All SCIs must have at least two partners to legally exist. The purpose of an SCI is to purchase and manage a portfolio of real estate for a number of partners. In certain circumstances, however, it is possible to depart from this rule and retain just one partner, known as the sole shareholder.
This practice does, however, entail considerable risks, and it's important to be aware of them.
Theoretically,the creation of an SCI necessarily implies the presence of at least two partners. In this context, the clerk's office of the commercial court does not authorize the creation of an SCI with a single partner.
However, there is a nuance: while it is forbidden to include the name of a single partner in the articles of association of an SCI, it is possible to distribute the capital unequally.
For example, it is possible to entrust 99.9% of the capital to one partner, and only 0.1% to another. In practice, this means that only one partner is the true owner of the company's shares.
An SCI with several associates can become a single-member non-trading company following a number of events:
- Death of a partner
- The transfer of shares from one partner to another
- Withdrawal of a partner
In this case, the sole shareholder has 12 months to regularize the company's situation by finding a new shareholder.
If this is not possible, a third party may apply to the Commercial Court for early dissolution of the SCI. The court will often grant the sole shareholder a further 6 months. If no request for dissolution is made, the company will continue to exist as normal, with a single partner.
Concentrating all the shares in a company in the hands of a single person presents a number of risks. As mentioned below, the first risk is that of having the company dissolved by a court decision.
In this case, the company must be wound up, and the sole shareholder will be entitled to all assets and liquidation surplus. It is possible to include an approval clause stipulating that the majority shareholder may refuse to sell his shares in the event of his partner's death, or if his spouse claims the role of partner.
There is also a financial risk. The assignor remains liable for any outstanding receivables.
The creditor can then turn against the sole shareholder and demand repayment of all debts.
Finally, if the property is not held by a family SCI, the rental contract must be for a minimum of 6 years.
You can circumvent all these risks by regularizing the situation of your SCI, by introducing a new partner.
Adjustments are generally made by transferring shares free of charge. Changes in the distribution of shares must be notified in writing and filed with the Registrar of the Commercial Court.
Becoming a partner in a non-trading property company (SCI) is not without risks, and you need to anticipate every possible reversal of fortune. Switching to the single-member SCI model must be anticipated to protect you from any potential risks.
Written by our expert Paul LASBARRERES-CANDAU
June 16, 2021
