Increasing or reducing the capital of an SCI
The capital of an SCI (société civile immobilière) is not fixed once and for all. A family may need to raise it - to bring in new money for a purchase or works, to admit a new member, or to convert accumulated reserves into shares - or to reduce it, whether because the capital has become too large for the company's activity, to absorb losses, or to pay out a member who is leaving. Both operations are statute amendments, decided under the conditions the articles lay down for changing the statuts, and both carry their own mechanics, protections and formalities. Because the SCI has no minimum capital and offers real flexibility - no obligation to fully pay up the existing capital before increasing it, no compulsory auditor to value contributions in kind - the operations are lighter than in a commercial company, but they still have to be done correctly to be valid and effective. This guide sets out how a capital increase and a capital reduction are decided, the three ways to raise the capital, how existing members are protected against dilution, how contributions in kind and new members are handled, and the registration and tax treatment of each.
The subject matters because a capital change touches the members' commitments and their relative positions, and a mishandled one stores up disputes. An increase carried out by the wrong method can require the unanimous consent the members did not obtain; one that ignores the latent value in the company's property can dilute the members who do not subscribe; and a reduction that attributes property to a member can trigger transfer duties that a cash payout would have avoided. For an international family funding or restructuring a French SCI, understanding exactly how a capital operation works - and what it costs - is what keeps the change clean and the members' positions fair.
Why change the capital, and how it is decided
A capital operation follows the amendment rules. As regards increases and reductions of capital, the operation is decided or authorised under the conditions provided for statute amendments, and the members may, save a contrary clause in the articles, delegate to the gérants all powers to carry it out within a set period. So the majority required is the one the articles fix for amendments - or, absent a clause, unanimity - and the members can either resolve the operation in full detail or vote the principle and leave the gérant to complete the mechanics within a deadline. An increase corresponds either to new contributions - in cash or in kind, but not contributions of industry, which do not enter the capital - or to the incorporation of profits or reserves; and where a member who makes a contribution is already a member, they may vote on their own contribution, no rule setting aside their vote.
Two features distinguish the SCI from a commercial company here. Unlike the members of a trading company, the members of an SCI are not obliged, in order to increase the capital, to have fully paid up the old capital first - though the articles may freely fix preconditions of their own. And the collective decision must respect the clauses of the articles unless it also amends them on a given point, subject to not increasing the members' commitments and to gathering the majority the articles require for that amendment. This last reservation is the pivotal one: because some methods of increasing the capital enlarge what the members owe, the decision must be tested against the rule that no member's commitment can be increased without their consent - a rule examined in the next section, and the reason the method of the increase matters as much as the decision to make it.
The three ways to increase the capital
An increase can be realised in one of two forms, serving three economic purposes. The increase is carried out either by the emission of new shares or by the elevation of the nominal amount of the existing shares. The elevation of the nominal value is commonly used for the incorporation of reserves, where the company simply converts sums it already holds into capital and no member is asked for anything new. But where the increase rests on contributions in cash or in kind, the elevation of the nominal value can be used only with the unanimous agreement of the members, because it increases their commitments (C. civ. Art. 1836, al. 2). So the choice of form is not neutral: raising the nominal value of everyone's shares to bring in new money obliges every member to contribute more and therefore needs unanimity, whereas issuing new shares to those who subscribe leaves the non-subscribers' commitment untouched and can be carried on the ordinary amendment majority.
The three economic routes follow from this. A cash increase brings new money into the company, generally by issuing new shares to those who subscribe. A contribution in kind - most often a building - brings an asset into the company in exchange for new shares. And an incorporation of reserves converts profits the company has retained into capital, distributing the new shares among the members without any fresh outlay. Each has its own formalities and its own tax treatment, examined below, but the threshold question is always the same: does the method chosen increase a member's commitment? A cash or in-kind increase by new shares, subscribed by those who choose to, does not force the commitment on anyone; the same increase by raising the nominal value does, and needs everyone's agreement. Getting this right at the outset is what keeps the operation valid.
Which capital increase are you planning?
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Contributions in kind and admitting new members
Bringing a property into the SCI by a capital increase is lighter than in a commercial company, but it has its own steps. Contributions in kind give rise to no procedure for verifying their valuation - there is no compulsory contributions auditor as in a société par actions - so the members themselves set the value the contributed asset is credited at. A contribution deed is generally drawn up, and it is passed before a notary where the contribution concerns real property, since a transfer of an immeuble must be authenticated and published. The deed is submitted to the approval of the members, who record the capital increase by the creation of new shares in consideration of the contribution and, where the contribution admits a new member, agrée that member. As with a cash contribution, the contributing member may take part in the vote on the resolutions relating to their own contribution. And the difference between the real value of the property contributed and the nominal value of the shares issued in return is the contribution premium, which plays the same protective role as the issue premium on a cash increase.
Where the increase brings a new person into the company, the agrément rules apply. When the capital increase has the effect of bringing new members into the company, they must be approved by the other members in the same conditions as if they were admitted following a transfer of shares. The articles can provide that this agrément is obtained by the unanimity of the members, by a determined majority, or by the agreement of the gérant, and they may exempt from agrément the entry of certain persons such as spouses, descendants or heirs. Because a capital increase is not, technically, a transfer, it is prudent for the articles to state expressly that a capital increase admitting a new member opens the agrément procedure, so as to avoid a dispute over whether the clause applies. The point matters in a family SCI, where the whole purpose of the agrément is to keep control over who becomes a member - a control that an unclear clause could let a capital increase circumvent.
Reducing the capital
A reduction of the capital answers several quite different needs. The capital may simply have become too large in relation to the volume of the company's business. The company may have suffered losses, in which case reducing the capital is the ultimate means - before an early dissolution and liquidation - of restoring the position by aligning the capital with the net assets. There may have been a refusal to approve a proposed transferee, so that, none of the other members having bought the shares, the company decides to repurchase them with a view to their cancellation. Or a member may have withdrawn, their co-members indemnifying them by attributing certain assets of the company. Each of these translates into a reduction of the capital, and the motive shapes both the mechanics and the tax.
The reduction is carried out in one of two ways: by reducing the nominal value of the shares, or by diminishing the number of shares. The second method can produce fractional entitlements (rompus) where a member does not hold enough shares to match the reduction ratio, and for that reason it can be used only where the decision is taken unanimously or where the articles contain a clause under which the members make the fractions their own affair. A reduction motivated by losses, carried out without any repayment to the members, has no incidence for them - it neither gives rise to a deduction nor to any taxation - and simply brings the capital down to reflect value already lost. A reduction that repays the members, by contrast, returns value to them and, where it does so by attributing property, engages the transfer-tax questions examined next. So a capital reduction is not a single operation but a family of them, and identifying which one is in play - a right-sizing, a loss absorption, a buy-back for cancellation, or a withdrawal payout - is the first step to carrying it out correctly.
Reducing your SCI's capital - why?
The reason for the reduction shapes the method and the tax. Pick yours - the check explains what follows.
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Registration and tax
The registration treatment of a capital change is now largely favourable, with one important exception for property. The acts recording cash capital increases, whatever the company's tax regime, are dispensed from the registration formality (CGI Art. 635, 1.5°), and where such an act is nonetheless registered - because of the quality of its drafter or because it is presented voluntarily to obtain a certain date - it is registered free of charge (CGI Art. 810). The same applies to an increase by incorporation of profits or reserves: the act is dispensed from registration and, if registered, registered free. And a reduction of the capital is likewise dispensed from registration since 1 January 2021, or registered free if presented voluntarily; a reduction without repayment, on losses, is registered free of charge (CGI Art. 814 C). So the ordinary cash or reserve-based capital movement of a family SCI generally carries no proportional duty.
The exception is the contribution or attribution of real property. Acts recording increases of capital in kind must be registered (CGI Art. 635, 1.5°), and the operation is subject to the same tax regime as the contributions made at the company's constitution. A pure and simple contribution is registered free, but the contribution of a building - like a business or a lease - to a company subject to corporation tax by a person not subject to that tax is taxed at the transfer duty, unless the contributor undertakes to keep their shares for three years, in which case the registration is free. On the way out, where a reduction attributes real property to a member, the act is subject to the merged land-registry formality at the place the property is situated within the month (CGI Arts. 647 and 657), and under the theory of the conditional transfer of contributions the attribution of a contributed asset to a member other than the one who contributed it is taxed as a transfer for value - though a member taking back the very property they themselves contributed is not caught. One further tax attaches to the contribution itself: the contribution of a building to a company is a transfer for value, and the resulting contribution gain falls, for a private contributor, within the regime of individual real-estate capital gains. So while the paperwork of a capital change is light, the movement of property in or out of the SCI is where the real tax lies, and it should be modelled before the operation, not after.
Changing an SCI's capital - at a glance
| Operation | How it works | Basis |
|---|---|---|
| Decision | Under the conditions for statute amendments; the members may delegate the realisation to the gérants | C. civ. Art. 1852 |
| Increase raising the nominal value | For cash or in-kind money, needs the unanimous agreement of the members | C. civ. Art. 1836, al. 2 |
| Cash increase | New shares to subscribers; no minimum payment, no prior deposit; act dispensed / free of registration | CGI Arts. 635, 810 |
| Contribution in kind | No valuation auditor; notarial deed for a building; approval and agrément of any new member; act registered, constitution regime | CGI Art. 635 |
| Incorporation of reserves | Reserves converted to capital; act dispensed / free of registration | CGI Arts. 635, 810 |
| Dilution protection | Issue or contribution premium; preferential subscription right only if the articles create one | Premium = real value − nominal |
| Reduction | By nominal reduction or fewer shares (fractions need unanimity); dispensed / free of registration | CGI Arts. 635, 814 C |
| Reduction attributing property | Land-registry formality; transfer duty if attributed to a non-contributor member | CGI Arts. 647, 657 |
Frequently Asked Questions
The operation is decided under the conditions the articles fix for statute amendments - the reinforced majority they provide, or, absent a clause, unanimity (C. civ. Art. 1852). The members can also delegate the realisation to the gérants within a set period. One method requires more: increasing the capital by raising the nominal value of the existing shares, for cash or in-kind money, needs the unanimous agreement of the members because it increases their commitments (C. civ. Art. 1836, al. 2).
No. Unlike the members of a commercial company, the members of an SCI are not obliged to have fully paid up the old capital in order to increase it - though the articles may freely impose preconditions of their own. There is also no minimum capital, no compulsory deposit of the funds, and no minimum payment required on subscription for a cash increase. The SCI's capital regime is deliberately flexible, which is one of its practical advantages.
With a premium. Where the company holds reserves or a building carrying a latent gain, a new share is worth more than its nominal value, so the new subscriber is required to pay an issue or contribution premium equal to the difference - preserving the existing members' value without their having to act. If the capital is 100 in ten shares and the building carries a latent gain of fifty, each share is worth fifteen, so a premium of five per new share is charged. A preferential subscription right is another protection, but only where the articles create one.
No. Contributions in kind to an SCI give rise to no procedure for verifying their valuation - there is no compulsory contributions auditor as in a share company, so the members set the value. A contribution deed is drawn, before a notary where a building is contributed, submitted to the members' approval, and any new member is agréed. The act must be registered and follows the tax regime of a founding contribution - which, for a building contributed to a corporation-tax SCI by a non-taxable person, can mean transfer duty unless a three-year share-retention undertaking is given.
Usually lightly. Since 2021 the act recording a capital reduction is dispensed from registration or registered free, and a reduction on losses without repayment has no incidence for the members - no deduction, no taxation (CGI Art. 814 C). The exception is where the reduction attributes real property to a member: a land-registry formality then applies, and transfer duty can arise where the property goes to a member other than the one who originally contributed it (CGI Arts. 647, 657). A cash payout avoids that, which is why the form of the reduction should be planned.
It should not. Where a capital increase brings a new member in, they must be approved in the same conditions as on a transfer of shares, and the articles set the agrément - unanimity, a majority, or the gérant's agreement - possibly exempting spouses, descendants or heirs. Because an increase is not technically a transfer, it is prudent for the articles to state expressly that a capital increase admitting a new member opens the agrément procedure, so that no one uses an increase to bypass the family's control over who becomes a member.
Petroff Avocats runs SCI capital operations for international families - choosing the method that fits the goal and the majority available, setting the issue or contribution premium against the company's real value so no member is diluted, drafting the contribution deed and arranging the agrément of any new member, and structuring a reduction - for right-sizing, loss absorption, a buy-back or a withdrawal payout - to keep the registration and property tax to a minimum. We model the tax of any property moving in or out before the operation. See our SCI service on french-business-law.com, or contact the firm directly.
Talk to a French business lawyerThis 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 advice. The majority, formalities and tax of a capital operation depend on the SCI's articles, the method chosen and the assets involved. Always seek qualified legal advice before changing the capital of an SCI.
- C. civ. Art. 1852Capital increases and reductions decided under the conditions for statute amendments; possible delegation to the gérantsLégifrance
- C. civ. Art. 1836, al. 2A member's commitments cannot be increased without their consent - unanimity for an increase by elevation of the nominal valueLégifrance
- CGI Art. 635, 1.5°Acts recording cash capital increases, incorporations of reserves and capital reductions dispensed from the registration formality since 1 January 2021; in-kind increases to be registeredLégifrance
- CGI Art. 810Free registration of cash capital increases and incorporations of reserves where presented voluntarilyLégifrance
- CGI Art. 814 CFree registration of a capital reduction, including a reduction on losses without repaymentLégifrance
- CGI Arts. 647 and 657Merged land-registry formality where a capital reduction attributes real property, within the month of the actLégifrance
SCI
Increasing or reducing
Raising or reducing the capital of an SCI is decided like a statute amendment, and the method chosen decides the majority and the tax.
Ask a French LawyerKey Legal References
Capital increases and reductions decided under the conditions for statute amendments; possible delegation to the gérants
A member's commitments cannot be increased without their consent - unanimity for an increase by elevation of the nominal value
Acts recording cash capital increases, incorporations of reserves and capital reductions dispensed from the registration formality since 1 January 2021; in-kind increases to be registered
Free registration of cash capital increases and incorporations of reserves where presented voluntarily
Free registration of a capital reduction, including a reduction on losses without repayment
Merged land-registry formality where a capital reduction attributes real property, within the month of the act
