Does an SCI have to file annual accounts?

Does a French property company (société civile immobilière, or SCI) have to file its annual accounts with the commercial court registry, like a SAS or SARL? In most cases, the answer is no.

However, this rule is often misunderstood. The manager of an SCI still has to monitor the company's accounts and keep its shareholders informed. This is the annual management reporting obligation: at least once a year, the manager must report to the shareholders on how the company has been managed.

The initial confusion: filing, bookkeeping and approving accounts

Three separate questions need to be distinguished:

Issue	Meaning	Position for an SCI
Filing accounts with the registry	Submitting annual accounts to the registry for public disclosure	Generally not required
Preparing annual accounts	Producing formal financial statements: a balance sheet, income statement and notes where applicable	Not always required, but mandatory in certain cases and strongly recommended
Reporting to shareholders	Informing shareholders about the company's management, results and financial position	Required at least once a year

An SCI is therefore not subject to the annual accounts filing regime that applies to commercial companies such as SARLs or SASs.

Its main obligation concerns the company's internal affairs and relations between shareholders: reporting to them and keeping reliable financial records.

Does an SCI have to file its annual accounts with the registry?

As a general rule, no.

For a standard SCI, often a family company or a company set up to hold property, filing annual accounts is not mandatory.

Is an SCI exempt from keeping accounts?

The absence of a filing obligation does not exempt an SCI from regularly monitoring its finances.

It must be able to explain what it has received, what it has paid, what it still owes, what its shareholders have advanced, what has been distributed, and how the manager has administered the company's assets.

For an SCI set up to hold and manage property, this monitoring can be relatively simple: bank statements, rent received, expenses paid, loans, property tax, calls for funds, shareholder loan accounts, supporting documents for building work and tax returns.

In practice, even where full commercial accounting is not required, it is prudent to keep at least:

• a chronological record of receipts and payments;
• the SCI's bank statements;
• invoices and other important supporting documents;
• leases, amendments and rent receipts;
• tax documents;
• a simple annual statement of the SCI's financial position;
• shareholder decisions or meeting minutes.

The purpose is strategic as much as administrative. This discipline helps prevent disputes between shareholders, particularly when shares are sold or in the event of an inheritance, divorce, tax audit or litigation.

When must an SCI prepare more formal annual accounts?

An SCI may be subject to more extensive accounting obligations where it:

• actually carries on a commercial activity;
• has opted for French corporate income tax (impôt sur les sociétés, or IS);
• is subject to VAT;
• exceeds certain statutory thresholds;
• has a shareholder that is itself subject to specific accounting obligations; or
• has articles of association requiring accounting records, formal approval or a specific annual procedure.

Among these situations, the most common is an SCI subject to corporate income tax. In that case, the company must keep accounts more closely aligned with those of a commercial business and submit the corresponding tax returns.

The SCI manager's annual obligations

Under Article 1856 of the French Civil Code, managers must report to shareholders on their management at least once a year.

This reporting must include a written overview of the company's activities during the past year or financial year. The report must state the profits made or expected and the losses incurred or anticipated.

In practice, managers are advised to prepare an annual file containing, in particular:

• a management report suited to the SCI;
• a statement of rent or other income received;
• a statement of charges, building work, loan interest and significant expenses;
• a statement of shareholder loan account balances;
• the profit or loss for the year;
• decisions proposed to shareholders: approval, allocation of the result, any repayment of shareholder loans, building work or specific authorisations.

Is an annual general meeting mandatory for an SCI?

The annual obligation is to report on management. Decision-making procedures are governed by Articles 1853 and 1854 of the French Civil Code: a meeting, a written consultation if the articles of association allow it, or unanimous consent recorded in a deed.

In many SCIs, the articles of association provide for an annual ordinary general meeting or an annual shareholder decision to review management, approve the accounts or allocate the result.

It is nevertheless advisable to formally record annual decisions and retain all decisions taken, so that the company's main developments are documented. Disputes between shareholders often arise from a lack of information.

Good practice is therefore to record a shareholder decision each year, even a very simple one, confirming at least:

• that the manager has reported on the company's management;
• that shareholders have been able to review the relevant information;
• that the financial result for the year has been approved or acknowledged;
• that a decision has been made on the allocation of that result;
• that the year's significant transactions have been recorded or authorised.

This annual decision generally does not have to be filed with the registry; it is kept in the company's register of decisions.

What if no meeting has been held for several years?

In this situation, the priority is to reconstruct the records needed to understand the company's internal management.

The following steps are recommended:

1. Review the articles of association

First, identify what the articles require: whether an annual meeting is mandatory, notice periods, voting majorities, permitted forms of decision, documents to circulate, approval of accounts and so on.

2. Identify the SCI's tax and accounting regime

The steps needed to bring matters up to date often differ depending on whether the SCI falls within the French personal income tax regime (impôt sur le revenu, or IR) or corporate income tax regime, and whether it is subject to VAT.

In particular, an SCI subject to corporate income tax often requires more structured accounts.

3. Reconstruct the missing records

This involves gathering, as far as possible:

• bank statements;
• rent or other income records;
• co-ownership charges;
• property tax records;
• insurance documents;
• loan interest records and repayment schedules;
• records of building work;
• calls for funds;
• shareholder contributions or advances;
• tax returns;
• decisions already signed, even if incomplete.

The aim is to reconstruct an accurate picture of past management.

4. Prepare a report for each financial year

For each undocumented financial year, the manager can prepare a management report retrospectively.

The report should be as factual as possible: the SCI's activities, receipts, expenses, financial result, significant events, building work, financing and any difficulties.

5. Submit the reports to shareholders

Shareholders must receive the information gathered in accordance with the company's articles of association.

If all shareholders agree, bringing the company's records up to date is generally straightforward. Where there is a minority shareholder, a family dispute or a risk of challenge, the procedure must be handled much more rigorously and may require an independent third party.

6. Formalise the decisions

Minutes or shareholder decisions should then be prepared for each financial year.

These decisions can record the manager's reporting, the approval or acknowledgement of the documents, the allocation of the result and the approval of certain transactions.

One point of caution deserves mention: late approval does not automatically remedy every past irregularity. It helps document the situation, but does not protect the manager against concealed wrongdoing or management contrary to the company's interests.

7. Repeat the process regularly

Once the company's records have been brought up to date, these good practices should be maintained year after year.

What are the risks if the manager never reports to shareholders?

Article 1851 of the French Civil Code governs the removal of the manager. The manager may also incur liability under Article 1850, particularly for mismanagement, with an additional risk of litigation where management lacks transparency.

In a judgment of 23 October 2019 (appeal no. 17-31.653), the French Court of Cassation reiterated that the family nature of an SCI and the absence of requests from shareholders do not remove the annual management reporting obligation.

Depending on the SCI's tax regime, never accounting for its management also increases the risk of tax errors, which may lead to adjustments by the tax authorities.

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An SCI is governed by different rules from commercial companies such as SASs or SARLs. It is therefore generally not required to file annual accounts with the commercial court registry.

However, the manager must report to shareholders on the company's management at least once a year.

Depending on the circumstances, the articles of association may also require a general meeting or a specific procedure. Finally, some SCIs must keep more extensive accounts, particularly because of their tax regime or activities.