The status of the heirs of a SCI partner in the presence of an approval clause

Heirs not yet approved

In the event of the death of a SCI partner, the Articles of Association may make the entry of heirs or legatees into the company, i.e. their appointment as partners, subject to the prior approval of the surviving partners. Approval of the deceased partner’s heirs is discussed with the partners at a General Meeting.

Article 1870-1 of the Civil Code: “Heirs or legatees who do not become partners are only entitled to the value of the shares held by the deceased. This value must be paid to them by the new holders of the shares or by the company itself if it has bought them back with a view to cancelling them”.

Article 1870, paragraph 1 of the Civil Code does not indicate how heirs or legatees must be approved. The Articles of Association must specify the conditions. If the Articles are silent,approval may be given by a unanimous decision of the surviving partners.

It is up to the Articles of Association to decide on the “fate” of the shares between the time of death and the approval decision. Provision may be made for the co-owners of the shares to be represented by a joint proxy who is one of the surviving partners, or for the shares to be neutralised so that they do not participate in voting on collective decisions.

• Status of unregistered SCI heirs : Unregistered heirs and legatees have no status as partners or rights over the company’s shares or assets. These heirs have a claim corresponding to the value of the shares.

Paris Court of Appeal, 13 March 2013, no. 12/06788: “Considering that the appellants argue exactly that an heir who becomes the owner of the shares in the SCI of the deceased partner does not automatically become a partner; that to acquire the status of partner, he must submit an application to obtain approval “.

• Right of non-registered SCI heirs to attend general meetings: The rights attached to the deceased ‘s shares while awaiting the approval decision, in particular voting rights, are suspended. The heir may not take part in the AGM concerning approval or in any other collective decision of the AGM.

A court of appeal had already ruled that an heir who had failed to apply for approval on the date of the AGM should not be convened or allowed to vote(CA Paris, Pôle 2, 1ère ch., 13 March 2013, no. 12/06788). In this case, the Court of Cassation dismissed the appeal on the grounds that the Court of Appeal had found that the heirs of the deceased partner had not obtained approval and were therefore not partners in the SCI. Consequently, they could not take part in the AGM or in the appointment of the new manager.

The fact that a partner in a non-trading property company is an heir is not sufficient to become a partner. As a result, the heir could not take part in the general meeting or in the election of the manager. This position was confirmed by ruling no. 13-27.248 of the 3rd civil chamber of the Court of Cassation, handed down on 8 July 2015.

Under Article 1844 of the Civil Code, only partners have the right to take part in the company’s collective decisions. However, the heir had not obtained approval under the conditions set out in the articles of association and could not be satisfied with tacit approval. Attendance at the AGM and voting by the heirs render the AGM irregular.

The heirs may not be convened to the AGM or vote (This applies to an SARL but is appropriate for SCI partners, Cour de cassation, 27 March 2019, no. 17-23.886 : “Mais attendu, en premier lieu, que selon l’article L. 223-13, paragraph 2, of the Commercial Code, the articles of association of a limited liability company may stipulate that a spouse, heir, ascendant or descendant may become a partner only after having been approved; it follows from these provisions that unapproved heirs need not be invited to meetings and may not take part in the vote ; having noted that Mrs B had not sought the approval provided for by the Selarl’s Articles of Association in the event of transfer of shares to a spouse as part of the liquidation of the community that had existed between the spouses, the Court of Appeal correctly deduced that she was not and had never been a partner “).

The rights attached to the shares of the deceased partner pending the approval decision, in particular the voting rights, are suspended.

• Can an heir to a non-trading property company that has not yet been approved receive dividends? No. They cannot, as they are not shareholders.

In order to receive dividends, a SCI heir must be a partner, so he cannot receive dividends before the company has been approved, as he is not a partner. On the subject of a legatee of shares in a non-trading company, Court of Cassation, 2 September 2020, no. 19-14.604 : ” It follows that, if he is not a partner, the heir is not entitled to receive the dividends, even before the bequest of these shares to a legateeis made”).

Non-approved heirs have no right to dividends distributed after the death of their predecessor and the right to dividends belongs to the person who is a partner on the day of the decision to distribute the dividends (in this sense, com. 14-12-2004 no. 01-10.893 F-PB: RJDA 4/05 no. 412; Cass. 1e civ. 2-9-2020 no. 19-14.604 FS-PB: BPAT 6/20 inf. 220) (in relation to a groupement agricole d’exploitation en commun which can be transposed to groups in the form of a civil partnership): “Whereas in so ruling, whereas article R. 323-41 of the Rural Code, which only allows heirs who have not yet been approved to take part in the deliberations of the general meeting of the grouping and does not derogate, as far as the right to profits is concerned, from the ordinary law provisions of Article 1870-1 of the Civil Code, does not confer on heirs who have not been approved any right to the profits made by the grouping subsequent to the death of their author, the Court of Appeal infringed the first of these texts by misapplying it and the second by refusing to apply it;

Following refusal of approval

Art. 1861: ” Company shares may only be transferred with the approval of all the members. The Articles of Association may, however, provide that such approval shall be obtained by a majority which they shall determine, or that it may be granted by the managers”.

Approval may be refused by the shareholders or the manager. The transferring shareholder is supposed to be informed of the decision. The formalities for this notification are set out in a decree (article 49 of decree 78-704 of 3 July 1978).

The decision to refuse approval must be taken and communicated in full compliance with the Articles of Association. If the company does not inform the heir of its refusal within the statutory time limit, the decision is “inoperative” and the heir is therefore deemed to have been approved (Cass. 3e civ. 16-1-2020 no. 18-26.010 F-D: Rev. sociétés 2020 p. 299 note J.-F. Barbièri) : “ the Court of Appeal, which noted that the SCI had not notified its refusal within the time limit set by the Articles of Association, was not required to carry out research that its findings rendered inoperative, and therefore legally justified its decision”.

If the shareholders do not agree to approve the heir, the unapproved heir is entitled to receive a sum corresponding to the value of the shares on the date of the shareholder’s death (article 1870-1 of the Civil Code). If no agreement is reached on the value of the shares, a legal expert may be appointed in summary proceedings.

Note: If the partners refuse to approve the heir and the purchase of his shares by the surviving partners or the company, the tax authorities may proceed with an “ex officio taxation” in respect of the heir’s “transfer duties”, since the failure to approve the heir prevents him from being a partner but not from recovering what is owed to him (corresponding to the value of the shares) (Cass. com. 5-10-2004 no. 1462: RJF 2/05 no. 192).