The limited partnership (société en commandite simple, or SCS) is a relatively uncommon legal structure in France. It is defined by a clear division of roles, with general partners having unlimited liability and limited partners having limited liability.

Below, we help you understand the advantages and disadvantages of this structure, as well as the steps required to form an SCS in France.

What’s in this article?

• What is an SCS?
  
• How does an SCS work?
  
• Why choose SCS status?
  
• The advantages of an SCS
  
• How do I transfer shares in an SCS?
  
• What are the differences between SCS, SCA, and SA?
  
• How to set up an SCS
  

What is an SCS?

An SCS is a commercial partnership characterized by two categories of partners: general partners and limited partners. The SCS can engage in any type of business, except for sectors such as banking, insurance, and certain regulated professions.

How does an SCS work?

To form an SCS, at least two partners are required:

• General partner: Manages the business and is personally liable for all its debts

• Limited partner: Provides capital and has limited liability

Partners can be individuals or corporations. There is no limit to the amount of capital that can be contributed, but it must be cash or property (such as equipment or real estate). This legal structure offers attractive flexibility, but it’s important to understand that general partners have unlimited liability.

Roles

General partners play a central role in managing an SCS. As active partners, they take on the legal responsibilities of business operators and oversee the daily management of the business.

All general partners are typically designated as managing partners. However, the partnership agreement can modify this arrangement by assigning management responsibilities to one or more specific partners or to individuals outside the partnership.

On the other hand, limited partners play a more passive role. They provide management oversight and the capital needed to grow the business. Their involvement is through annual general meetings and, if provided for in the company’s charter, a board of directors.

However, limited partners are restricted to a supervisory role: they don’t participate in the day-to-day management of the company and don’t sign contracts or negotiate with third parties on behalf of the SCS.

Management

The articles of an SCS define the decision-making procedures. For routine matters, a general partner or a quarter of the limited partners can call a general meeting.

Amendments to the bylaws require broader approval: unanimous consent of the general partners and a majority of the limited partners.

Financial liabilities

General partners have unlimited liabilities with joint responsibilities. As a result, creditors of the SCS can seek repayment of debts from any general partner who has unlimited personal liability. They must use their personal assets to cover the company’s obligations.

The limited partners’ liability is restricted to the amount of their contributions. This ensures their personal assets are protected in the event that the company runs into financial difficulties.

SCS tax regimes

Each general partner is subject to income tax (IR) on its share of the partnership’s profits. This share is calculated based on their rights in the partnership. If the SCS has elected corporate income tax (IS), general partners are entitled to a flat 10% deduction for business expenses.

Limited partners are subject to IS on their share of profits. If dividends are distributed, they are also subject to IR at the individual partner level.

For example, if a general partner earns €10,000 in profits, they will be subject to IR on that amount. However, the limited partner faces double taxation: first at the partnership level and then personally on the dividend income. If the corporation earns €100,000 in profits and distributes €10,000 in dividends to a limited partner, the corporation will pay IS on the €100,000, and the limited partner will pay IR on the €10,000 dividend.

It is important to note that this distinction no longer applies if the SCS elects to be a corporation. In this case, all partners—whether general or limited—are subject to the same tax regime. This is usually more favorable because profits are taxed only once at the company level.

Social security (SSI) for partners

The SSI status of SCS partners depends on whether they are general or limited partners.

General partners, whether or not they are involved in management, are classified as self-employed. Therefore, they are covered by the general SSI system for the self-employed. This status gives them access to certain social benefits, including health insurance, retirement pensions, and compensation for loss of work.

The status of limited partners depends on their activity within the SCS. If they actively and regularly perform tasks within the company under the authority of another partner, they can be classified as employees. In such cases, they are covered by the general SSI system and enjoy the same rights and obligations as any other employee, including benefits for sickness, retirement, and unemployment. Conversely, if they do not perform any actual activity, they will not be enrolled in any mandatory SSI scheme.

Why choose SCS status?

Compared to other legal forms, the SCS strikes a balance between the flexibility of a business structure and the protection of investors’ assets. It is often preferred by startups or fast-growing companies that need capital but want to retain some management independence.

The founders—typically passionate entrepreneurs with limited resources—can offer their expertise and skills as general partners. For example, a startup working on a new technology in artificial intelligence (AI) might choose the SCS structure to use the expertise of its founders while attracting investors who specialize in the field.

The SCS also allows family members with different roles and contributions to work together within the same business structure. For example, a family craft business passed down through generations could be converted to an SCS, allowing children to participate in management while protecting grandparents’ assets.

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The advantages of an SCS

The SCS is a flexible legal structure suitable for various types of businesses, from startups to established companies.

One of the key advantages of the SCS is its efficient organization with a clear division of roles: general partners handle day-to-day management, while limited partners contribute financial resources. This structure allows for fast and effective decision-making.

The SCS provides investors with guaranteed security. Their liability is limited to the amount of their contributions, protecting their personal assets in the event of financial difficulties.
This legal form also offers great flexibility in terms of financing. It connects entrepreneurs to projects with investors interested in contributing to their growth. This hybrid structure allows access to different sources of capital tailored to the company’s specific needs.

How do I transfer shares in an SCS?

The transfer of shares by general and limited partners is governed by different rules. Shares cannot be transferred between partners, to their heirs or beneficiaries, or to third parties without the unanimous consent of all partners.

The partnership agreement can permit the transfer of a general partner’s shares if all general partners and a majority of the limited partners consent. The partnership agreement can also permit the transfer of limited partner shares among the partners or to third parties with the consent of all general partners and a majority of the limited partners.

The consent of the partners to the transfer of shares must be obtained in writing at a general meeting. If no written refusal is received within three months of the request, the consent is deemed granted.

What are the differences between SCS, SCA, and SA?

The SCS shares certain characteristics with the partnership limited with shares (société en commandite par actions, or SCA) and the public limited company (société anonyme, or SA). However, the SCS is generally less rigid.

Unlike the SCA, which can issue both shares and corporate units, and the SA, which is limited to issuing shares, the SCS can only issue corporate units.

In addition, a minimum of two partners is required to form an SCS, as opposed to four for an SCA. The SCA, similar to the SA, requires a minimum capital of €37,000, while the SCS has no such minimum capital requirement beyond a symbolic euro.

It’s important to carefully consider each entity type to select the one that best suits your business needs.

How to set up an SCS

Similar to other business structures, the SCS requires adherence to a specific and rigorous process. You must complete several legal formalities to form an SCS.

The key steps are:

1. Draft the bylaws: This foundational document outlines the organization of the business. It includes the roles and responsibilities of each partner.
   
2. Deposit the share capital: French law does not impose a minimum amount for the share capital of an SCS. This allows the partners to choose any amount for the share capital, even as little as a symbolic euro.
   
3. Publish the legal notice: To inform the public of the establishment of the SCS, the publication of a notice of establishment in a legal gazette is mandatory.
   
4. File the registration: Submit the complete file—including the articles of incorporation, proof of legal publication, and other supporting documents—to the commercial court clerk’s office. These formalities can now be completed online through the business formalities portal.
   
5. Obtain registration: Once the application is approved, the SCS receives a unique identification number (SIREN) and is officially registered with the Trade and Companies Register (registre du commerce et des sociétés, or RCS).
   

For more information on the specifics of setting up an SCS, visit the French government’s official website.