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The Legal Structure
Because we are dealing with ownership of foreign real estate, we have to play carefully by the rules of that country. In the case of France, there are several considerations which have required us to do exhaustive legal analysis of estate and inheritance tax issues, capital gains tax issues, banking issues and others; all of these laws in france are completely different from the United States or Great Britain. Based on our findings, we believe that the following structure is the most tax beneficial to all of our owners, no matter what country they call home.
1. THE SCI " Société Civile Immobilier"
Paris Home Shares forms a French company called an SCI. This type of company is unique to France, and is specifically designed for the ownership of real estate by partners who may be unrelated or hold unequal ownership interests. Specifically, it is a "non-trading" SCI, which simply means that there is no business purpose to the SCi, like the production of rental income.
Our French lawyers draft the SCI to tailor it for the unique and specific needs of fractional ownership. Actual title to the property will be placed in the name of this SCI. Stock is issued just like an American corporation. French law requires that for any SCI, there be at least one individual stockholder in addition to any corporate stockholders.
At present, an SCI is rather expensive to initially set up. However, we have decided that the long term tax benefits to the shareholders far outweigh the initial cost outlay, which is borne by Paris Home Shares (and not the owners). When dealing with French law, it is not wise to take shortcuts.
2. THE LLC "Limited Liability Company"
This company is also formed by Paris Home Shares as an American LLC. Each owner who purchases a share automatically becomes a "member" of the LLC. Each share purchased receives an 8.3333% ownership of this LLC. The LLC in turn holds 99.99% of the stock of the SCI. (I personally retain a 0.01% nominal interest in the SCI to satisfy the "individual stockholder" requirements of French law.
All of the rules for the governing of this entity are dictated by the "LLC Operating Agreement". This document, over detailed 30 pages, has been drafted and thoroughly reviewed by our legal counsel as well as 4 independent lawyers, and covers how the day to day operations of the LLC are handled.
One of the nice features of this structure is that it easily allows sale of an Owner's share in the LLC without actually requiring any recording of a change in title to the property, which is both complex and expensive.
Below is an illustration of the Ownership structure.
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