, 16 May 2018, No. 16-16.498, published in the Bulletin, held, in respect of a general partnership, that lack of approval does not make the transfer void but renders it unenforceable against the company and the partners.

Article 1851 of the Civil Code provides for two routes of removal. The first, by collective decision of the partners, follows the majority set by the articles of association. The second, by the courts for legitimate cause, is open to any partner. The Court of Cassation, third civil chamber, 12 March 2014, No. 13-14.374, published in the Bulletin, held that legitimate cause is not the same as intentional misconduct of particular seriousness. It is understood more broadly and covers mismanagement, conflicts of interest, systematic refusal to disclose the accounts, and leases undervalued for the benefit of the manager or the manager's relatives. The case is heard by the judicial court for the SCI's registered office. Removal has two effects: the end of the mandate and, where applicable, damages if the removal is made without just cause. The firm brings and defends these actions in Paris.

Abuse of majority arises where a decision of a meeting is taken contrary to the company's general interest and solely to favour the majority partners at the expense of the minority. Classic examples are systematic transfers of profits to reserves, the granting of undervalued leases to the majority manager, excessive remuneration of the manager, and a capital increase that dilutes the minority partner. The Court of Cassation, commercial chamber, 17 June 2008, No. 06-15.045, published in the Bulletin, upheld the annulment of resolutions of an SCI that had systematically allocated profits to reserves, finding that these decisions did not serve either the purpose or the interests of the company (our translation). The penalty is retroactive annulment of the resolution, together with damages. The Court of Cassation, commercial chamber, 30 September 2020, No. 18-22.076, published in the Bulletin, also accepted the civil liability of majority partners in the case of fraud diluting the minority partner's holding in the capital.

Succession planning through an SCI rests on three complementary levers. The first is the gift of shares in full ownership, within the tax allowances (€100,000 per parent and per child every fifteen years). The second is split ownership: the parents keep the usufruct and the children receive the bare ownership. Transfer taxes are calculated on the value of the bare ownership under the scale in Article 669 of the General Tax Code. On the death of the usufructuary, full ownership is reconstituted in the hands of the bare owner without tax. The third lever is the gift-partition of shares (donation-partage), which fixes the value of the shares at the date of the gift and rules out later collation. The firm calibrates the most effective combination according to the client's assets, age and family make-up, in coordination with the client's notary (notaire). In most cases, passing on property through an SCI is more advantageous for tax purposes than passing on the building directly.

A property SCI is, by default, subject to income tax: each partner is taxed on their share of the profit, as property income (revenus fonciers) for unfurnished letting. The SCI may opt for corporate tax, which allows the building to be depreciated, but crystallises a business capital gain taxed at 25% on the sale of the building or on the liquidation surplus. For a family SCI whose aim is to pass on assets, the corporate tax option significantly reduces the net return. For a rental investment SCI with heavy depreciation leverage, corporate tax may be worthwhile in the short and medium term. The option for corporate tax is in principle irrevocable, except for withdrawal within the first five years. The decision commits the tax position of the SCI and of its partners over the long term. In estate-planning matters, the firm recommends staying under income tax unless a quantified simulation justifies corporate tax. Prior consultation with a tax lawyer or a chartered accountant is essential before opting.

Split ownership of shares is one of the most effective estate-planning tools. The parents give the bare ownership of the shares to their children while keeping the usufruct. Gift duties are calculated on the value of the bare ownership under the scale in Article 669 of the General Tax Code: at age 60, the usufruct is worth 50% and the bare ownership 50%. On the death of the usufructuary, full ownership is reconstituted in the hands of the bare owner without further tax. The division of powers between usufructuary and bare owner within the SCI must be set out in the articles of association: who votes on the allocation of profit? On the sale of the building? On an amendment to the articles? Defective drafting creates long-term disputes between bare owner and usufructuary. The firm systematically drafts a complete split-ownership clause when the SCI is created or when shares are given. Rigorous succession planning makes it possible, in most cases, to pass on substantial real estate with controlled taxation.

Yes, provided it stays within the scope of unfurnished letting. An SCI subject to income tax can let its building under a residential lease, a commercial lease or a professional lease, with property income taxation for the partners. An SCI cannot, however, carry on furnished letting on a regular basis: that activity is commercial and makes the SCI subject to corporate tax, with the heavy tax consequences mentioned above. For furnished letting, practice recommends creating a family limited liability company (SARL) alongside the SCI, or occasional letting within the thresholds accepted by the tax authorities. The SCI must declare its property income each year on form 2072. Deductible charges include loan interest, maintenance works, property tax and management fees. The firm checks that the lease complies with legal requirements and that the transaction is consistent for tax purposes.

Disagreement between partners is one of the major risks of an SCI. Where a minority partner blocks decisions by systematically voting against, the situation can lead to the paralysis of the company. The articles of association may provide for deadlock mechanisms: a casting vote for the manager, a mediation procedure, or the majority's right to buy out the minority partner's shares. Failing that, Article 1869 of the Civil Code allows withdrawal for just cause: a partner can apply to the court to withdraw and obtain repayment of the value of their shares. The Court of Cassation, commercial chamber, 17 June 2008, No. 06-15.045, published in the Bulletin, recalled that a withdrawing partner loses partner status only after actual repayment of their corporate rights. Where the disagreement becomes insurmountable, a partner may seek judicial dissolution for just cause under Article 1844-7 of the Civil Code. The firm secures these contested exits.

Where two spouses are partners in an SCI under the statutory community regime, divorce opens a sensitive period. Shares held in the name of one spouse alone but financed by the community fall within the joint assets to be liquidated. The Court of Cassation, first civil chamber, 9 November 2011, No. 10-12.123, published in the Bulletin, laid down the principle that the wife could not transfer, without her husband's consent, the shares of such a company, which are not negotiable corporate rights (our translation). Any transfer of SCI shares by a spouse married under a community property regime therefore requires the spouse's consent, on pain of nullity. On divorce, the shares are valued at the date of dissolution of the community or at the date of the division, according to the rules set by Article 1469 of the Civil Code. The firm works with the family's lawyer to coordinate the liquidation of the community with the constraints of the SCI, in particular the approval of the other partners or the buy-out of shares by one of the spouses.

The judicial court has jurisdiction over disputes between SCI partners whatever the amount of the claim; where the claim is for an amount of 10,000 euros or less, however, the parties are exempt from having to appoint a lawyer, except in matters within the exclusive jurisdiction of the judicial court (Article 761(3) of the Code of Civil Procedure). Territorial jurisdiction is governed by Article 42 of the Code of Civil Procedure, which designates the court for the place where the defendant resides, that is, for an SCI as defendant, the place where it is established (Article 43 of the same Code). For an SCI whose registered office is in Paris, the Paris judicial court has jurisdiction. The actions concerned include nullity of a resolution, judicial removal of the manager, appointment of an interim administrator, expert valuation under Article 1843-4, withdrawal for just cause and judicial dissolution. The procedure is the ordinary one, with mandatory representation by a lawyer. Hearing times vary between chambers, but preparing a full file often allows a first-instance decision within 12 to 18 months. The firm, located at 11 rue Margueritte 75017 Paris, regularly pleads before the chambers competent for disputes between partners.

No. An SCI requires at least two partners under Article 1832 of the Civil Code. Where all the shares come together in one hand, the company is not dissolved automatically: any interested party may apply for its dissolution if the situation has not been regularised within one year (Article 1844-5 of the Civil Code). An SCI in which a majority partner holds 99% of the shares and a token partner 1% is common but legally risky. If the sole holder wishes to manage a real estate portfolio, other structures can be considered: a single-member limited liability company (EURL) or a real estate investment SARL, or a personal holding company. For a family SCI, having several partners is in practice desirable and natural: spouse, children, brothers. The firm systematically advises setting up a genuinely multi-partner SCI to avoid the risks of tax requalification or dissolution.

Setting up a property SCI generally takes two to six weeks. The steps are as follows: drafting the articles of association (5 to 10 days), gathering the constitutive documents (proof of identity, marriage certificate, proof of registered office), depositing the capital with the bank (3 to 5 days), publishing a legal notice in an authorised newspaper, lodging the application file with the registry of the commercial court (in practice the Paris RCS for a Paris SCI), and allocation of the SIREN number within the following 5 to 10 days. Once registered, the SCI can sign the preliminary sale agreement and the notarial deed of acquisition of the building. The firm centralises the whole process and coordinates with the notary to align the setting up of the SCI with the acquisition timetable. Careful drafting of the articles of association at the outset remains the main safeguard: a poorly drafted SCI weakens the whole chain of wealth, from the rent collected to succession.