SCI with a single partner

Setting up a société civile immobilière (SCI) with a single partner seems, at first sight, paradoxical. How can a "company" be created without several partners? Yet the single-partner SCI is a perfectly lawful legal solution and is often advantageous for structuring a property portfolio or optimising a transfer of assets. This particular form of organisation nevertheless raises specific questions that should be understood before starting.

Principle and lawfulness of the single-partner SCI

Legal basis of the single partner

Contrary to popular belief, French law fully allows the formation or continuation of an SCI with a single partner. This situation may arise in two distinct ways: either from the creation of the SCI, when one person forms the company alone, or later, when the company shares come to be concentrated in the hands of a single holder.

The law does not impose a requirement for several partners in civil companies, unlike certain commercial forms. The single partner then holds all of the company shares and alone exercises the prerogatives vested in the partners.

Differences from a conventional company

The single-partner SCI retains its legal personality, separate from that of its single partner. This legal separation is one of the main benefits of the structure: the company's assets remain distinct from the partner's personal assets, provided certain conditions are met.

The single partner combines the functions of partner and manager, unless a third-party manager is appointed. The single partner alone takes all decisions that would normally fall to the general meeting of partners and may amend the SCI articles of association in the required form.

Advantages of the single-partner SCI

Protection of personal assets

One of the main strengths of the single-partner SCI lies in the separation of assets that it allows. Property held by the SCI is, in principle, protected from the personal creditors of the single partner, and vice versa.

This protection is particularly useful for sole traders or members of the liberal professions wishing to shield their property from the risks associated with their professional activity.

Tax optimisation and succession

The SCI offers appreciable flexibility in organising the transfer of real estate. The single partner may gradually sell or give away their company shares, thereby benefiting from the tax advantages attached to business transfers. The property, tax and succession reasons for setting up an SCI are presented in our article on the reasons to set up an SCI.

The valuation of the shares may also be lower than the market value of the underlying property, allowing a transfer at lower tax cost, provided the legal valuation conditions are respected.

Management flexibility

The structure allows flexible management of the property portfolio. The single partner may decide alone on strategic direction, on works to be undertaken or on letting terms without having to consult other partners.

This decision-making responsiveness is a significant advantage in the day-to-day management of a property portfolio, particularly in a changing market.

Disadvantages and risks to consider

Liability of the single partner

Under Article 1857 of the French Civil Code, "as regards third parties, the partners are indefinitely liable for the company's debts in proportion to their share in the share capital on the date the debt falls due or on the date of cessation of payments". In a single-partner SCI, this liability therefore covers all of the company's debts.

This unlimited liability is a major risk that should be carefully assessed. If the SCI runs into financial difficulties, the single partner's personal assets are exposed for the full amount of the debts.

Administrative complexity

The SCI, even with a single partner, entails specific accounting and filing obligations. Keeping accounts, preparing annual accounts and complying with legal formalities generate costs and administrative burdens.

These obligations may prove disproportionate for small property portfolios, where holding in one's own name might be more appropriate.

Set-up and running costs

Setting up an SCI generates unavoidable costs: fees for drafting the articles of association, registration duties, publication of legal notices, registry fees. These initial costs must be weighed against the expected benefits.

Annual running also involves costs: accountancy, general meetings, possible amendments to the articles. These recurring charges may affect the profitability of the property investment.

The process of setting up a single-partner SCI

Drafting the articles of association

The articles of association of a single-partner SCI must be drafted with particular care, adapting the usual clauses to the situation of a single partner. Certain provisions relating to general meetings or collective decisions require specific adaptation.

The articles must state the corporate purpose, the registered office, the term, the share capital and its allocation, and the management arrangements. The single partner may appoint themselves manager or appoint a third party to that role.

Registration formalities

Like any civil company, the single-partner SCI must be registered in the trade and companies register. This formality involves filing a complete file including the signed articles of association, a form M0, the manager's declaration of no criminal conviction and proof of occupation of the registered office.

The notice of incorporation must be published in a legal notices newspaper in the département of the registered office. This publication starts the period during which any creditors may object.

Contributions and share capital

The single partner must make the contributions provided for in the articles, whether in cash or in kind. For contributions of real estate, the involvement of a notary is compulsory and gives rise to registration duties.

The share capital may be freely set, but it must correspond to the real value of the contributions made. Undervalued capital could be challenged by the tax authorities or by creditors.

Operation and day-to-day management

Decision-making

The single partner alone exercises the prerogatives vested in the general meeting of partners. The single partner may amend the articles, approve the annual accounts, decide on distributions of profits or authorise particular transactions.

These decisions must nevertheless comply with the forms laid down by the articles and by law. Certain important decisions must be recorded in minutes signed by the single partner.

Accounting and tax obligations

The SCI must keep proper accounts and prepare annual accounts. The tax regime depends on the option chosen: tax transparency with direct taxation of the partner, or an option for corporation tax.

Under the transparency regime, the single partner is taxed directly on the SCI's results according to their personal tax regime. This solution avoids double taxation but may generate a substantial tax burden where income is high.

Transformation or dissolution

The single partner may decide at any time to transform the legal structure or to dissolve the SCI. Transformation into a single-member commercial company (EURL or SASU) may be appropriate depending on how the assets or the objectives develop.

Under Article 1860 of the French Civil Code, certain circumstances may lead to early dissolution of the company, in particular in the event of "insolvency, personal bankruptcy, liquidation of assets or court-supervised settlement affecting one of the partners". In a single-partner SCI, such events affecting the single partner may therefore trigger dissolution.

Specific tax aspects

Choice of tax regime

The single-partner SCI benefits by default from the tax transparency regime. The single partner is then taxed directly on their share of the results, that is 100% in this case. This taxation follows their personal regime: income tax in the category of property income for rental income.

The option for corporation tax remains possible but must be carefully considered. This choice results in taxation at company level and then a second taxation on distributions to the single partner.

Transfer and capital gains

The sale of SCI shares benefits from a specific tax regime, generally more favourable than the direct sale of buildings. Allowances for length of holding apply on the sale of the shares, allowing a full exemption after 22 years of holding for income tax and 30 years for social contributions.

This tax optimisation is one of the main arguments in favour of the structure, particularly for long-term holdings.

Comparison with other structures

Conventional SCI versus single-partner SCI

The conventional SCI involves several partners sharing decisions according to the arrangements in the articles. This plurality may generate decision-making deadlock but also provides a spreading of risks and contributions.

The single-partner SCI concentrates decision-making power but also financial risk. The choice between these two structures depends on the investor's asset objectives and family situation. The operation of an SCI bringing together several members of the same family is illustrated by a worked example in our practical guide to the family SCI.

Legal alternatives

Holding in one's own name remains the simplest alternative for small property investments. It avoids the administrative and tax constraints of the civil company but does not allow succession planning.

The single-member EURL or SASU offers other possibilities, in particular limitation of the single partner's liability, but with heavier tax and accounting constraints. The definition of the SASU, its formation formalities and its comparison with the other legal forms are dealt with separately in our practical guide devoted to this form.

Practical advice and points of attention

Careful drafting of the articles of association

The SCI articles of association must be adapted to the situation of a single partner by providing for the specific operating arrangements. The clauses relating to general meetings, transfers of shares or extraordinary decisions require particular attention.

It is advisable to provide in the articles, from the outset, for the terms on which new partners may join, in order to facilitate any later opening up of the capital.

Compliance with legal formalities

Failure to comply with legal obligations may lead to the company's legal personality being called into question and to the personal liability of the single partner being engaged. Holding general meetings regularly, even if only formally, and preparing the annual accounts are essential.

Article 1859 of the French Civil Code states that "all actions against partners who are not liquidators or their heirs and successors are time-barred after five years from the publication of the dissolution of the company", underlining the importance of the dissolution formalities.

Anticipating changes in the asset position

The single-partner SCI should be conceived as a structure that can evolve. The arrival of new partners, the growth of the portfolio or changes in personal circumstances may call for adaptations to the articles or the structure.

Forward-looking thought about the desired development of the assets makes it possible to anticipate these adaptations and to optimise the initial structure.

The single-partner SCI is a relevant asset management tool in certain situations, offering management flexibility and tax optimisation while preserving a separation of assets. However, this structure requires an in-depth analysis of the asset objectives, the financial constraints and the acceptable risks. The complexity of the legal and tax issues strongly recommends the support of a legal professional to secure the setting up of the SCI and to optimise its operation according to the specifics of each situation.