Cash or Property: What to Put Into Your SCI

Cash or property: choosing what to put into your SCI

Every member of an SCI (société civile immobilière) must make a contribution, and the first structuring choice is what that contribution should be: cash, or a property the member already owns. The two routes are very different. A cash contribution is simple, carries no formality and no tax on the contribution itself; contributing a building is a genuine transfer of ownership into the company, with the obligations of a seller, the need for publicity, and a tax cost in registration duty, VAT or capital gains depending on the case. Getting this choice right at the outset shapes both the cost of forming the SCI and how the property sits inside it. This guide sets out the three kinds of contribution, what each involves, and the cost and creditor points that usually decide between cash and property.

The distinction matters because it is often misunderstood. Founders who assume that an SCI must "own" a property they already hold sometimes contribute it without appreciating that the contribution is taxed as a transfer, when buying the property through a cash-funded SCI, or leaving it outside the company, might have been cheaper. Others under-fund the company in cash and create problems later. The right answer depends on whether a property needs to move into the SCI at all, and if it does, on the tax and creditor consequences of moving it - which are exactly the points this article draws out.

Every member must contribute - the three kinds

A contribution is a condition of the company's existence. Each member is bound to make one, and owes the company everything they promised to contribute, whether in cash, in kind or in industry (C. civ. Arts. 1832, paragraph 1, and 1843-3). The contribution transfers to the company the ownership or the enjoyment of an asset, in return for which the member receives shares that are subject to the fortunes of the company. The contributions of the different members do not have to be equal or alike - their disproportion does not prevent a valid company contract (Cass. civ., 28 February 1973, no. 72-10430) - but each member must make one.

For a civil company all three kinds of contribution are lawful: cash (numéraire), assets in kind (nature), and industry (industrie), meaning a member's work or skill. In practice, contributions in industry are rare in an SCI, and they are not counted towards the share capital, so the realistic choice for funding an SCI is between cash and property. Whichever is chosen, the contribution must be real and not fraudulent: it must genuinely exist and present a certain advantage for the company, failing which it is fictitious and void, the courts assessing an in-kind contribution as at the day the company is formed (Cass. com., 18 June 1974, no. 73-10662).

Certain contributions are, in principle, open to annulment, and they are worth knowing before a property is put in. They include the contribution of an asset previously sold to a third party or of which the contributor is not the owner; a contribution under a condition whose fulfilment depends on the contributor's own will; the contribution of an asset burdened with liabilities greater than its real value; the contribution of an asset with no monetary value; and a contribution made in fraud of a person holding a preemption right over the asset, such as a local authority or a SAFER. Each of these is a reason to check the position of the asset carefully before contributing it rather than funding the SCI in cash.

Contributing cash: the simplest route

A cash contribution is the lightest way to fund an SCI. The articles freely fix the date on which the cash contributions are to be paid up, and as a rule there is no formality for paying the corresponding sums. The funds do not have to be paid into a bank account, and the payments can be made by any lawful means, subject to any clause in the articles imposing a particular method such as a cheque or a transfer. Unlike some commercial companies, an SCI needs no attestation of deposit of the funds to be formed - a real simplification for a foreign founder who does not yet have a French bank account for the company.

The payment can also be deferred. A progressive paying-up of all or part of the subscribed cash is permitted by most articles, which generally provide that the payments will be called by the manager according to the company's needs. In an SCI formed with a very high capital, the capital is often paid up progressively and in line with the instalments of a loan taken out by the company. This flexibility lets the members subscribe a meaningful capital without having to find all the money at once, calling it up as the property purchase and any borrowing require.

Deferral is not the same as never paying, and the obligation to pay up is enforced. A member who was to contribute a sum and has not done so becomes, automatically and without any demand, liable for interest on that sum from the day it should have been paid, without prejudice to further damages where appropriate (C. civ. Art. 1843-3). The articles often fix the rate of that interest; failing a clause, the legal rate applies. A founder subscribing cash should therefore treat the commitment as a real debt to the company, payable when called, not as an optional figure - and the paying-up obligation stays personal, so a member who transfers their shares can remain liable for sums the manager calls after the transfer unless the articles or the transfer deed provide otherwise.

Contributing a property: a genuine transfer with a seller's obligations

Contributing a property is a different matter altogether, because it moves ownership of the building out of the member and into the company. An in-kind contribution is made by the transfer of the corresponding rights and by the effective placing of the asset at the company's disposal (C. civ. Art. 1843-3, paragraph 2). The contributor must actually make the asset available and, importantly, must guarantee the contribution to the company as a seller guarantees a buyer (C. civ. Art. 1843-3, paragraph 3). That guarantee covers both the risk of eviction (C. civ. Art. 1625) and hidden defects in the asset contributed, so a member who contributes a building takes on the responsibilities of a seller towards the company.

In some respects the contributor of a property is indeed treated like a seller. The contribution is subject to publicity for it to be opposable to third parties, and the publication of the contribution of a building has retroactive effect, so that the contribution is opposable to third parties once the SCI is registered. A preemption right in favour of a public body may be exercised as it would be on a sale, and the contribution contract must define the conditions and guarantees offered by the contributor, who can be pursued for a false declaration or for undisclosed defects or easements. In other respects the contributor is not treated as a seller: they cannot claim certain protections given to a seller, such as the vendor's privilege, the right of retention, or the action to rescind for lésion of more than seven-twelfths - the position would be different only if, behind the appearance of a contribution, the parties had in reality sold the building to the company.

One practical simplification is worth noting. In an SCI there is no special procedure for verifying in-kind contributions, so a contribution auditor (commissaire aux apports) does not have to be appointed - a contrast with certain commercial companies. That does not remove the need to value the property honestly and to describe it accurately, both because a fictitious or overvalued contribution can be attacked and because third parties can still challenge an in-kind contribution made in fraud of their rights. The absence of a mandatory auditor is a convenience; it does not reduce the need to document the transfer fully.

Cash or property: what should you put into your SCI?

The right contribution depends on what you already own and what the SCI is for. Pick your situation - the check shows what to weigh.

The cost is what usually decides it

For most founders the choice between cash and property comes down to cost, and here the two routes diverge sharply. A cash contribution bears no transfer tax on the contribution itself: the members put money into the company, receive their shares, and the company then buys the property, with the notary's costs and the acquisition duty falling on that purchase like any other. Contributing an existing property, by contrast, is itself a transfer, and the transfer is taxed. Depending on the case, contributing a building can attract registration duty, VAT, or the taxation of a capital gain on the difference between the property's value and its acquisition cost - the same kinds of charge that would arise on a sale.

This is why the funding decision determines the tax cost of setting up the SCI. Where a couple or an investor is buying a new property, funding the SCI in cash and letting the company buy is usually both simpler and cheaper, because the only taxed transfer is the purchase itself. Where the aim is to move a property the founder already owns into the company, the contribution is unavoidable if the property is to belong to the SCI, but its cost must be understood in advance, because it can be significant and is sometimes greater than leaving the property in personal ownership or restructuring in another way. The detailed figures - the registration duty and VAT on a contribution, and the capital-gains treatment of contributing a building - are set out in our dedicated guides on transferring a property into an SCI and on what a contribution costs in tax; the point for the cash-or-property decision is simply that cash is free of contribution tax and property is not.

Contributing a property: what to check first

A property contribution carries obligations a cash contribution does not. Pick the point you want to check - the check shows what the law requires.

The creditor and co-ownership points to watch

Two situations call for particular care before a property is contributed. The first concerns the contributor's creditors. Contributing a property to a civil company can prejudice the creditors of the contributing member, because the operation compartmentalises the assets and makes it harder for creditors to reach their security: instead of the building, they are left with the shares that pay for the contribution, and those shares are difficult to seize and sell on a very closed market. A creditor whose claim predates the contribution can attack it by the action paulienne, which prescribes five years from the day the creditor knew or should have known of the fraudulent act (C. civ. Art. 2224). The action does not require an intention to harm - it can result from the debtor's mere knowledge of the prejudice caused by rendering themselves insolvent - though, because a contribution is an act for value, the complicity of the other members must be established, which can follow from their knowledge of the contributor's insolvency.

The courts have applied this in real cases. The contribution to a civil company of the building making up the essential part of the fortune of a person who had given a guarantee was treated as an impoverishment of the guarantor's estate and a fraud on the creditors' rights, and the same where taxpayers made such a contribution at the very moment they learned they would be the subject of a tax reassessment. Creditors, and the tax authorities in particular, can also act on the basis of a declaration of simulation, arguing that the transfer to the company was not real; the simulation claim, unlike the action paulienne, does not require proof of fraud. A member who has personal creditors, has given a guarantee, or faces a tax dispute should therefore weigh a property contribution carefully - and a cash contribution, which does not move an existing asset out of reach, avoids the issue.

The second situation concerns co-owned property. Where the property to be contributed is held in indivision, the rule depends on what is contributed. A co-owner may contribute their own undivided share alone, without the others. But contributing the whole undivided property requires the unanimous consent of all the co-owners, because Article 815-3 of the Civil Code, while allowing certain acts of administration by co-owners holding at least two-thirds of the undivided rights, still requires unanimity for an act of disposal such as this. The shares received in exchange can be attributed jointly to all the contributors or split so that each receives a number of shares matching their undivided rights, and where the shares are held jointly a representative must be appointed to exercise the rights attached to them. These rules frequently arise on post-inheritance restructurings, and they are covered in more depth in our guide to contributing co-owned or split-ownership property to an SCI.

Cash versus property contribution - at a glance

Frequently asked questions about contributing to an SCI

This article is for general information only and states French law as published in the sources available at the date shown above. It does not constitute legal or tax advice. The right contribution for an SCI depends on the members' assets, the company's purpose and the tax and creditor position. Always seek qualified legal advice before contributing to an SCI.