Article created by legal experts. The editors did not participate in its production.
This approach facilitates the management and transfer of real estate from one generation to the next by allowing partners to plan succession by gradually transferring their shares to younger family members.
In addition, SCI-owned properties can generate rental income or long-term capital gains, thus contributing to the growth of family wealth. In addition, the SCI structure can offer advantages in terms of tax administration, allowing the family to better manage its real estate and plan and optimize its financial situation.
However, behind the obvious advantages of this structure, there are also certain risks and challenges that family SI members may face.
From family conflicts to unlimited partner liability, including the legal obligations that a family SCI must meet, we will explore the various aspects of these risks to help families make informed decisions when considering creating a ‘Management SCI’. real estate assets.
Family conflicts within family SCI
Despite the wealth management benefits, creating a family real estate company (SCI) can be a breeding ground for family conflict. These conflicts may arise because of differences of opinion about estate management, financial matters, inheritance issues, lack of communication, divorce or separation from family members, or because of perceived inequities in the distribution of responsibilities or benefits within the SCI. In order to avoid these tensions, it is essential to establish clear rules from the inception of the SCI in its statutes and to allow open and transparent communication within the family.
Insufficient or ineffective communication can make family members feel left out of important decisions, which can lead to misunderstandings and ultimately endanger society.
Unlimited liability of SCI family partners
In a real estate corporation (SCI), the partners are unlimitedly liable for the debts of the SCI. This means that if the SCI incurs debts, each partner is personally liable for the repayment of those debts without limitation in proportion to the shares they hold.
The financial responsibility of the partners is proportional to their capital shares in SCI. For example, if a partner owns 50% of SCI’s stock, they will be responsible for half of the company’s debts. If another partner owns 30%, they will be responsible for 30% of the debts and so on.
However, it is important to understand here that this personal liability of the partners can have serious financial consequences if the SCI gets into financial trouble. For example, if an SCI manager makes irresponsible financial decisions or mismanages the company’s finances, this can result in significant SCI debts. In this case, the partners will have to use their own personal assets to repay these debts, which may jeopardize their own financial situation.
Legal obligations of family SCI
A family SCI is required to comply with several legal obligations to ensure their compliance. First, they must convene an annual general meeting in accordance with Article 1856 of the Civil Code. During this meeting, the partners come together to discuss the management of the company, examine the annual financial statements and make important decisions. The convening of this meeting must be done in accordance with the SCI statutes with a notice period of at least 15 days and by sending a notice by registered letter with delivery to all partners.
As far as accounting is concerned, the family LVS is obliged to follow the general provisions of the Commercial Code, even if they are not explicitly stated in the legal regulations on LVS. That means they have to keep accurate records AND prepare annual financial statements counting on it balance sheet and income statement. This annual financial statement must be presented at the regular annual general meeting.
Failure to comply with these obligations can have serious consequences, including the classification of the SCI as a shell company by the tax authorities, resulting in sanctions such as reincorporation of real estate into the personal property of the partners, taxation of unrealized capital gains and registration rights, personal and joint liability of partners for debts family SCI and possibly liquidation of the company.
In addition, failure to submit annual financial statements may result in fines.
Clearly define the corporate purpose in the statutes of the family SCI when it is created
When members of one family decide to establish a family real estate company (SCI), they must draw up articles of association that define the rules and functioning of the SCI. However, it sometimes happens that members do not pay enough attention to the way in which they define the social object of the SCI, i.e. the activities that the company can perform.
A specific example would be the failure to specify in the articles of association whether SCI has the right to sell or lease real estate it owns and under what conditions. This omission can have harmful consequences as it can limit or even block the SCI’s ability to function normally, which can lead to conflict in the family. It is therefore recommended to draft articles of association that define the purpose of the company as broadly as possible, covering all aspects related to the acquisition, holding, leasing and sale of real estate.
It is also important to remember that the life of SCI is not limited to real estate management. At some point it may be necessary to take out a loan or open a bank account in the name of SCI. All these activities must also be specified in the articles of association.