What is a Société en Commandite Simple (SCS)?

Features and benefits

Features

The société en commandite simple (SCS) is a company with two categories of shareholder: 'commandités' (active partners) and 'commanditaires' (limited partners).

Active partners

Active partners have the status of shareholding partners; they are considered as traders and are jointly and severally liable for all of the companies' debts.

The following cannot be active partners:

• Minors, even those able to vote
• Certain protected adults (adults under guardianship or curatorship) a person sentenced by the Court for personal bankruptcy, bankruptcy or similar offences, or who have been prohibited from directing, managing, running or controlling either a privately-held commercial undertaking, or a company, except where rehabilitated).
• Persons in professions or holding mandates that are incompatible with the position of trader. This is the case for civil servants, lawyers and chartered accountants

Limited partners

Limited partners are only responsbible for company debts up to the amount of their contributions; they are not considered as traders.

The société en commandite simple is formed by at least two partners: one active and one limited partner. No maximum number has been laid down by the law.

The benefits of an SCS

An SCS may have objects that are not of a commercial nature, unlike an SARL or an SNC.

The active partner(s) may be a legal person. The obligation of affiliation to the CAMTI-CARTI which relates to natural persons is then inoperative.

If it is a legal person with limited liability, SARL, SA, etc, the disadvantage of undefined liability of the active partner is considerably reduced.

Shareholding by limited partners is of a confidential nature: their name(s) are not divulged to third parties, and do not appear on transcripts from the Trade and Industry Register.

Forming an SCS

The Articles of Association

The Articles of Association are drawn up as a privately-signed deed or as an official deed (notarised instrument).

However, when the share capital is formed, in whole or in part, of property assets subject to land registration at the Mortgage Registry Office, the notarised form must be used.

Mandatory inclusions

The Articles of Association must include:

• The company form
• The number of shareholders
• The duration: the duration of a firm cannot exceed 99 years. The date of effect of the company must be stated: the date of signature of the Memorandum and Articles of Association, date of registration or fulfilment of the condition precedent of obtaining permit to carry out business activity.
• The company name: names of active partners only may form part of the company name
• The registered office
• The company objects
• The amount of the share capital and a valuation of each contribution in kind
• Allocation among shareholders, and shares paid up
• The date of the fiscal year-end
• Appointment of Managing Director(s) if the active partners decide to entrust Management to one of their number
• The conditions under which the company is to be run
• Resolutions to be taken by the shareholders at General Meetings
• Procedures for calling and holding meetings, and majorities required when passing resolutions

Optional items

The Articles of Association may include other items, for example:

• How shares may be transferred
• How the firm may be liquidated

Documents to be appended to the Articles of Association

The following must be appended to the Articles of Association:

• A special power of attorney granted to a proxy, if applicable

Number of copies

You must provide:

• 1 original copy of the Articles of Association for each shareholder
• 2 original copies for the registration formalities
• 2 original copies for the Business Development Agency
• 1 original copy to be deposited at the registered office
• Several copies certified as true copies by the legal representative to be deposited with various entities such as the bank

Registration

The Articles of Association must be registered with the Registration Office at the Department of Tax Services.

No required period has been laid down for registering the Articles of Association as a privately-signed deed, which must be perfomed at the Registration Office at the Department of Tax Services.

However, if goodwill is contributed, registration must take place within three months (article 3 of ordonnance loi n°155 du 17 juin 1931).

Nevertheless, registration of the Articles of Association is a pre-requisite in order to process the "declaration of business activity" or "application for permit to carry out a business activity.

Contributions

Contributions may be in cash, in kind and in skills or services.

Share capital

The law does not lay down a minimum amount for the share capital of an SCS. It can therefore be defined freely by the shareholders in the Articles of Association.

The law makes no provision concerning payment of the share capital.

The shareholders thus need to provide for payment procedures in the Articles of Association.

Allocation of shares

In return for their contribution to the share capital of the SCS, shareholders receive a number of shares. The latter bestow upon them a right to participate actively in the life of the firm, to receive a share in profits made by the firm and impose an obligation to contribute to losses recorded by the firm.

The registered office

In principle, the registered office of an SCS is established on commercial premises (commercial lease, short-term lease or temporary tenancy agreement).

However, it is possible to domicile the firm at the domicile of an active partner for a period of one year, that may be renewed once, as from publication in the Journal de Monaco of the transcript of the Articles of Association if:

• Said active partner is a natural person
• No legislative, regulatory or contractual provision is opposed thereto
• The firm's activities do not involve reception of clients or the storage or display of goods
• The firm employs no staff.

It is also possible, under certain conditions, to domicile the firm either with a domiciliation company for a duration limited to one year (may be renewed once) or on premises occupied by another firm.

See the factsheet: "Domiciling a business activity or establishing a company's registered office"

The company name

The company name must include one or more active partners.

The name of a limited partner cannot form part of the company name.

Management

The active partner is the Managing Director of the SCS.

If there are several active partners, they manage the firm as a group.

The Articles of Association may provide that only one of the active partners carries out management activities.

If the Articles of Association reserve signature under the company name for one or several active partners, the sole signature of such partners binds the firm (article 29 of the Code de Commerce).

Appointment and removal of the Managing Director

The first Managing Director(s) are appointed by the shareholders in the Articles of Association and may be removed under the conditions laid down therein.

In the absence of clauses to another effect in the Articles of Association, they are appointed for the whole duration of the company.

During the course of the company's existence, Managing Directors are appointed by the body of shareholders.

Powers of the Managing Director

With regard to the shareholders

The Managing Director may carry out any and all acts that are required or appropriate in fulfilling the company objects, subject to powers specifically bestowed by law or the Articles of Association upon the shareholders (art.51-1 of the Code de Commerce).

This means that if the Articles of Association have not limited his/her powers, the Managing Director may thus carry out any and all acts of management or disposal insofar as the latter contribute to the company objects and are in line with the firm's interests.

The powers of the Managing Director may, however, be limited by:

• The Articles of Association: some clauses in the Articles of Association may render certain acts subject to prior authorization by the body of shareholders
• The powers bestowed upon shareholders by the law: the company's legal representative cannot take any action that is solely incumbant upon the shareholders, such as amendments to the Articles of Association or transfers of goodwill leading to the liquidation of the firm.

A Managing Director cannot, therefore, take a unilateral decision to amend the company objects.

Managing Directors that exceed their powers incur their personal liability in respect of shareholders, who may obtain compensation for the prejudice or remove the Managing Director for just cause.

If there are several Managing Directors, the Articles of Association may divide their duties or provide that decisions be taken by a majority or unanimously.

If the Articles of Association have not made any provision, each Managing Director may perform any acts of management in the firm's interests.

With regard to third parties

In respect of third parties, the Managing Director has the most extensive powers to act in all circumstances on the company's behalf, subject to the powers attributed specifically to shareholders by the law.

Important: any clause in the Articles of Association limiting the Managing Director's powers cannot be enforced against third parties, even if the latter were aware of the existence of such a clause.

If there are several Managing Directors, each of them binds the firm by any act forming part of the company objects (Art.51-1 of the Code de Commerce).

The Managing Director's obligations

In respect of the shareholders

Holding meetings

The Managing Director must hold two kinds of meeting: Ordinary General Meetings (OGMs) and Extraordinary General Meetings (EGMs).

The annual accounts must be approved by the OGM. Resolutions are passed in accordance with the Articles of Association.

No rule establishes a quorum for resolutions.

Extraordinary General Meetings: EGMs have the purpose of ruling on any amendment to the Articles of Association such as changes in legal form, changes in the company name, capital increases, etc.

Resolutions are passed in accordance with the Articles of Association

However, certain resolutions must be passed unanimously - resolutions pertaining to:

• a change in the nationality of the firm
• a transformation into a société en nom collectif or a société en commandite par actions,
• early liquidation of the firm

Informing shareholders

If there is a meeting, the Managing Director must invite the shareholders and send them all documents enabling them to vote in full knowledge of the facts.

For Ordinary General Meetings, the Managing Director must make available the annual accounts and the management report to the shareholders or their proxies, at the registered office of the company.

Shareholders or their proxies may take copies thereof.

In respect of third parties

In order to render certain corporate deeds enforceable against third parties, the Managing Director must perform publication formalities which vary according to the nature of the resolution.

In this regard, any amendment to the Articles of Association relating to the form of the company, its objects, the appointment of Managing Directors, the amount of share capital, duration of the company, and transfer of the registered office require notice to be published in the Journal de Monaco and the depositing at the General Registry of the minutes of the Extraordinary General Meeting, so that they may be posted there.

The Managing Director's liability

The Managing Director is responsible to the company and to third parties for negligence that the Managing Director might commit in carrying out his/her duties. In this regard, he/she incurs his/her civil and/or criminal liability.

Civil liability of the Managing Director

Rules of ordinary liability law apply.

Civil liability may be incurred if:

• The Managing Director has committed negligence
• Such negligence has caused prejudice (to the firm, to shareholders or to a third party)

There are three types of negligence that may incur the Managing Director's civil liability:

• Infringements related to legal and regulatory provisions applying to company law
• A breach of the Articles of Association (such as, for example, disregard of clauses requiring the Managing Director to obtain prior approval from the shareholders when taking certain decisions)
• Mismanagement such as, for a Director, accepting orders that he/she knows perfectly well the company will not be able to honour.

Individual liability in the event of collective proceedings

In the event of collective proceedings, a Managing Director may be ordered to cover all or part of the insufficient assets from their personal assets, if they have committed mismanagement, on the basis of article 560 of the Code de Commerce.

Liquidation of assets will be declared pursuant to article 565 of the Code de Commerce against Managing Directors that have:

• Done business in their personal interests or on behalf of a third party under cover of the SCS, masking their actions
• Used assets of the SCS as their own
• Improperly continued operations generating losses that could only lead to suspension of payments for the company, in a personal interest or on behalf of a third party

The Managing Director may also be the subject of personal bankruptcy measures or a prohibition from directing, managing, running or controlling a privately-held commercial undertaking or a company, on the basis of articles 573 à 578 of the Code de Commerce.

Criminal liability of the Managing Director

The Managing Director may incur their liability, pursuant to article 51-12 of the Code de Commerce in the following cases if:

• They have not instigated the appointment of one or more auditor(s) or if they have refused to communicate to the auditors the documents required in order for them to fulfil their duties
• They have not had the certificate relating to the annual accounts described in Article 51-7 of the Code de Commerce signed by a member of the Ordre des experts comptables et comptables agréés or if they have refused to communicate to the latter the documents necessary to obtain their signature

The Managing Director may incur their liability, pursuant to article 51-13 of the Code de Commerce in the following cases if:

• They have not drawn up accounting documents

• They have not submitted those documents for approval by the shareholders' meeting in breach of the provisions of article 51-6
• They have not sent these documents to the Trade and Industry Register in breach of the provisions of article 51-7 of the Code de Commerce

The Managing Director may incur their liability if they commit the criminal offences laid down in loi n°1144 du 26 juillet 1991, such as, for example, carrying out activities outside the limitations of the company objects.

Shareholders

Limited partners

As providers of funds, they may not perform any act of management,even by virtue of a power of attorney (art.34 of the Code de Commerce).

This ban covers external acts of management, that is those placing limited partners in contact with third parties, such as signing a contract in the company's name.

If they do not comply with this rule, limited partners expose themselves to progressive penalties (art.35 of the Code de Commerce) :

• They are jointly and severally liable, together with active partners, in respect of their personal assets, for debts and undertakings of the company resulting from prohibited acts
• In the light of the number and seriousness of the acts committed, their joint and several liability may be extended to all of the company's undertakings

However, limited partners are permitted to perform internal acts of management such as giving opinions, advice, acts of monitoring and supervision (article 35 of the Code de Commerce)

Rights within the firm

Limited partners and active partners have a right of oversight concerning the management of the firm insofar as they participate actively in the life of the firm by voting in resolutions pertaining to the operation of the company.

Participating in meetings

All shareholders of an SCS are entitled to participate in Ordinary and Extraordinary General Meetings and no shareholders may be excluded therefrom.

Any shareholder may be represented at a meeting by:

• Their spouse, except where the company is formed only of the two spouses
• A shareholder, except where the company has only two shareholders
• A third party that has been granted a special power of attorney

Representation presupposes the existence of a mandate, which cannot be enduring.

In other words, the mandated person must have the power to vote in the stead of the person represented, for all decisions taken at the meeting.

Legal persons that are shareholders can be represented in meetings either by their legal representative, or by any other person that has been granted power of attorney.

Voting on resolutions

The right to participate in a meeting implies a right to vote at said meeting.

Each shareholder has a number of votes equal to the number of shares that they own.

Shareholders may be consulted in writing only if the Articles of Association so provide. However, written consultations are prohibited for the annual meeting approving the accounts and for resolutions amending the Articles of Association.

Right to information

Each shareholder has a twofold right to information.

Before each meeting.

Before any meeting is held, a number of documents must be sent to the shareholder in order that they may vote in full knowledge of the facts.

Ongoing communication

At any time of the year, shareholders are entitled to examine the annual accounts and management report at the registered office of the company.