German Limited Liability Company: Structure of a GmbH

19 Outubro 2016

  • Alemanha
  • Empresa

There are three bodies in a Swiss corporation, namely: the general meeting of shareholders (the supreme body), the board of directors and the auditors.

Shareholder’s meeting

The general meeting of shareholders is the supreme authority of the company and is composed of all shareholders. There are two types of meetings:

  • Ordinary general meeting. This is held annually within six months after the close of the business year;
  • Extraordinary general meeting, which is called as often as considered necessary.

The general meeting of shareholders has the right to adopt and amend the articles, to appoint directors and auditors, to approve the financial statements and the directors’ report, to ratify certain decisions of the Board, and, in general, to make all important decisions which are not delegated to any other body. The shareholders must also approve the proposal of the Board relative to the distribution of annual profits. A general meeting is called by the board or, if it fails in its duties, by the auditors. One or more shareholders, representing together at least 10 % of the share capital, may at any time request the calling of an extraordinary shareholders’ meeting. This must be done in writing, indicating the purpose of the meeting. In general, a simple majority of votes represented at the general meeting is sufficient to pass a resolution and hold elections. However, certain decisions require a vote of two thirds of the votes represented and the absolute majority of the· par value of the shares represented (such as change of corporate purpose, extension of scope of business, distribution of shares with privileged voting rights etc.).

Shareholders cannot be deprived of their acquired rights without their consent. The term acquired rights includes the right to vote, to dividends, to a share of the liquidation proceeds and to receive sufficient information on the financial condition of the company. The Swiss Code distinguishes two kinds of shareholders rights: financial interests and personal membership rights.

Each shareholder has the right to a proportionate share of the profits distributed. Dividends may only be paid out of net profits or out of reserves specially created for this purpose. There is no interest payable on the ordinary share capital and a company may not declare interim dividends out of current year profits. Dividends can only be declared by the general meeting of shareholders and after attribution to the legal reserve. A share of the net profits may be paid to members of the board of directors if:

  • the articles specifically provide for such payments,
  • the allocations to the legal reserve fund have been made and,
  • a dividend of at least five percent has been paid to the shareholders.

Unless otherwise stated in the articles or in the resolution for the increase in share capital, each shareholder has an option to subscribe to new shares in the same proportion that his original holding bears to the total shares issued.

Each shareholder is entitled to a proportionate share of the proceeds of liquidation unless the articles of incorporation provide otherwise. The proceeds are calculated in proportion to the amounts paid in on the share capital.

Most personal membership rights are acquired rights which means that even with the general meeting’s consent, the shareholder cannot be deprived thereof. These include the following:

  • Shareholders exercise their rights at the general meeting of shareholders. Every shareholder may attend the meeting in person or be represented by his proxy. A holder of bearer shares is considered authorized to attend if he presents the share. On the other hand, registered shares can only be represented if a written proxy is produced.
  • Voting rights.
  • Shareholders are entitled to review the financial statements, which must be available for inspection at the address of the company not later than 20 day prior to the annual general meeting. Any shareholder may request a copy to be sent to him before the meeting.

Board of Directors

The company is managed by the board composed of one or more individual directors who must be shareholders. A majority of board members must be Swiss citizens residing in Switzerland.  If the board consists of a single member, he or she must be a Swiss citizen residing in Switzerland. The directors are elected at the general meeting for a period fixed by the articles (maximum six years). The directors can however be re-elected indefinitely.

The articles may require that during their term of office they must deposit a certain number of shares at the corporation’s registered domicile. This is designed to protect the corporation against damages that directors may cause in the fulfilment of their duties. The board can delegate part of its authority to either an executive committee or to individual directors, to officers or to agents. At least one director must have power and authority to represent the company. The board designates the individuals authorized to represent the company vis-a-vis third parties and determines the details concerning the signatory powers. The company is unrestricted in the selection of its executive personnel, such as managers and officers, although managers and employees of foreign nationality require a permit to take up residence and employment in Switzerland.

The board is responsible for the preparation of the general meeting. It gives the necessary instructions to the management for the proper conduct of the company’s business and supervises those authorized to act on behalf of the company. It is the primary responsibility of the board, although generally delegated to management, to keep the accounting records and to prepare the annual financial statements. Furthermore, the board must submit a written annual report on the company’s financial position and the results of its activities to the general meeting of shareholders.

Auditors

The general meeting of shareholders elects one or more independent auditors who may be individuals or legal entities. Auditors must be professionally qualified to fulfil their duties. At least one auditor must have his domicile, registered office, or a registered branch in Switzerland. The auditors may not serve as directors nor be otherwise employed by the company, nor may they assume managerial functions for the company. Auditors may be elected for a maximum period of three years. Re-election is possible.

Auditors must have special professional qualifications if the audited entity:

  • has outstanding bond issues;
  • has shares listed on a Swiss stock exchange;
  • exceeds two of the following parameters in two consecutive years:
  • Balance sheet total: CHF 20’000’000
  • Revenues: CHF 40’000’000
  • Average number of employees: 200

The auditors must report on whether the accounting records and the financial statements, as well as the proposal concerning the appropriation of the available profit, comply with the law and the articles of incorporation. If the auditors, in the course of their examination, find violations either of law or of the articles, they report this in writing to the board of directors and, in important cases, to the general meeting of shareholders. In the event of obvious over-indebtedness, the auditors must notify the judge if the board fails to do so. Auditors are liable to the shareholders and creditors for damage caused by intentional or negligent failure to perform their duties. The auditors are required to attend the general meeting of shareholders.

The Bolivarian Republic of Venezuela (“Venezuela” or the “Republic”) is one of the largest Latin American economies, given its status as one of the world’s largest oil producers and exporters.

Over the last few years, however, the Venezuelan Government has nationalized a number of businesses in the telecom, power, oil, oil service, bank, and several other industries. The Government has also imposed price controls on many core goods and significant exchange control restrictions that limit the ability to purchase foreign currency.

Despite all these setbacks, Venezuela continues to be a country with significant business opportunities for foreign investors willing to assume risks.

The business environment

Venezuela has the fifth largest proven oil reserves in the world (and the largest in the Western Hemisphere), and the second largest proved natural gas reserves in the Western Hemisphere. If we include an estimated 235 billion barrels of extra heavy crude oil in the Orinoco Belt region, Venezuela holds the largest hydrocarbons reserves in the world. PDVSA, Venezuela’s oil and gas state-owned company, is one of the world’s largest oil companies: they have acknowledged that significant additional foreign investment would be required to achieve its production goals. The Government has signed joint venture agreements for the development of oil and gas projects with international partners from China, India, Italy, Japan, Russia, Spain, the United States of America, and Vietnam among others. All of this creates enormous business opportunities for companies in the oil and gas sector.

The Venezuelan market is also a significant source of profits for several multinational consumer-products makers operating in the country since Venezuelans spend a relatively high proportion of discretionary income on personal products and services, beverages and tobacco, apparel, communications (mobile and smartphones), TV and electronic products. In the next few years, imports are expected to increase much faster than exports with the expansion of consumer demand and the decreasing in the national production of consumer goods.

Venezuela has signed economic cooperation treaties with several countries, including Brazil, China and Russia, providing an adequate framework for investments in projects by companies from such countries.

Venezuela is also a party to international treaties to avoid double taxation with several countries that protect investors against certain changes in tax legislation and is a party to bilateral investment treaties with several European, Latin American and Asian countries, which provide for adequate compensation in case of expropriation or nationalization and access to international arbitration in a neutral forum. Despite Venezuela’s withdrawal from the International Centre for Settlement of Investment Disputes, several of the existing bilateral investment treaties permit arbitration under the UNCITRAL Arbitration Rules and the ICSID’s Additional Facility rules. In certain cases, the Venezuelan Government has reached agreements with foreign investors in businesses subject to nationalization and has paid compensation in U.S. dollars.

The Venezuelan government has engaged in infrastructure and other strategic projects with foreign investors under contracts providing for payments in foreign currency and, in certain cases, for international arbitration to settle potential disputes.

Venezuela is divided into three levels of government:  the national level, the state level and the municipal level.  There are 23 states, a capital district and various federal dependencies, and each state is divided into several municipalities.  The political structure of Venezuela is governed by the Constitution of 1999, as amended in February 2009.

At the national level, the government is divided in the executive, legislative, judicial, civic and electoral branches.  The President of Venezuela (the “President”) is the head of state, head of the national executive branch, and the commander-in-chief of Venezuela’s armed forces.  All executive powers are vested in the President.  The President is also entitled to veto laws passed by the National Assembly.

The national legislative power is vested in the Asamblea Nacional or National Assembly.  The National Assembly has only one chamber, and its members (diputados) are elected by universal suffrage for terms of five years, and may be re-elected for unlimited five-year terms.  The National Assembly is empowered to enact laws, which require the promulgation of the President and its publication in the Official Gazette to become effective.  The work of the members of the National Assembly is done through several Commissions and Sub-Commissions.

The judicial branch is vested in the Venezuelan Supreme Tribunal (Tribunal Supremo de Justicia) and various lower tribunals.  The Supreme Tribunal is the final court of appeals.  It has the power to void laws, regulations and other acts or decisions of the executive or legislative branches that conflict with the Constitution or the laws.  The current number of justices of the Supreme Tribunal is 32.  Justices of the Supreme Tribunal are appointed by the National Assembly for twelve-year terms

The Supreme Court has five chambers, the Constitutional Chamber, the Social Cassation Chamber, the Civil Cassation Chamber, the Criminal Chamber, Electoral Chamber and the Political-Administrative Chamber.  Each Chamber is composed of three justices, except for the Constitutional Chamber which is composed by five.

The Venezuelan court system is a national system; there are no state courts, but there are national courts sitting in each respective state.  Judges are appointed by the Supreme Court.  The jurisdictions of courts are divided by subject matter: civil, commercial, labor, tax, administrative, criminal and family, among others.

Venezuelan courts are generally biased in favor of the Venezuelan government (the Republic or Venezuelan state-owned companies); therefore, it would be very difficult to win a case against the Venezuelan government in a Venezuelan court. In addition, bringing judicial proceedings against the Venezuelan government may have adverse effects on the business of the claimant and on its ability to be awarded further projects or contracts from the government.

At the state level, the government is divided in the executive and legislative branches.  The executive branch of a state is in charge of its governor (gobernador) elected by universal suffrage within each state.  State legislative power is vested in state assemblies whose members are also elected by universal suffrage within each state.  States have virtually no taxing power but they may create taxes on non-precious metals and minerals that are not reserved to the State.

At the municipal level, the government is divided in the executive and legislative branches.  The executive branch of a municipality is in charge of its mayor (alcalde), elected by universal suffrage within each municipality.  Municipal legislative power is vested in municipal assemblies (consejos municipales) whose members (concejales) are also elected by universal suffrage within each state.  Municipalities are empowered to levy business tax on gross income and to approve construction projects in cities and other population centers.

 

The author of this post is Fulvio Italiani

For purposes of conducting business in Argentina, a foreign investor may either incorporate a company under one of the types provided for by the Argentine Companies Law (“ACL”) – subsidiary – or it may set up a branch of its company and appoint a representative thereto. Foreign investors normally elect to set up a subsidiary under the type of Corporations (Sociedades Anónimas “SA”) or Limited Liability Companies (Sociedades de Responsabilidad Limitada “SRL”), for both cases the foreign investor’s liability is limited to the stock capital amount invested in the subsidiary. This first post will summarize the SRL main characteristics.

Foreign investors infrequently prefer the branch structure, as (unlike corporations and limited liability companies) branches do not enjoy limited liability. Branches are not considered to be a separate entity from their parent companies, and therefore, all such acts carried out by the branches are considered as directly performed by the parent company itself. This implies that foreign entities are fully liable for all the transactions carried out by their branches. Both legal structures (subsidiaries and branches) require the foreign investor to be registered with the Public Registry of Commerce in Argentina.

Main characteristics of the Argentinian Limited Liability Companies: las Sociedades de Responsabilidad Limitada (SRL)

Registration and by-laws: No more than 50 quotaholders are permitted in the limited liability companies.

Capital Limited liability companies: No minimum capital is required to form a limited liability company. As in the case of the corporations, the corporate capital must be proper to the development of the corporate purpose and the Public Registry of Commerce may request the companies to fix an amount higher than the one decided by the partners. At least 25% of the capital must be paid up at the time of formation and the remaining 75% must be contributed within a term of two years as of that moment.

Liability SRL: The liability of the quotaholders is limited to the amount of the capital invested. The sole limitation to this rule is the “lifting of the corporate veil” doctrine, applicable when companies have been organized or used with fraudulent purposes, abusing of the right to organize such separated legal person.

Legal Books and Records SRL: Only a Book of Meetings of Managers and Quotaholders is required.

Management SRL: Are managed by managers who may be appointed indefinitely. Managers are not required to be Quotaholders and also the majority must be resident in Argentina. Managers have the same rights and obligations as directors of corporations.

Supervision SRL: the appointment of a syndic is optional unless the capital is more than AR$ 10,000,000, in which case one or more syndic must be appointed.

Quotaholders’ Meetings SRL: Corporate resolutions are adopted by a partners’ resolution as set forth in the act of incorporation. At least one Ordinary Quotaholders’ Meeting must be summoned annually to consider the financial statements, the managers’ report, allocation of profits, and appointment of managers and statutory auditors as basic subjects. Amendments of the by-laws, should a sole partner represent the majority vote, require the vote of another partner.

Financial statements, Balance Sheets and Accounts SRL: Annual financial statements must be submitted for the consideration of the Quotaholders’ Meeting. Same must be filed with the Public Registry of Commerce only if the capital exceeds the amount of $ 10,000,000.

The author of this post is Tomás García Navarro.

Founders

At least one founder (either individual or legal entity) is necessary to form a corporation. Founders and shareholders are not subject to any nationality or residence requirements. Directors must be shareholders and at least one director must be resident in Switzerland. Another restriction relates to the acquisition by non-resident aliens of shares in a Swiss company whose assets consist mainly of Swiss real estate: these transactions are subject to prior authorization. Prior authorization is further required for non-residents to own and operate a Swiss bank, or to acquire an existing Swiss bank.

Articles of incorporation

Articles of incorporation must have the following minimum content:

  • the company name and address;
  • the business purpose of the company;
  • the amount of share capital and the contributions made thereto;
  • the number, par value and type of shares;
  • the calling of the general meeting of shareholders and the voting rights of the shareholders;
  • the naming of the bodies which take care of the management and the auditing of the company;
  • the form in which the company must publish its notices.

Optional clauses are those which must only be listed if founders intend to adopt additional provisions, such as the directors’ participation in the net profits, the issue of preferred shares, the delegation of directors’ authority, the issue of authorized capital or conditional capital.

Founders report

The founders must provide a written statement giving particulars of the nature and condition of contributions in kind or proposed acquisitions of assets, and the appropriateness of their valuation. A founders’ statement is also required when the capital of a company shall be contributed by conversion of shareholder loans and advances. The auditors have to review the founders report and confirm in writing that it is complete and truthful.

Raising of Funds

After subscription to all shares of capital stock, a minimum of 20% of the par value but not less than CHF 50,000 must be placed in escrow with a bank. The funds may only be released to the management after the company has been registered in the Commercial Register.

Incorporation Meeting

The corporation is formed at the incorporation meeting, which is held in the presence of all the shareholders and a public notary. This latter declares that the capital stock is fully subscribed and that the minimum payments have been made. Thereafter, the shareholders adopt the articles of incorporation and appoint the bodies corporate (board of directors, auditors etc.). Finally, a notarised deed must be drawn up recording the resolutions of the general meeting.

Registration

After incorporation, the company must be registered with the Commercial Register. This registration is published in the Swiss Official Gazette of Commerce. It discloses details such as the purpose of the company, its seat, the names of the shareholders (unless they opted for issuing bearer shares) and the names of the directors. Only at the time of registration the company acquires legal entity status. Shares may not be issued prior to registration.

Upon formation, a one-time federal stamp duty of 3% is due on the capitalisation of the company. This stamp duty is assessed on the price at which the shareholder buys the shares. Any premium above par value is also subject to this duty. Furthermore, there are registration and notary fees and, generally, fees due to agents who act as founders to the new entity.

Corporate Name

The corporation is registered under a firm name, which must be distinguished from those of all other corporations already existing in Switzerland. In principle, the corporation is free to choose any kind of name. The name may not however be misleading or otherwise untruthful. The use of national or territorial designations is not permitted unless specifically authorized by the Federal and Cantonal Registers of Commerce. If a personal name is used, a designation showing the corporate nature must be added.

Share Capital

A public company is required to have a minimum capital of CHF 100,000 divided into shares with a minimum face value of CHF 0,01, while a limited liability company is required to have a minimum capital of CHF 20,000.  In the case of a public company, all shares must be subscribed at the time of formation. Capital contributions may be in cash or in kind. If the contribution is made in kind, the company must have access to such assets immediately after registration in the Commercial Register. The articles must describe the property, its value, the shareholder from whom it is received and the number of shares issued in return. The acceptance by the company of contributions in kind requires the approval of at least two thirds of the shares represented at the incorporation meeting.

The general meeting of shareholders may authorize the board to increase the share capital within a period of 2 years. It is within the competence of the Board to decide if, when, and to what extent, the capital should be increased.

The general meeting may provide in the articles for a conditional capital increase. The purpose of issuing conditional capital is, alternatively, to secure options and conversion rights in connection with warrant issues or convertible bonds, or to create employee shares. The increase of capital takes place at the same time, and to the same extent, as the exercise of the respective rights.

Different Types of Shares

Swiss corporation law distinguishes between the following categories of shares:

  • Bearer shares – Bearer shares may not be issued until the full issue price has been paid in. They are transferable by delivery and the corporation cannot restrict their transfer. Bearer shares are very popular in Switzerland because many owners prefer to protect their identity.
  • Registered shares – Registered shares are subscribed as called by the corporation and do not need to be fully paid in on issue. They are transferable by endorsement or assignment, generally without restriction. The company must keep a share ledger listing the owners’ names and places of residence. The entry must be certified on the share certificate by the Board. The buyer of incorrectly transferred registered shares cannot exercise personal membership rights. The articles may provide for subsequent conversion of registered shares into bearer shares and vice versa.
  • Restricted transferability of registered shares – To prevent unfriendly takeovers, the articles may provide for restrictions on the free transferability of shares. By law those restrictions are however limited.
  • Preferred shares – The general meeting of shareholders is entitled to issue preferred shares or to convert existing common shares into preferred shares. The holders of preferred shares enjoy certain preferences such as cumulative or non-cumulative dividends, priority in the proceeds of liquidation and a preferential right to subscribe to new shares. This preferential treatment must be provided for by the articles or be adopted by the votes of at least two thirds of all shares represented.
  • Voting shares – In general, each share is entitled to one vote. Since shares of differing value may be issued, each vote may not represent the same amount of capital contribution. Voting shares, therefore, provide those shareholders who represent a financial minority with the decision making power within the corporation. The issue of voting shares is permitted in the ratio of 1 : 10 to ordinary shares.
  • Profit sharing certificates – The general meeting of shareholders can issue profit sharing certificates in favour of persons who have an interest in the company through previous capital contributions, shareholdings, creditors’ claims, employees, or similar relationships. Profit sharing certificates may grant rights to a share in profits, a share in the liquidation proceeds or rights to subscribe to new shares. They do not procure any membership rights. By law, profit sharing certificates must not have a par value nor be issued in exchange for contributions characterized as assets.
  • Certificates of participation – The certificate of participation is a non-voting share, with the holder of such certificates having basically the same status as shareholders apart from the right to vote. The participation capital must not exceed double the share capital. Companies have until June 30, 1997 to comply with this requirement unless their participation capital was more than double the share capital on January l, 1985.

There are two ways to enter and do business in the Dominican Republic: By establishing a separate Dominican business entity (“subsidiary”) or by registering a branch of a foreign company (“branch”). In addition, business relationships may be set up under a commercial contract in form of a joint venture, agency, distribution or similar agreements that comply with Dominican Republic legal and regulatory requirements, for the recognition and validity of business entities and commercial agreements.

Another option consists of a Consortium agreement between foreign and Dominican companies intended to execute projects in which the Dominican State participates.

ESTABLISHING A DOMINICAN SUBSIDIARY

Usually start-up and medium business entities in the Dominican Republic are incorporated as a Limited Liability Company or Sociedad de Responsabilidad Limitada (S.R.L.). The Sociedad de Responsabilidad Limitada or S.R.L. is the most common and efficient form of organizing a company in the Dominican Republic and is often chosen by large foreign companies as the legal form for their subsidiaries.

S.R.L.’s offer the following advantages: The partners receive limited liability, meaning that they only respond for company debts up to the limit of their contributed capital. Shareholders can be legal persons or individuals. SRL’s is manager managed with no board of directors required; managers must be individuals, and can be Dominicans or foreigners. Company can attract capital through the issuing of new shares which may be ordinary or preferred shares.

SRL’s may effectuate any type of activities that are legal in trade and there are no restrictions in the Dominican Republic on the legal currency. The United States Dollar is exchanged freely with the Dominican Peso, as well as any other currency.

SRL’s also serve as a holding company and may keep assets as their property, contributed by the partners or acquired by the same, both national and international, movable and real estate properties.

SRL can outlive their founders. Their quotas may be freely transferred among partners, by way of succession, in case of liquidation of marital community assets, among ascendants and descendants under the rules established in the By Laws.

The main steps in establishing a Dominican Limited Liability Company (SRL) are the following:

  1. Make a search before the Dominican Trademark Office, draft and file the request registration to obtain a trade name for the Dominican Company.
  2. Draft by-laws, minutes of incorporation meeting and related incorporation documents. These may be drafted as private documents or as a notary public act for signing by the partners and managers for legalization by notary public;
  3. Pay the incorporation taxes of one percent (1%) of the company’s registered capital before the corresponding Dominican Tax Administration (DGII);
  4. Prepare the business register application and file it along with the corresponding company incorporation documents after payment of business registration fee to obtain the company’s business registration certificate;
  5. Prepare and file the request to obtain the company’s Tax Identification Number (RNC);
  6. Register at DGII’s web page to obtain access and request fiscal invoice numbers (NCF);
  7. Enroll employees before the treasury of social security (TSS) and the ministry of labor.

The following schedule serves as a guidance of the time required to form a new Dominican Company:

Register of company trade name 5 to 7 days
Drafting incorporation documents plus 2 to 5 days
annexes (Incorporation Meeting, By-laws, Business Register application)
Paying incorporation taxes on capital less than 1/2 day
Incorporation Meeting of shareholders less than 1/2 day
Legalizations by Notary Public less than 1/2 day
Registration in Business Register 2 to 5 days
Registration as Tax Contributor (RNC) 10 to 15 days

The following founding documents are needed to form the company:

  1. Business Register request of registration form for Dominican Company, duly signed by the person that is authorized by the company or by an empowered attorney, for which a copy of the power of attorney shall be provided.
  2. By- Laws/Articles of Incorporation in private or notary act form containing the details required in legislation (including company name, registered domicile and purposes.
  3. Attendance List and Minutes of the Incorporation Meeting.
  4. Updated List of Partners/ Shareholders
  5. Report of the Commissary of Contributions, if applicable.
  6. Receipt of payment of the tax on the incorporation of legal entities.
  7. Photocopies of the Dominican Identity and Electoral Card and if foreign, Passport photo page or other official document with visible photo from the country of origin for the partners, managers and account commissary.
  8. Copy of the Trade Name Certificate issued by the Dominican Trademark Office.
  9. Declaration of acceptance of the appointments by the managers if this is not apparent from the by-laws and minutes of the incorporation meeting.

REGISTERING A DOMINICAN BRANCH

Foreign companies interested in doing business in the Dominican Republic (DR) may register a branch in the DR. Under Dominican law, a registered foreign company branch office can enter into contracts and execute and settle transactions in its own name, and can sue and be sued at its place of business.

In order to successfully complete a DR branch registration, the foreign company documents shall prove its valid incorporation and existence, contain all general and specific information as well as proper authorizations; corporate documents shall be certified, notarized and duly legalized by all applicable foreign and local authorities according to local and international law. The Dominican Republic is a member of the 1965 convention of The Hague or Apostille.

The registration of a foreign company branch before local authorities will enable the owners of the foreign entity to conduct business in a similar way and equal rights as a DR business entity.

Branches of foreign corporations are in general treated the same way as legal entities for tax purposes. They are however not subject to issuance stamp tax upon formation. Profits of a Dominican branch office are exempt from taxation (Dominican withholding tax) in the partner-nation under the double-taxation agreements which Dominican Republic has signed.

To register a branch in the DR, it is necessary to provide certified company incorporation, shareholder and manager verification and a power of attorney to qualified attorneys who will draft, prepare and file the request of branch registration at the business register and request a Taxpayer Identification Number (TIN) in the Dominican Republic.

Usually, the registration of a branch to pursue general, unregulated and taxed commercial activities may be accomplished by pursuing the following:

  1. a) Business Registry: The Company should be registered in the Business Registry of the Chamber of Commerce where its local domicile will be located. A registration fee is calculated based on the authorized capital. In order to obtain this registry, the company must file all documents which evidence its proper incorporation in the home country and that representatives are fully authorized to register the foreign company branch.
  2. b) TIN: Issued by the Tax Administration. It is a number that shall serve for identifying the business’s taxable activities and for the control of the duties and obligations derived therefrom. To obtain such registration, the company shall file copy of the Business Registry and the corporate documentation that may be required by such Tax Administration. It shall also present a valid corporate domicile in the DR which may be subject to verification.

USING DOMINICAN COMMERCIAL AGENTS AND DISTRIBUTORS

A foreign supplier of goods and services may choose to enter the Dominican market by selling his/her products through Dominican agents and distributors or representatives. The different channels of selling are subject to different legal frameworks.

Contracts involving Dominican agents and distributors are generally governed by the Civil Code of the Dominican Republic, whose freedom of contract principle allows the parties to choose freely the form, terms and conditions of their agreement as well as by the Code of Commerce and general commercial practices and rulings interpreting the scope of agency, unless said agreement is registered under Law 173 Protecting Importing Agents of Merchandises and Products of April 6, 1966, as amended (“Law 173”).

Local agents and distributors often want to register their Agreements with foreign enterprises under Law 173, while foreign companies that do not have a free trade agreement with the Dominican Republic, are often unaware of this possibility and without adequate previous legal counsel, may later find out a Law 173 registration has been made.

Once registration has been obtained, the relationship of the local licensee (a.k.a. “concessionaire”) with its grantor becomes governed by the provisions of Law 173 of 1966, which provides the local concessionaire with the following rights:

  • The right to initiate legal actions against the grantor or a third party for the purpose of preventing them from directly importing, promoting or distributing in Dominican Territory the registered products or services of the grantor;
  • The right to file suit for damages against both the grantor and any new appointee for substitution of the local concessionaire, including the right to be indemnified for unjust termination in accordance with the formula and for the concepts provided by Article 3 of Law 173.
  • The right to an automatic renewal of the contract or a mandate of continuation of the relationship existing thereof, even if the termination clause of a registered contract provides otherwise.
  • Unilateral termination by the grantor of the local concessionaire’s rights under Law 173 of 1966 is only possible if made for a “just cause”, pursuant to the definition of just cause provided by Law 173 of 1966.
  • The Law provides exclusive jurisdiction to the courts of the Dominican Republic.

Law 173 protects Dominican agents and distributors of foreign enterprises. Its objective is to protect exclusive and non-exclusive agents, distributors and representatives from being unilaterally substituted or terminated without just cause by foreign entities, after favorable market conditions have been created for them in DR.

Law 173 defines as grantor the individuals or legal entities who the Dominican agents and distributors (i.e. concessionaires) represent, who conduct business activities in the interest of the grantor or of its goods, products or services, whether the contract is granted directly by grantor, or by means of other persons or entities, acting in grantor’s representation or in their own name but always in its interest or of their goods, products or services.

The author of this post is Felipe Castillo.

Companies are the most common vehicles for business and investment activity whether in Cyprus or abroad.

Types of companies

Under the Companies Law. Cap. 113 as amended (the “Companies Law”), there are two types of companies:

  • Companies limited by shares, and
  • Companies limited by guarantee (with share capital or without share capital)

Companies limited by guarantee are often employed for non-profit or charitable purposes whereas companies limited by shares for business purposes.

The latter may be either private companies or public companies. A private limited liability company must have at least one shareholder but no more than fifty whereas a public limited liability company must have a minimum of seven shareholders and there is no ceiling as to maximum number. The shareholders of a company may be either natural persons or legal persons (Cypriot or foreign). Shares cannot be issued to the bearer.

Liability of shareholders

Companies are separate legal entities distinct from their members. They have a separate corporate personality and are responsible for their obligations and debts. The liability of the shareholders in companies limited by shares (private or public), is limited to the nominal value of the shares agreed to be taken up or to an amount above the nominal value if the shareholder specifically agreed to subscribe to the shares at a premium. In the case of companies limited by guarantee, the liability of the shareholders is limited to the amount each shareholder agrees, at subscription, to contribute towards the debts of the company in the event of liquidation.

Share Capital

There is no restriction as regards the minimum or maximum share capital of a private company. But there is a minimum share capital requirement of €25629.02 in the case of public companies. Information as regards the initial authorised and issued share capital of the company is included in the memorandum of association and any subsequent changes must be notified to the Registrar of Companies.

The share capital may be paid in cash or in kind.

 Transfer and allotment

The transfer of shares in a company is not restricted by law. It is however possible and common for restrictions e.g. right of first refusal to be included in the articles of association of the company. In such cases any transfer of shares must be made in compliance with the relevant provisions of the constitutional documents (see below).

On an allotment of new shares of a public company, the company is obliged to offer shares to existing shareholders pursuant to pre-emption rights provided as mandatory rules in the statute. In the case of a private company there is not such statutory duty and therefore it depends on whether pre-emptions rights and relevant obligations on the part of the company have been provided for in the articles of association.

All allotments of new shares and transfers of shares must be notified to the Registrar of Companies.

 The Directors and Secretary

The directors of the company, acting collectively as a board, manage the business of the company and do all decision making to the extent not reserved for the general meeting of the shareholders.

A private company needs to have at least one director whereas a public company must have at least two. There is no statutory restriction as to the maximum number of directors but the articles of association of the company may provide limitations. The directors of the company may be natural or legal persons (Cypriot or foreign). The proceedings of the board of directors and its composition are very important elements for the tax treatment of the company (see below).

All companies are required to have a secretary. The duties of the secretary are mainly of an administrative nature.

 Registered office

The company must have a registered office in Cyprus. All communications and notices may be addressed to the company at the registered office and any document, whether official or otherwise, may be served to the company at its registered office.

 Incorporation documents

The memorandum of association is the document which sets out important information in relation to the company; such information might be relevant for third parties e.g. potential counterparties, creditors etc.. The memorandum of association must state:

  • the name of the company;
  • the place where the registered office is situated;
  • in the case of a public company, the fact that it is such a company;
  • the objects of the company;
  • a statement that the liability of its members is limited and the amount to which such liability applies;
  • the names of the subscribers to the memorandum of association and the number of shares each of them takes up.

Following the registration of the company, the memorandum of association may be amended with the approval of the court.

The articles of association is the document regulating internal matters as regards the operation and management of the company and the rights of the members e.g. the procedures to be followed in general meetings, requirements for the adoption of resolutions, the voting rights of members, the conditions and manner in which shares are to be transferred, rights and duties relating to put or call options, rights and duties relating to tag and drag along rights, the appointment and removal of directors etc. The articles of association may be amended by a relevant decision of the members of the company.

Together with the memorandum of association, the articles of association form the constitutional documents of the company and constitute basically an agreement between all and each of the members of the company to abide to their provisions.

 Registration

Establishing a company requires registration with the Registrar of Companies, the governmental office competent for matters relevant to the registration of companies and their ongoing obligations with regard to information that must filed pursuant to the Companies Law. The Registrar of Companies is responsible for keeping a relevant file which is available to the public for inspection.

The initial step in the formation of a company is the approval of the proposed name by the Registrar of Companies. Subsequently, the memorandum of association and articles of association of the company must be filed accompanied by the necessary forms which indicate the registered office, the details of the director(s) and secretary and an affidavit of the lawyer in charge of the registration of the company. Usually it takes approximately seven to fifteen working days for the completion of the registration of a company. A shelf company i.e. a ready-made company may be purchased if there is an immediate need for the use of a company. Following registration of the company, the Registrar of Companies issues a certificate of incorporation which constitutes conclusive evidence that all the requirements of the Companies Law, in respect to registration and matters precedent and incidental thereto, have been complied with.

Financial statements

Financial statements must be prepared annually and be duly audited by qualified accountants practising in Cyprus according to the International Financial Reporting Standards. Annual returns containing information as to any changes to directors, secretary, shareholders, authorised, issued or paid up capital, registered office, mortgages/charges and other related matters must be filed with the Registrar of Companies once per year accompanied by a copy of the financial statements.

Tax aspects

In order be eligible to benefit from the favourable Cyprus tax regime and treaty network in place, a company should be considered as resident in Cyprus for tax purposes.

Under Cyprus tax law, a company is considered as tax resident in Cyprus if its ‘management and control’ is exercised in Cyprus. There is no statutory definition of ‘management and control’. In practice Cyprus tax authorities would look at several conditions to determine whether a company qualifies as a resident in Cyprus for tax purposes:

  • strategic management decisions and preferably day-to-day decisions being taken in Cyprus,
  • the majority of the board members being tax residents in Cyprus and exercising their  office from Cyprus,
  • an actual office being maintained in Cyprus,
  • evidence of commercial documentation being stored in the company’s office,
  • accounting records being prepared and kept in Cyprus,
  • bank accounts being operated from Cyprus even if maintained with foreign banks.

Not all of the above must be established in order for the company to qualify a tax resident in Cyprus; the conditions would be considered in light of the nature and level of activities of the company and the country in which transactions or investments are made. For the purposes of the Cyprus tax authorities satisfaction of the first two conditions would normally be adequate for the company to be considered as tax resident.

Tax resident companies are subject to income tax on their worldwide income at the flat rate of 12.5% subject to tax credit for any tax suffered in a foreign jurisdiction on income which is also subject to tax in Cyprus.

Companies ought to submit tax returns, together with their annual financial statements, to the Tax Department in compliance with the applicable legislation.

Re-domiciliation

It is possible for corporations from other jurisdictions to acquire a ‘domicile’ in Cyprus. Effectively this means that the company may change its governing law without going through the process of liquidation where it was firstly established and then fresh incorporation in Cyprus.

A company registered in another jurisdiction is eligible to apply to the Registrar of Companies to be registered as a continuing company pursuant to the provisions of the Companies Law if: the foreign jurisdiction allows the re-domiciliation, its constitutional documents provide for it and the steps required for the decision for the re-domiciliation have been complied with. Such companies must have their registered office transferred into Cyprus.

It is also possible for local companies to “re-domicile” moving their registered office in other jurisdictions.

In both cases of ‘re-domiciliations’ the permission of the Registrar of Companies is required and it is generally given upon certain conditions being met.

The challenge of an entrepreneur

When thinking on internationalization, an entrepreneur has many options and conditions to consider before making the right decision. Probably he would look for a country or region that offers safety, stability, has less restrictions, hands incentives and a cultural balance.

In South America, there is a country that has been growing steadily for the last 25 years, with  a very interesting investment environment: Peru.

This country has changed its closeness of the past to become an open economy. Before 1990, this country was involved in a decadent economic situation, state control of the economy, appalling levels of inflation, high import tariffs, foreign exchange controls, prohibition of holding foreign currency, huge inequalities between cities and provinces, terrorist violence and high levels of corruption.

Although in 1990 this country looked unsustainable and ready to the final collapse, a new administration set the path to the future. The economy has been dramatically opened, tariffs unilaterally reduced, foreign exchange controls eliminated and the basis for a fair private activity of the economy has been imposed by establishing that the state’s participation in the economy should only have a subsidiary role and not represent unfair competition to the private sector.

A country to be considered as an option

Never in its republican history Peru had a period of growth of 25 years and the path set in 1990 it’s only expected to continue. The general consensus on the need of macroeconomic stability, associated with prudent fiscal policies, has brought Peru to have high international reserves and an important reduction of its external debt.

State companies have left the market in favor of local and international companies trough privatizations and concessions, especially on infrastructure.

Successive Peruvian governments have sustained a State policy of engaging on international trade agreements. To this day, Peru has free trade agreements with the mayor economies of the world, including the USA, the European Union and China, and it’s an active promoter of international economic integration, being one of the late examples “the Pacific Alliance” formed also by Colombia, Chile and Mexico, all of them open economies.

In Peru it is not only possible to hold bank accounts in local currency (Soles), US Dollars and Euros, but also to exchange currency at very competitive rates. Foreign investors or traders are able to transfer funds in and out without any previous State authorization.

The country has changed and this time modernity is also reaching the provinces, poverty has been reduced from more than 50% in the early 90’s to a little less than 20% nowadays, representing a big increase of the middle class. The new Peruvian government that initiated a 5-year mandate on July 2016, has pledged to bring poverty numbers to less than 10%.

Peruvian economy is well diversified. While the mining sector is the heavy weight of the economy, other sectors have been growing at a record pace: fishery, agriculture, agro-industry, construction, tourism, services, etc.

Peru is now committed to become part of the Organization for Economic Co-operation and Development (OECD) that congregates the high income economies of the world.

Yet, the road is still long. High levels of informality on the economy and a big deficit on infrastructure represents not only challenges but opportunities at the same time.

Legal regulations

While, legal regulations in basic areas (like tax, labour, civil law) have been basically the same since the early 90’s, the government of Pedro Pablo Kuczynsky (in office since the end of July 2016) has requested to the Congress the ability to legislate through decrees on 5 fundamental topics: economic reactivation, public safety, anti-corruption, water & sanitation and the re-organization of the state controlled petrol company(Petro-Peru).

The Peruvian Congress (led by the opposition party of Mrs. Fujimori) has granted this authority to the Executive for a 90-days period until the end of December of 2016.

In the weeks to come, we will see the announcement of new Peruvian regulations that are expected to be investors friendly. We will use the implementation of these regulations in order to explain how to do business in Peru, also from the legal point of view.

The author of this article is Frank Boyle.

The GmbH is a capital company under German law. The liability of the shareholders in this kind of corporation is limited to the company’s share capital i.e. the company’s assets alone shall serve to fulfil the company’s obligations vis-à-vis its creditors. Being the GmbH – a limited liability company – a legal person, it holds autonomous rights and obligations; as such it may e.g. acquire ownership and other rights in real property and autonomously sue and be sued in court in connection with its rights and duties.

The corporate bodies of the GmbH required by compulsory provisions of the Limited Liability Company Act (GmbHG) are the entirety of the shareholders, who regularly adopt resolutions at the shareholder meeting (Gesellschafterversammlung), and the managing director(s) (Geschäftsführer). The establishment of a supervisory board (Aufsichtsrat) is, with some specific exceptions, optional.

Shareholders’ rights and duties

The rights and duties of shareholders may be quite different in origin and nature. Shareholder rights and duties may exist by force of law or may be created by, or based upon, the articles of association (Satzung). Said rights and duties may attach to all shares as such or belong to, or be imposed upon, a shareholder personally (personal shareholder rights and duties). Shareholder rights and duties may be available to, or be imposed upon, all shareholders equally or upon one or several shareholders particularly. In principle such rights and duties pass to any transferee of the share, whether such a transfer is by assignment, inheritance, or otherwise, and cannot be assigned or otherwise transferred separately from the share itself.

Both rights and duties attaching to shares, that are not created by law, and personal shareholder rights and duties can only be granted or imposed by the articles of association or by shareholder resolutions passed on the basis of the articles of association. These rights and duties must be distinguished from the ones provided within agreements between the shareholders, which are made “outside the articles of association”. Such latter agreements can only create contractual rights and duties among the parties thereto. If a share is transferred, the transferee can only exercise the contractual rights of the transferor, provided those rights were specifically assigned to him by contract; said transferee is accordingly bound by his transferor’s contractual duties only if he has agreed to take them over.

Shareholder rights can be divided into administrative and property rights. Administrative rights include the right (i) to request the calling of the shareholders’ meeting (ii) to participate in the shareholder meeting (iii) to vote and (iv) to be provided with information about the corporate activities. The right to information basically entails that the managing directors must provide every shareholder with information about the affairs of the company upon their simple request and allow them to inspect the books and records of the company. Property rights include the entitlement to a quota of the annual profits, the right to dispose of the share and the entitlement to a share of the liquidation proceeds.

The most important shareholder duties are the duty to render contributions, the fiduciary duty and the duty to ensure that the share capital, once provided, is preserved. Shareholder rights and duties can be expanded, restricted or excluded in the articles of association, as long as this is not in conflict with mandatory law provisions.

Finally, once the company gets into economic trouble, a shareholder is obliged to either (i) inject new equity to the company, (ii) liquidate the company or (iii) cause the management to commence insolvency proceedings.

Liability

The GmbH is a legal entity separate from its shareholders. Therefore, the shareholders are in principle not liable for debts of the GmbH. There are only a few scenarios of shareholder liability in literature and court practice:

  • Shareholders may be liable for debts or losses of the company – on a contractual basis – if they undertake a contractual obligation towards the company’s creditors or the company (e.g. by means of a guarantee or a comfort letter).
  • A shareholder may be personally liable to the company for payments received from the company to the extent such payments cause the equity of the company to fall short compared to the registered share capital.
  • Shareholders may be held liable by the company if, disregarding the purpose of the company’s assets to serve as collateral for its creditors, they intentionally abuse their control to remove assets or business opportunities from the company, rendering it unable to satisfy its debts.
  • Additionally, a shareholder may become personally liable towards the company’s creditors if the assets are not clearly allocated to the shareholders or the company in the books of the company (intermingling of assets) and such allocation is not inferable from other circumstances, e.g. the physical separation.

 Shareholders’ meeting

The shareholders’ meeting is the company’s ultimate decision-making authority. Shareholders usually exercise their rights in the shareholders’ meeting. Shareholder resolutions may also be taken without a physical meeting. In particular, a meeting is not necessary if all the shareholders confirm in text form that they agree with the resolution to be passed or to cast their votes in writing.

Usually, the articles of association determine the powers of the shareholders’ meeting and the rules of procedure to be applied in its context. To the extent that the articles of association do not contain specific provisions regarding the procedures to be applied within the shareholders’ meeting, §§ 46-51 GmbHG apply as the relevant model framework.

The shareholders’ meeting is exclusively entitled to:

  • amend the articles of association,
  • call in additional contributions of the shareholders,
  • liquidate the company and  appoint and dismiss the liquidators,
  • resolve upon measures pursuant to the Transformation Act (Umwandlungsgesetz – UmwG) such as mergers, spin-offs and changes of the company’s legal form.

Except as otherwise provided in the articles of association, the shareholders resolve upon:

  • the formal approval of individual and consolidated annual financial statements and the distribution of profits,
  • the repayment of additional contributions,
  • the division, consolidation and redemption of shares,
  • the appointment and dismissal of managing directors, as well as their discharge,
  • the execution and termination of service agreements with managing directors,
  • the assertion of damage claims to which the company is entitled against managing directors or shareholders, as well as the representation of the company in litigation proceedings against managing directors or shareholders,
  • the rules of procedure for the management,
  • the appointment of a Prokurist (person vested with the general power of representation) and of persons vested with the commercial power of attorney for the entire business establishment (Handlungsvollmacht).

The above mentioned tasks can be however transferred by the shareholders’ meeting to the supervisory board, if any, by adopting a relevant resolution.

In addition, the shareholders’ meeting has the right to issue instructions to the managing directors and to appoint or dismiss members of an optional supervisory board.

A shareholders’ resolution is deemed to be passed, when more than a half of the given votes are favourable. In exceptional cases a majority of ¾ will be necessary, e.g. with regard to amendments of the articles of association, the dissolution of the company, resolutions on mergers, spin-offs and other measures under the Transformation Act (UmwG), execution of domination agreements and of profit and loss transfer agreements.

Managing director

The company must have one or more managing directors (Geschäftsführer). The GmbH is not legally required to have more than one managing director except in particular cases (e.g. in case indicated by the Co-Determination Act. Both shareholders and non-shareholders (however only natural persons, no legal persons) may be appointed managing directors. In the articles of association the shareholders can set requirements regarding the qualification for the position of managing director.

If the GmbH has only one managing director, he represents the company severally. If several managing directors have been appointed, they must represent the company jointly. However, if the company has more than one managing director, the shareholders can also grant the power of representation to the individual managing director derogating the statutory rule of joint representation, by a corresponding clause of the articles of association. In other words any modification of the statutory powers of representation must be based upon a provision in the articles of association. That provision must either itself define directly the extended power of representation in favour of an individual managing director, or permit the shareholders to extend the power of representation of the managing directors by passing a relevant shareholder resolution.

In detail, the shareholders may grant each managing director, or one or several managing directors, the right

  • to represent the company acting alone,
  • to represent the company acting jointly with one or several other managing directors, or
  • to represent the company acting jointly with one or several managing directors or Prokurist.

The managing directors have authority to represent and act on behalf of the company in all legal transactions in and out of court.

A limitation of the authority of managing directors to represent the GmbH – even within the articles of association or resolved by shareholder resolution – will have no effect with respect to third parties. Should the articles of association e.g. set forth that the managing directors are not entitled to execute agreements with a value exceeding 5,000 € and the managing directors enter into an agreement with a 10,000 € value, such latter agreement shall be nonetheless valid vis à vis the contractual counterparty.

The limitation of the power to represent the company, however, operates in individual cases where the third party interacting with the managing director is not entitled to rely on the unlimited power of the managing director. This occurs in particular where a managing director abuses his powers to represent the company and the third party knows or deliberately ignores the abuse.

The power to represent the company is further limited by the prohibition of self-dealing and multiple representations. A managing director is in general not allowed to enter into legal transactions on behalf of the company with himself as counterparty (so called self-dealing) or as the representative of the company and of a third party (multiple representations). However, he can be exempted from such prohibitions. Such exemption may be granted in the articles of association or, if the articles of association allow it, by the shareholder meeting.

In the context of the internal relations between the company and the managing directors, the managing directors must observe the restrictions contained in the articles of association, the instructions set within shareholders’ resolutions or in the management contracts of the managing directors. The shareholders can issue instructions ad hoc or in a general way by establishing rules of procedure for the management (e.g. make certain kind of transactions subject to the consent of the shareholders’ meeting). In case the managing directors do not comply with such instructions, they are obliged to compensate the company for any damages incurred as a consequence thereof.

The shareholders may entrust specific fields of responsibility – i.e. administration, accounting, finance, employment and social matters, production, distribution, sales or marketing – to one or more managing directors. The shareholders may also introduce a hierarchic structure under which one managing director is granted an overall responsibility for any fields, while other managing directors are required to report to him with respect to matters regarding the specific field for which they are responsible. However, no managing director can be completely released from the joint overall responsibility for the well-being of the company. Thus, any managing director in charge of a special area of responsibility must report to the other managing directors whatever matters arise in his particular area if said issues may have an effect on the whole company; moreover any managing director may decide upon matters falling under the area of responsibility of another managing director if he believes that the overall well-being of the company may be affected by decisions taken with respect to those matters. In any case, such internal allocation of specific fields of responsibility does not lead to a limitation of the power of the managing directors to represent the GmbH and has no effect with respect to third parties.

Supervisory board

The creation of a supervisory board (Aufsichtsrat) is either optional or mandatory. It is mandatory if it is required by the One-Third Participation Act (Drittelbeteiligungsgesetz, in case of more than 500 employees), the Coal, Iron and Steel Co-Determination Act (Montanmitbestimmungsgesetz, in case of more than 1,000 employees), the Co-Determination Act (Mitbestimmungsgesetz, in case of more than 2,000 employees) or the Capital Investment Act (Kapitalanlagegesetzbuch, in case the company’s purpose is the management of investment funds).

In companies with up to 500 employees, no supervisory board needs to be established. However, the articles of association can provide for the formation of a supervisory board. In this event, the articles of association can even set forth rules for the supervisory board, including the board’s composition, competencies and mode of procedure. The scope of the competencies can be limited to monitoring and advisory responsibilities or even comprise decision-making and representation of the company vis-à-vis the managing directors.

Mattia Dalla Costa

Áreas de prática

  • Empresa
  • Comércio eletrónico
  • Franchising
  • Propriedade intelectual
  • Marcas registadas e patentes
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    China – WOFE set up process

    10 Outubro 2016

    • China
    • Empresa

    There are three bodies in a Swiss corporation, namely: the general meeting of shareholders (the supreme body), the board of directors and the auditors.

    Shareholder’s meeting

    The general meeting of shareholders is the supreme authority of the company and is composed of all shareholders. There are two types of meetings:

    • Ordinary general meeting. This is held annually within six months after the close of the business year;
    • Extraordinary general meeting, which is called as often as considered necessary.

    The general meeting of shareholders has the right to adopt and amend the articles, to appoint directors and auditors, to approve the financial statements and the directors’ report, to ratify certain decisions of the Board, and, in general, to make all important decisions which are not delegated to any other body. The shareholders must also approve the proposal of the Board relative to the distribution of annual profits. A general meeting is called by the board or, if it fails in its duties, by the auditors. One or more shareholders, representing together at least 10 % of the share capital, may at any time request the calling of an extraordinary shareholders’ meeting. This must be done in writing, indicating the purpose of the meeting. In general, a simple majority of votes represented at the general meeting is sufficient to pass a resolution and hold elections. However, certain decisions require a vote of two thirds of the votes represented and the absolute majority of the· par value of the shares represented (such as change of corporate purpose, extension of scope of business, distribution of shares with privileged voting rights etc.).

    Shareholders cannot be deprived of their acquired rights without their consent. The term acquired rights includes the right to vote, to dividends, to a share of the liquidation proceeds and to receive sufficient information on the financial condition of the company. The Swiss Code distinguishes two kinds of shareholders rights: financial interests and personal membership rights.

    Each shareholder has the right to a proportionate share of the profits distributed. Dividends may only be paid out of net profits or out of reserves specially created for this purpose. There is no interest payable on the ordinary share capital and a company may not declare interim dividends out of current year profits. Dividends can only be declared by the general meeting of shareholders and after attribution to the legal reserve. A share of the net profits may be paid to members of the board of directors if:

    • the articles specifically provide for such payments,
    • the allocations to the legal reserve fund have been made and,
    • a dividend of at least five percent has been paid to the shareholders.

    Unless otherwise stated in the articles or in the resolution for the increase in share capital, each shareholder has an option to subscribe to new shares in the same proportion that his original holding bears to the total shares issued.

    Each shareholder is entitled to a proportionate share of the proceeds of liquidation unless the articles of incorporation provide otherwise. The proceeds are calculated in proportion to the amounts paid in on the share capital.

    Most personal membership rights are acquired rights which means that even with the general meeting’s consent, the shareholder cannot be deprived thereof. These include the following:

    • Shareholders exercise their rights at the general meeting of shareholders. Every shareholder may attend the meeting in person or be represented by his proxy. A holder of bearer shares is considered authorized to attend if he presents the share. On the other hand, registered shares can only be represented if a written proxy is produced.
    • Voting rights.
    • Shareholders are entitled to review the financial statements, which must be available for inspection at the address of the company not later than 20 day prior to the annual general meeting. Any shareholder may request a copy to be sent to him before the meeting.

    Board of Directors

    The company is managed by the board composed of one or more individual directors who must be shareholders. A majority of board members must be Swiss citizens residing in Switzerland.  If the board consists of a single member, he or she must be a Swiss citizen residing in Switzerland. The directors are elected at the general meeting for a period fixed by the articles (maximum six years). The directors can however be re-elected indefinitely.

    The articles may require that during their term of office they must deposit a certain number of shares at the corporation’s registered domicile. This is designed to protect the corporation against damages that directors may cause in the fulfilment of their duties. The board can delegate part of its authority to either an executive committee or to individual directors, to officers or to agents. At least one director must have power and authority to represent the company. The board designates the individuals authorized to represent the company vis-a-vis third parties and determines the details concerning the signatory powers. The company is unrestricted in the selection of its executive personnel, such as managers and officers, although managers and employees of foreign nationality require a permit to take up residence and employment in Switzerland.

    The board is responsible for the preparation of the general meeting. It gives the necessary instructions to the management for the proper conduct of the company’s business and supervises those authorized to act on behalf of the company. It is the primary responsibility of the board, although generally delegated to management, to keep the accounting records and to prepare the annual financial statements. Furthermore, the board must submit a written annual report on the company’s financial position and the results of its activities to the general meeting of shareholders.

    Auditors

    The general meeting of shareholders elects one or more independent auditors who may be individuals or legal entities. Auditors must be professionally qualified to fulfil their duties. At least one auditor must have his domicile, registered office, or a registered branch in Switzerland. The auditors may not serve as directors nor be otherwise employed by the company, nor may they assume managerial functions for the company. Auditors may be elected for a maximum period of three years. Re-election is possible.

    Auditors must have special professional qualifications if the audited entity:

    • has outstanding bond issues;
    • has shares listed on a Swiss stock exchange;
    • exceeds two of the following parameters in two consecutive years:
    • Balance sheet total: CHF 20’000’000
    • Revenues: CHF 40’000’000
    • Average number of employees: 200

    The auditors must report on whether the accounting records and the financial statements, as well as the proposal concerning the appropriation of the available profit, comply with the law and the articles of incorporation. If the auditors, in the course of their examination, find violations either of law or of the articles, they report this in writing to the board of directors and, in important cases, to the general meeting of shareholders. In the event of obvious over-indebtedness, the auditors must notify the judge if the board fails to do so. Auditors are liable to the shareholders and creditors for damage caused by intentional or negligent failure to perform their duties. The auditors are required to attend the general meeting of shareholders.

    The Bolivarian Republic of Venezuela (“Venezuela” or the “Republic”) is one of the largest Latin American economies, given its status as one of the world’s largest oil producers and exporters.

    Over the last few years, however, the Venezuelan Government has nationalized a number of businesses in the telecom, power, oil, oil service, bank, and several other industries. The Government has also imposed price controls on many core goods and significant exchange control restrictions that limit the ability to purchase foreign currency.

    Despite all these setbacks, Venezuela continues to be a country with significant business opportunities for foreign investors willing to assume risks.

    The business environment

    Venezuela has the fifth largest proven oil reserves in the world (and the largest in the Western Hemisphere), and the second largest proved natural gas reserves in the Western Hemisphere. If we include an estimated 235 billion barrels of extra heavy crude oil in the Orinoco Belt region, Venezuela holds the largest hydrocarbons reserves in the world. PDVSA, Venezuela’s oil and gas state-owned company, is one of the world’s largest oil companies: they have acknowledged that significant additional foreign investment would be required to achieve its production goals. The Government has signed joint venture agreements for the development of oil and gas projects with international partners from China, India, Italy, Japan, Russia, Spain, the United States of America, and Vietnam among others. All of this creates enormous business opportunities for companies in the oil and gas sector.

    The Venezuelan market is also a significant source of profits for several multinational consumer-products makers operating in the country since Venezuelans spend a relatively high proportion of discretionary income on personal products and services, beverages and tobacco, apparel, communications (mobile and smartphones), TV and electronic products. In the next few years, imports are expected to increase much faster than exports with the expansion of consumer demand and the decreasing in the national production of consumer goods.

    Venezuela has signed economic cooperation treaties with several countries, including Brazil, China and Russia, providing an adequate framework for investments in projects by companies from such countries.

    Venezuela is also a party to international treaties to avoid double taxation with several countries that protect investors against certain changes in tax legislation and is a party to bilateral investment treaties with several European, Latin American and Asian countries, which provide for adequate compensation in case of expropriation or nationalization and access to international arbitration in a neutral forum. Despite Venezuela’s withdrawal from the International Centre for Settlement of Investment Disputes, several of the existing bilateral investment treaties permit arbitration under the UNCITRAL Arbitration Rules and the ICSID’s Additional Facility rules. In certain cases, the Venezuelan Government has reached agreements with foreign investors in businesses subject to nationalization and has paid compensation in U.S. dollars.

    The Venezuelan government has engaged in infrastructure and other strategic projects with foreign investors under contracts providing for payments in foreign currency and, in certain cases, for international arbitration to settle potential disputes.

    Venezuela is divided into three levels of government:  the national level, the state level and the municipal level.  There are 23 states, a capital district and various federal dependencies, and each state is divided into several municipalities.  The political structure of Venezuela is governed by the Constitution of 1999, as amended in February 2009.

    At the national level, the government is divided in the executive, legislative, judicial, civic and electoral branches.  The President of Venezuela (the “President”) is the head of state, head of the national executive branch, and the commander-in-chief of Venezuela’s armed forces.  All executive powers are vested in the President.  The President is also entitled to veto laws passed by the National Assembly.

    The national legislative power is vested in the Asamblea Nacional or National Assembly.  The National Assembly has only one chamber, and its members (diputados) are elected by universal suffrage for terms of five years, and may be re-elected for unlimited five-year terms.  The National Assembly is empowered to enact laws, which require the promulgation of the President and its publication in the Official Gazette to become effective.  The work of the members of the National Assembly is done through several Commissions and Sub-Commissions.

    The judicial branch is vested in the Venezuelan Supreme Tribunal (Tribunal Supremo de Justicia) and various lower tribunals.  The Supreme Tribunal is the final court of appeals.  It has the power to void laws, regulations and other acts or decisions of the executive or legislative branches that conflict with the Constitution or the laws.  The current number of justices of the Supreme Tribunal is 32.  Justices of the Supreme Tribunal are appointed by the National Assembly for twelve-year terms

    The Supreme Court has five chambers, the Constitutional Chamber, the Social Cassation Chamber, the Civil Cassation Chamber, the Criminal Chamber, Electoral Chamber and the Political-Administrative Chamber.  Each Chamber is composed of three justices, except for the Constitutional Chamber which is composed by five.

    The Venezuelan court system is a national system; there are no state courts, but there are national courts sitting in each respective state.  Judges are appointed by the Supreme Court.  The jurisdictions of courts are divided by subject matter: civil, commercial, labor, tax, administrative, criminal and family, among others.

    Venezuelan courts are generally biased in favor of the Venezuelan government (the Republic or Venezuelan state-owned companies); therefore, it would be very difficult to win a case against the Venezuelan government in a Venezuelan court. In addition, bringing judicial proceedings against the Venezuelan government may have adverse effects on the business of the claimant and on its ability to be awarded further projects or contracts from the government.

    At the state level, the government is divided in the executive and legislative branches.  The executive branch of a state is in charge of its governor (gobernador) elected by universal suffrage within each state.  State legislative power is vested in state assemblies whose members are also elected by universal suffrage within each state.  States have virtually no taxing power but they may create taxes on non-precious metals and minerals that are not reserved to the State.

    At the municipal level, the government is divided in the executive and legislative branches.  The executive branch of a municipality is in charge of its mayor (alcalde), elected by universal suffrage within each municipality.  Municipal legislative power is vested in municipal assemblies (consejos municipales) whose members (concejales) are also elected by universal suffrage within each state.  Municipalities are empowered to levy business tax on gross income and to approve construction projects in cities and other population centers.

     

    The author of this post is Fulvio Italiani

    For purposes of conducting business in Argentina, a foreign investor may either incorporate a company under one of the types provided for by the Argentine Companies Law (“ACL”) – subsidiary – or it may set up a branch of its company and appoint a representative thereto. Foreign investors normally elect to set up a subsidiary under the type of Corporations (Sociedades Anónimas “SA”) or Limited Liability Companies (Sociedades de Responsabilidad Limitada “SRL”), for both cases the foreign investor’s liability is limited to the stock capital amount invested in the subsidiary. This first post will summarize the SRL main characteristics.

    Foreign investors infrequently prefer the branch structure, as (unlike corporations and limited liability companies) branches do not enjoy limited liability. Branches are not considered to be a separate entity from their parent companies, and therefore, all such acts carried out by the branches are considered as directly performed by the parent company itself. This implies that foreign entities are fully liable for all the transactions carried out by their branches. Both legal structures (subsidiaries and branches) require the foreign investor to be registered with the Public Registry of Commerce in Argentina.

    Main characteristics of the Argentinian Limited Liability Companies: las Sociedades de Responsabilidad Limitada (SRL)

    Registration and by-laws: No more than 50 quotaholders are permitted in the limited liability companies.

    Capital Limited liability companies: No minimum capital is required to form a limited liability company. As in the case of the corporations, the corporate capital must be proper to the development of the corporate purpose and the Public Registry of Commerce may request the companies to fix an amount higher than the one decided by the partners. At least 25% of the capital must be paid up at the time of formation and the remaining 75% must be contributed within a term of two years as of that moment.

    Liability SRL: The liability of the quotaholders is limited to the amount of the capital invested. The sole limitation to this rule is the “lifting of the corporate veil” doctrine, applicable when companies have been organized or used with fraudulent purposes, abusing of the right to organize such separated legal person.

    Legal Books and Records SRL: Only a Book of Meetings of Managers and Quotaholders is required.

    Management SRL: Are managed by managers who may be appointed indefinitely. Managers are not required to be Quotaholders and also the majority must be resident in Argentina. Managers have the same rights and obligations as directors of corporations.

    Supervision SRL: the appointment of a syndic is optional unless the capital is more than AR$ 10,000,000, in which case one or more syndic must be appointed.

    Quotaholders’ Meetings SRL: Corporate resolutions are adopted by a partners’ resolution as set forth in the act of incorporation. At least one Ordinary Quotaholders’ Meeting must be summoned annually to consider the financial statements, the managers’ report, allocation of profits, and appointment of managers and statutory auditors as basic subjects. Amendments of the by-laws, should a sole partner represent the majority vote, require the vote of another partner.

    Financial statements, Balance Sheets and Accounts SRL: Annual financial statements must be submitted for the consideration of the Quotaholders’ Meeting. Same must be filed with the Public Registry of Commerce only if the capital exceeds the amount of $ 10,000,000.

    The author of this post is Tomás García Navarro.

    Founders

    At least one founder (either individual or legal entity) is necessary to form a corporation. Founders and shareholders are not subject to any nationality or residence requirements. Directors must be shareholders and at least one director must be resident in Switzerland. Another restriction relates to the acquisition by non-resident aliens of shares in a Swiss company whose assets consist mainly of Swiss real estate: these transactions are subject to prior authorization. Prior authorization is further required for non-residents to own and operate a Swiss bank, or to acquire an existing Swiss bank.

    Articles of incorporation

    Articles of incorporation must have the following minimum content:

    • the company name and address;
    • the business purpose of the company;
    • the amount of share capital and the contributions made thereto;
    • the number, par value and type of shares;
    • the calling of the general meeting of shareholders and the voting rights of the shareholders;
    • the naming of the bodies which take care of the management and the auditing of the company;
    • the form in which the company must publish its notices.

    Optional clauses are those which must only be listed if founders intend to adopt additional provisions, such as the directors’ participation in the net profits, the issue of preferred shares, the delegation of directors’ authority, the issue of authorized capital or conditional capital.

    Founders report

    The founders must provide a written statement giving particulars of the nature and condition of contributions in kind or proposed acquisitions of assets, and the appropriateness of their valuation. A founders’ statement is also required when the capital of a company shall be contributed by conversion of shareholder loans and advances. The auditors have to review the founders report and confirm in writing that it is complete and truthful.

    Raising of Funds

    After subscription to all shares of capital stock, a minimum of 20% of the par value but not less than CHF 50,000 must be placed in escrow with a bank. The funds may only be released to the management after the company has been registered in the Commercial Register.

    Incorporation Meeting

    The corporation is formed at the incorporation meeting, which is held in the presence of all the shareholders and a public notary. This latter declares that the capital stock is fully subscribed and that the minimum payments have been made. Thereafter, the shareholders adopt the articles of incorporation and appoint the bodies corporate (board of directors, auditors etc.). Finally, a notarised deed must be drawn up recording the resolutions of the general meeting.

    Registration

    After incorporation, the company must be registered with the Commercial Register. This registration is published in the Swiss Official Gazette of Commerce. It discloses details such as the purpose of the company, its seat, the names of the shareholders (unless they opted for issuing bearer shares) and the names of the directors. Only at the time of registration the company acquires legal entity status. Shares may not be issued prior to registration.

    Upon formation, a one-time federal stamp duty of 3% is due on the capitalisation of the company. This stamp duty is assessed on the price at which the shareholder buys the shares. Any premium above par value is also subject to this duty. Furthermore, there are registration and notary fees and, generally, fees due to agents who act as founders to the new entity.

    Corporate Name

    The corporation is registered under a firm name, which must be distinguished from those of all other corporations already existing in Switzerland. In principle, the corporation is free to choose any kind of name. The name may not however be misleading or otherwise untruthful. The use of national or territorial designations is not permitted unless specifically authorized by the Federal and Cantonal Registers of Commerce. If a personal name is used, a designation showing the corporate nature must be added.

    Share Capital

    A public company is required to have a minimum capital of CHF 100,000 divided into shares with a minimum face value of CHF 0,01, while a limited liability company is required to have a minimum capital of CHF 20,000.  In the case of a public company, all shares must be subscribed at the time of formation. Capital contributions may be in cash or in kind. If the contribution is made in kind, the company must have access to such assets immediately after registration in the Commercial Register. The articles must describe the property, its value, the shareholder from whom it is received and the number of shares issued in return. The acceptance by the company of contributions in kind requires the approval of at least two thirds of the shares represented at the incorporation meeting.

    The general meeting of shareholders may authorize the board to increase the share capital within a period of 2 years. It is within the competence of the Board to decide if, when, and to what extent, the capital should be increased.

    The general meeting may provide in the articles for a conditional capital increase. The purpose of issuing conditional capital is, alternatively, to secure options and conversion rights in connection with warrant issues or convertible bonds, or to create employee shares. The increase of capital takes place at the same time, and to the same extent, as the exercise of the respective rights.

    Different Types of Shares

    Swiss corporation law distinguishes between the following categories of shares:

    • Bearer shares – Bearer shares may not be issued until the full issue price has been paid in. They are transferable by delivery and the corporation cannot restrict their transfer. Bearer shares are very popular in Switzerland because many owners prefer to protect their identity.
    • Registered shares – Registered shares are subscribed as called by the corporation and do not need to be fully paid in on issue. They are transferable by endorsement or assignment, generally without restriction. The company must keep a share ledger listing the owners’ names and places of residence. The entry must be certified on the share certificate by the Board. The buyer of incorrectly transferred registered shares cannot exercise personal membership rights. The articles may provide for subsequent conversion of registered shares into bearer shares and vice versa.
    • Restricted transferability of registered shares – To prevent unfriendly takeovers, the articles may provide for restrictions on the free transferability of shares. By law those restrictions are however limited.
    • Preferred shares – The general meeting of shareholders is entitled to issue preferred shares or to convert existing common shares into preferred shares. The holders of preferred shares enjoy certain preferences such as cumulative or non-cumulative dividends, priority in the proceeds of liquidation and a preferential right to subscribe to new shares. This preferential treatment must be provided for by the articles or be adopted by the votes of at least two thirds of all shares represented.
    • Voting shares – In general, each share is entitled to one vote. Since shares of differing value may be issued, each vote may not represent the same amount of capital contribution. Voting shares, therefore, provide those shareholders who represent a financial minority with the decision making power within the corporation. The issue of voting shares is permitted in the ratio of 1 : 10 to ordinary shares.
    • Profit sharing certificates – The general meeting of shareholders can issue profit sharing certificates in favour of persons who have an interest in the company through previous capital contributions, shareholdings, creditors’ claims, employees, or similar relationships. Profit sharing certificates may grant rights to a share in profits, a share in the liquidation proceeds or rights to subscribe to new shares. They do not procure any membership rights. By law, profit sharing certificates must not have a par value nor be issued in exchange for contributions characterized as assets.
    • Certificates of participation – The certificate of participation is a non-voting share, with the holder of such certificates having basically the same status as shareholders apart from the right to vote. The participation capital must not exceed double the share capital. Companies have until June 30, 1997 to comply with this requirement unless their participation capital was more than double the share capital on January l, 1985.

    There are two ways to enter and do business in the Dominican Republic: By establishing a separate Dominican business entity (“subsidiary”) or by registering a branch of a foreign company (“branch”). In addition, business relationships may be set up under a commercial contract in form of a joint venture, agency, distribution or similar agreements that comply with Dominican Republic legal and regulatory requirements, for the recognition and validity of business entities and commercial agreements.

    Another option consists of a Consortium agreement between foreign and Dominican companies intended to execute projects in which the Dominican State participates.

    ESTABLISHING A DOMINICAN SUBSIDIARY

    Usually start-up and medium business entities in the Dominican Republic are incorporated as a Limited Liability Company or Sociedad de Responsabilidad Limitada (S.R.L.). The Sociedad de Responsabilidad Limitada or S.R.L. is the most common and efficient form of organizing a company in the Dominican Republic and is often chosen by large foreign companies as the legal form for their subsidiaries.

    S.R.L.’s offer the following advantages: The partners receive limited liability, meaning that they only respond for company debts up to the limit of their contributed capital. Shareholders can be legal persons or individuals. SRL’s is manager managed with no board of directors required; managers must be individuals, and can be Dominicans or foreigners. Company can attract capital through the issuing of new shares which may be ordinary or preferred shares.

    SRL’s may effectuate any type of activities that are legal in trade and there are no restrictions in the Dominican Republic on the legal currency. The United States Dollar is exchanged freely with the Dominican Peso, as well as any other currency.

    SRL’s also serve as a holding company and may keep assets as their property, contributed by the partners or acquired by the same, both national and international, movable and real estate properties.

    SRL can outlive their founders. Their quotas may be freely transferred among partners, by way of succession, in case of liquidation of marital community assets, among ascendants and descendants under the rules established in the By Laws.

    The main steps in establishing a Dominican Limited Liability Company (SRL) are the following:

    1. Make a search before the Dominican Trademark Office, draft and file the request registration to obtain a trade name for the Dominican Company.
    2. Draft by-laws, minutes of incorporation meeting and related incorporation documents. These may be drafted as private documents or as a notary public act for signing by the partners and managers for legalization by notary public;
    3. Pay the incorporation taxes of one percent (1%) of the company’s registered capital before the corresponding Dominican Tax Administration (DGII);
    4. Prepare the business register application and file it along with the corresponding company incorporation documents after payment of business registration fee to obtain the company’s business registration certificate;
    5. Prepare and file the request to obtain the company’s Tax Identification Number (RNC);
    6. Register at DGII’s web page to obtain access and request fiscal invoice numbers (NCF);
    7. Enroll employees before the treasury of social security (TSS) and the ministry of labor.

    The following schedule serves as a guidance of the time required to form a new Dominican Company:

    Register of company trade name 5 to 7 days
    Drafting incorporation documents plus 2 to 5 days
    annexes (Incorporation Meeting, By-laws, Business Register application)
    Paying incorporation taxes on capital less than 1/2 day
    Incorporation Meeting of shareholders less than 1/2 day
    Legalizations by Notary Public less than 1/2 day
    Registration in Business Register 2 to 5 days
    Registration as Tax Contributor (RNC) 10 to 15 days

    The following founding documents are needed to form the company:

    1. Business Register request of registration form for Dominican Company, duly signed by the person that is authorized by the company or by an empowered attorney, for which a copy of the power of attorney shall be provided.
    2. By- Laws/Articles of Incorporation in private or notary act form containing the details required in legislation (including company name, registered domicile and purposes.
    3. Attendance List and Minutes of the Incorporation Meeting.
    4. Updated List of Partners/ Shareholders
    5. Report of the Commissary of Contributions, if applicable.
    6. Receipt of payment of the tax on the incorporation of legal entities.
    7. Photocopies of the Dominican Identity and Electoral Card and if foreign, Passport photo page or other official document with visible photo from the country of origin for the partners, managers and account commissary.
    8. Copy of the Trade Name Certificate issued by the Dominican Trademark Office.
    9. Declaration of acceptance of the appointments by the managers if this is not apparent from the by-laws and minutes of the incorporation meeting.

    REGISTERING A DOMINICAN BRANCH

    Foreign companies interested in doing business in the Dominican Republic (DR) may register a branch in the DR. Under Dominican law, a registered foreign company branch office can enter into contracts and execute and settle transactions in its own name, and can sue and be sued at its place of business.

    In order to successfully complete a DR branch registration, the foreign company documents shall prove its valid incorporation and existence, contain all general and specific information as well as proper authorizations; corporate documents shall be certified, notarized and duly legalized by all applicable foreign and local authorities according to local and international law. The Dominican Republic is a member of the 1965 convention of The Hague or Apostille.

    The registration of a foreign company branch before local authorities will enable the owners of the foreign entity to conduct business in a similar way and equal rights as a DR business entity.

    Branches of foreign corporations are in general treated the same way as legal entities for tax purposes. They are however not subject to issuance stamp tax upon formation. Profits of a Dominican branch office are exempt from taxation (Dominican withholding tax) in the partner-nation under the double-taxation agreements which Dominican Republic has signed.

    To register a branch in the DR, it is necessary to provide certified company incorporation, shareholder and manager verification and a power of attorney to qualified attorneys who will draft, prepare and file the request of branch registration at the business register and request a Taxpayer Identification Number (TIN) in the Dominican Republic.

    Usually, the registration of a branch to pursue general, unregulated and taxed commercial activities may be accomplished by pursuing the following:

    1. a) Business Registry: The Company should be registered in the Business Registry of the Chamber of Commerce where its local domicile will be located. A registration fee is calculated based on the authorized capital. In order to obtain this registry, the company must file all documents which evidence its proper incorporation in the home country and that representatives are fully authorized to register the foreign company branch.
    2. b) TIN: Issued by the Tax Administration. It is a number that shall serve for identifying the business’s taxable activities and for the control of the duties and obligations derived therefrom. To obtain such registration, the company shall file copy of the Business Registry and the corporate documentation that may be required by such Tax Administration. It shall also present a valid corporate domicile in the DR which may be subject to verification.

    USING DOMINICAN COMMERCIAL AGENTS AND DISTRIBUTORS

    A foreign supplier of goods and services may choose to enter the Dominican market by selling his/her products through Dominican agents and distributors or representatives. The different channels of selling are subject to different legal frameworks.

    Contracts involving Dominican agents and distributors are generally governed by the Civil Code of the Dominican Republic, whose freedom of contract principle allows the parties to choose freely the form, terms and conditions of their agreement as well as by the Code of Commerce and general commercial practices and rulings interpreting the scope of agency, unless said agreement is registered under Law 173 Protecting Importing Agents of Merchandises and Products of April 6, 1966, as amended (“Law 173”).

    Local agents and distributors often want to register their Agreements with foreign enterprises under Law 173, while foreign companies that do not have a free trade agreement with the Dominican Republic, are often unaware of this possibility and without adequate previous legal counsel, may later find out a Law 173 registration has been made.

    Once registration has been obtained, the relationship of the local licensee (a.k.a. “concessionaire”) with its grantor becomes governed by the provisions of Law 173 of 1966, which provides the local concessionaire with the following rights:

    • The right to initiate legal actions against the grantor or a third party for the purpose of preventing them from directly importing, promoting or distributing in Dominican Territory the registered products or services of the grantor;
    • The right to file suit for damages against both the grantor and any new appointee for substitution of the local concessionaire, including the right to be indemnified for unjust termination in accordance with the formula and for the concepts provided by Article 3 of Law 173.
    • The right to an automatic renewal of the contract or a mandate of continuation of the relationship existing thereof, even if the termination clause of a registered contract provides otherwise.
    • Unilateral termination by the grantor of the local concessionaire’s rights under Law 173 of 1966 is only possible if made for a “just cause”, pursuant to the definition of just cause provided by Law 173 of 1966.
    • The Law provides exclusive jurisdiction to the courts of the Dominican Republic.

    Law 173 protects Dominican agents and distributors of foreign enterprises. Its objective is to protect exclusive and non-exclusive agents, distributors and representatives from being unilaterally substituted or terminated without just cause by foreign entities, after favorable market conditions have been created for them in DR.

    Law 173 defines as grantor the individuals or legal entities who the Dominican agents and distributors (i.e. concessionaires) represent, who conduct business activities in the interest of the grantor or of its goods, products or services, whether the contract is granted directly by grantor, or by means of other persons or entities, acting in grantor’s representation or in their own name but always in its interest or of their goods, products or services.

    The author of this post is Felipe Castillo.

    Companies are the most common vehicles for business and investment activity whether in Cyprus or abroad.

    Types of companies

    Under the Companies Law. Cap. 113 as amended (the “Companies Law”), there are two types of companies:

    • Companies limited by shares, and
    • Companies limited by guarantee (with share capital or without share capital)

    Companies limited by guarantee are often employed for non-profit or charitable purposes whereas companies limited by shares for business purposes.

    The latter may be either private companies or public companies. A private limited liability company must have at least one shareholder but no more than fifty whereas a public limited liability company must have a minimum of seven shareholders and there is no ceiling as to maximum number. The shareholders of a company may be either natural persons or legal persons (Cypriot or foreign). Shares cannot be issued to the bearer.

    Liability of shareholders

    Companies are separate legal entities distinct from their members. They have a separate corporate personality and are responsible for their obligations and debts. The liability of the shareholders in companies limited by shares (private or public), is limited to the nominal value of the shares agreed to be taken up or to an amount above the nominal value if the shareholder specifically agreed to subscribe to the shares at a premium. In the case of companies limited by guarantee, the liability of the shareholders is limited to the amount each shareholder agrees, at subscription, to contribute towards the debts of the company in the event of liquidation.

    Share Capital

    There is no restriction as regards the minimum or maximum share capital of a private company. But there is a minimum share capital requirement of €25629.02 in the case of public companies. Information as regards the initial authorised and issued share capital of the company is included in the memorandum of association and any subsequent changes must be notified to the Registrar of Companies.

    The share capital may be paid in cash or in kind.

     Transfer and allotment

    The transfer of shares in a company is not restricted by law. It is however possible and common for restrictions e.g. right of first refusal to be included in the articles of association of the company. In such cases any transfer of shares must be made in compliance with the relevant provisions of the constitutional documents (see below).

    On an allotment of new shares of a public company, the company is obliged to offer shares to existing shareholders pursuant to pre-emption rights provided as mandatory rules in the statute. In the case of a private company there is not such statutory duty and therefore it depends on whether pre-emptions rights and relevant obligations on the part of the company have been provided for in the articles of association.

    All allotments of new shares and transfers of shares must be notified to the Registrar of Companies.

     The Directors and Secretary

    The directors of the company, acting collectively as a board, manage the business of the company and do all decision making to the extent not reserved for the general meeting of the shareholders.

    A private company needs to have at least one director whereas a public company must have at least two. There is no statutory restriction as to the maximum number of directors but the articles of association of the company may provide limitations. The directors of the company may be natural or legal persons (Cypriot or foreign). The proceedings of the board of directors and its composition are very important elements for the tax treatment of the company (see below).

    All companies are required to have a secretary. The duties of the secretary are mainly of an administrative nature.

     Registered office

    The company must have a registered office in Cyprus. All communications and notices may be addressed to the company at the registered office and any document, whether official or otherwise, may be served to the company at its registered office.

     Incorporation documents

    The memorandum of association is the document which sets out important information in relation to the company; such information might be relevant for third parties e.g. potential counterparties, creditors etc.. The memorandum of association must state:

    • the name of the company;
    • the place where the registered office is situated;
    • in the case of a public company, the fact that it is such a company;
    • the objects of the company;
    • a statement that the liability of its members is limited and the amount to which such liability applies;
    • the names of the subscribers to the memorandum of association and the number of shares each of them takes up.

    Following the registration of the company, the memorandum of association may be amended with the approval of the court.

    The articles of association is the document regulating internal matters as regards the operation and management of the company and the rights of the members e.g. the procedures to be followed in general meetings, requirements for the adoption of resolutions, the voting rights of members, the conditions and manner in which shares are to be transferred, rights and duties relating to put or call options, rights and duties relating to tag and drag along rights, the appointment and removal of directors etc. The articles of association may be amended by a relevant decision of the members of the company.

    Together with the memorandum of association, the articles of association form the constitutional documents of the company and constitute basically an agreement between all and each of the members of the company to abide to their provisions.

     Registration

    Establishing a company requires registration with the Registrar of Companies, the governmental office competent for matters relevant to the registration of companies and their ongoing obligations with regard to information that must filed pursuant to the Companies Law. The Registrar of Companies is responsible for keeping a relevant file which is available to the public for inspection.

    The initial step in the formation of a company is the approval of the proposed name by the Registrar of Companies. Subsequently, the memorandum of association and articles of association of the company must be filed accompanied by the necessary forms which indicate the registered office, the details of the director(s) and secretary and an affidavit of the lawyer in charge of the registration of the company. Usually it takes approximately seven to fifteen working days for the completion of the registration of a company. A shelf company i.e. a ready-made company may be purchased if there is an immediate need for the use of a company. Following registration of the company, the Registrar of Companies issues a certificate of incorporation which constitutes conclusive evidence that all the requirements of the Companies Law, in respect to registration and matters precedent and incidental thereto, have been complied with.

    Financial statements

    Financial statements must be prepared annually and be duly audited by qualified accountants practising in Cyprus according to the International Financial Reporting Standards. Annual returns containing information as to any changes to directors, secretary, shareholders, authorised, issued or paid up capital, registered office, mortgages/charges and other related matters must be filed with the Registrar of Companies once per year accompanied by a copy of the financial statements.

    Tax aspects

    In order be eligible to benefit from the favourable Cyprus tax regime and treaty network in place, a company should be considered as resident in Cyprus for tax purposes.

    Under Cyprus tax law, a company is considered as tax resident in Cyprus if its ‘management and control’ is exercised in Cyprus. There is no statutory definition of ‘management and control’. In practice Cyprus tax authorities would look at several conditions to determine whether a company qualifies as a resident in Cyprus for tax purposes:

    • strategic management decisions and preferably day-to-day decisions being taken in Cyprus,
    • the majority of the board members being tax residents in Cyprus and exercising their  office from Cyprus,
    • an actual office being maintained in Cyprus,
    • evidence of commercial documentation being stored in the company’s office,
    • accounting records being prepared and kept in Cyprus,
    • bank accounts being operated from Cyprus even if maintained with foreign banks.

    Not all of the above must be established in order for the company to qualify a tax resident in Cyprus; the conditions would be considered in light of the nature and level of activities of the company and the country in which transactions or investments are made. For the purposes of the Cyprus tax authorities satisfaction of the first two conditions would normally be adequate for the company to be considered as tax resident.

    Tax resident companies are subject to income tax on their worldwide income at the flat rate of 12.5% subject to tax credit for any tax suffered in a foreign jurisdiction on income which is also subject to tax in Cyprus.

    Companies ought to submit tax returns, together with their annual financial statements, to the Tax Department in compliance with the applicable legislation.

    Re-domiciliation

    It is possible for corporations from other jurisdictions to acquire a ‘domicile’ in Cyprus. Effectively this means that the company may change its governing law without going through the process of liquidation where it was firstly established and then fresh incorporation in Cyprus.

    A company registered in another jurisdiction is eligible to apply to the Registrar of Companies to be registered as a continuing company pursuant to the provisions of the Companies Law if: the foreign jurisdiction allows the re-domiciliation, its constitutional documents provide for it and the steps required for the decision for the re-domiciliation have been complied with. Such companies must have their registered office transferred into Cyprus.

    It is also possible for local companies to “re-domicile” moving their registered office in other jurisdictions.

    In both cases of ‘re-domiciliations’ the permission of the Registrar of Companies is required and it is generally given upon certain conditions being met.

    The challenge of an entrepreneur

    When thinking on internationalization, an entrepreneur has many options and conditions to consider before making the right decision. Probably he would look for a country or region that offers safety, stability, has less restrictions, hands incentives and a cultural balance.

    In South America, there is a country that has been growing steadily for the last 25 years, with  a very interesting investment environment: Peru.

    This country has changed its closeness of the past to become an open economy. Before 1990, this country was involved in a decadent economic situation, state control of the economy, appalling levels of inflation, high import tariffs, foreign exchange controls, prohibition of holding foreign currency, huge inequalities between cities and provinces, terrorist violence and high levels of corruption.

    Although in 1990 this country looked unsustainable and ready to the final collapse, a new administration set the path to the future. The economy has been dramatically opened, tariffs unilaterally reduced, foreign exchange controls eliminated and the basis for a fair private activity of the economy has been imposed by establishing that the state’s participation in the economy should only have a subsidiary role and not represent unfair competition to the private sector.

    A country to be considered as an option

    Never in its republican history Peru had a period of growth of 25 years and the path set in 1990 it’s only expected to continue. The general consensus on the need of macroeconomic stability, associated with prudent fiscal policies, has brought Peru to have high international reserves and an important reduction of its external debt.

    State companies have left the market in favor of local and international companies trough privatizations and concessions, especially on infrastructure.

    Successive Peruvian governments have sustained a State policy of engaging on international trade agreements. To this day, Peru has free trade agreements with the mayor economies of the world, including the USA, the European Union and China, and it’s an active promoter of international economic integration, being one of the late examples “the Pacific Alliance” formed also by Colombia, Chile and Mexico, all of them open economies.

    In Peru it is not only possible to hold bank accounts in local currency (Soles), US Dollars and Euros, but also to exchange currency at very competitive rates. Foreign investors or traders are able to transfer funds in and out without any previous State authorization.

    The country has changed and this time modernity is also reaching the provinces, poverty has been reduced from more than 50% in the early 90’s to a little less than 20% nowadays, representing a big increase of the middle class. The new Peruvian government that initiated a 5-year mandate on July 2016, has pledged to bring poverty numbers to less than 10%.

    Peruvian economy is well diversified. While the mining sector is the heavy weight of the economy, other sectors have been growing at a record pace: fishery, agriculture, agro-industry, construction, tourism, services, etc.

    Peru is now committed to become part of the Organization for Economic Co-operation and Development (OECD) that congregates the high income economies of the world.

    Yet, the road is still long. High levels of informality on the economy and a big deficit on infrastructure represents not only challenges but opportunities at the same time.

    Legal regulations

    While, legal regulations in basic areas (like tax, labour, civil law) have been basically the same since the early 90’s, the government of Pedro Pablo Kuczynsky (in office since the end of July 2016) has requested to the Congress the ability to legislate through decrees on 5 fundamental topics: economic reactivation, public safety, anti-corruption, water & sanitation and the re-organization of the state controlled petrol company(Petro-Peru).

    The Peruvian Congress (led by the opposition party of Mrs. Fujimori) has granted this authority to the Executive for a 90-days period until the end of December of 2016.

    In the weeks to come, we will see the announcement of new Peruvian regulations that are expected to be investors friendly. We will use the implementation of these regulations in order to explain how to do business in Peru, also from the legal point of view.

    The author of this article is Frank Boyle.

    The GmbH is a capital company under German law. The liability of the shareholders in this kind of corporation is limited to the company’s share capital i.e. the company’s assets alone shall serve to fulfil the company’s obligations vis-à-vis its creditors. Being the GmbH – a limited liability company – a legal person, it holds autonomous rights and obligations; as such it may e.g. acquire ownership and other rights in real property and autonomously sue and be sued in court in connection with its rights and duties.

    The corporate bodies of the GmbH required by compulsory provisions of the Limited Liability Company Act (GmbHG) are the entirety of the shareholders, who regularly adopt resolutions at the shareholder meeting (Gesellschafterversammlung), and the managing director(s) (Geschäftsführer). The establishment of a supervisory board (Aufsichtsrat) is, with some specific exceptions, optional.

    Shareholders’ rights and duties

    The rights and duties of shareholders may be quite different in origin and nature. Shareholder rights and duties may exist by force of law or may be created by, or based upon, the articles of association (Satzung). Said rights and duties may attach to all shares as such or belong to, or be imposed upon, a shareholder personally (personal shareholder rights and duties). Shareholder rights and duties may be available to, or be imposed upon, all shareholders equally or upon one or several shareholders particularly. In principle such rights and duties pass to any transferee of the share, whether such a transfer is by assignment, inheritance, or otherwise, and cannot be assigned or otherwise transferred separately from the share itself.

    Both rights and duties attaching to shares, that are not created by law, and personal shareholder rights and duties can only be granted or imposed by the articles of association or by shareholder resolutions passed on the basis of the articles of association. These rights and duties must be distinguished from the ones provided within agreements between the shareholders, which are made “outside the articles of association”. Such latter agreements can only create contractual rights and duties among the parties thereto. If a share is transferred, the transferee can only exercise the contractual rights of the transferor, provided those rights were specifically assigned to him by contract; said transferee is accordingly bound by his transferor’s contractual duties only if he has agreed to take them over.

    Shareholder rights can be divided into administrative and property rights. Administrative rights include the right (i) to request the calling of the shareholders’ meeting (ii) to participate in the shareholder meeting (iii) to vote and (iv) to be provided with information about the corporate activities. The right to information basically entails that the managing directors must provide every shareholder with information about the affairs of the company upon their simple request and allow them to inspect the books and records of the company. Property rights include the entitlement to a quota of the annual profits, the right to dispose of the share and the entitlement to a share of the liquidation proceeds.

    The most important shareholder duties are the duty to render contributions, the fiduciary duty and the duty to ensure that the share capital, once provided, is preserved. Shareholder rights and duties can be expanded, restricted or excluded in the articles of association, as long as this is not in conflict with mandatory law provisions.

    Finally, once the company gets into economic trouble, a shareholder is obliged to either (i) inject new equity to the company, (ii) liquidate the company or (iii) cause the management to commence insolvency proceedings.

    Liability

    The GmbH is a legal entity separate from its shareholders. Therefore, the shareholders are in principle not liable for debts of the GmbH. There are only a few scenarios of shareholder liability in literature and court practice:

    • Shareholders may be liable for debts or losses of the company – on a contractual basis – if they undertake a contractual obligation towards the company’s creditors or the company (e.g. by means of a guarantee or a comfort letter).
    • A shareholder may be personally liable to the company for payments received from the company to the extent such payments cause the equity of the company to fall short compared to the registered share capital.
    • Shareholders may be held liable by the company if, disregarding the purpose of the company’s assets to serve as collateral for its creditors, they intentionally abuse their control to remove assets or business opportunities from the company, rendering it unable to satisfy its debts.
    • Additionally, a shareholder may become personally liable towards the company’s creditors if the assets are not clearly allocated to the shareholders or the company in the books of the company (intermingling of assets) and such allocation is not inferable from other circumstances, e.g. the physical separation.

     Shareholders’ meeting

    The shareholders’ meeting is the company’s ultimate decision-making authority. Shareholders usually exercise their rights in the shareholders’ meeting. Shareholder resolutions may also be taken without a physical meeting. In particular, a meeting is not necessary if all the shareholders confirm in text form that they agree with the resolution to be passed or to cast their votes in writing.

    Usually, the articles of association determine the powers of the shareholders’ meeting and the rules of procedure to be applied in its context. To the extent that the articles of association do not contain specific provisions regarding the procedures to be applied within the shareholders’ meeting, §§ 46-51 GmbHG apply as the relevant model framework.

    The shareholders’ meeting is exclusively entitled to:

    • amend the articles of association,
    • call in additional contributions of the shareholders,
    • liquidate the company and  appoint and dismiss the liquidators,
    • resolve upon measures pursuant to the Transformation Act (Umwandlungsgesetz – UmwG) such as mergers, spin-offs and changes of the company’s legal form.

    Except as otherwise provided in the articles of association, the shareholders resolve upon:

    • the formal approval of individual and consolidated annual financial statements and the distribution of profits,
    • the repayment of additional contributions,
    • the division, consolidation and redemption of shares,
    • the appointment and dismissal of managing directors, as well as their discharge,
    • the execution and termination of service agreements with managing directors,
    • the assertion of damage claims to which the company is entitled against managing directors or shareholders, as well as the representation of the company in litigation proceedings against managing directors or shareholders,
    • the rules of procedure for the management,
    • the appointment of a Prokurist (person vested with the general power of representation) and of persons vested with the commercial power of attorney for the entire business establishment (Handlungsvollmacht).

    The above mentioned tasks can be however transferred by the shareholders’ meeting to the supervisory board, if any, by adopting a relevant resolution.

    In addition, the shareholders’ meeting has the right to issue instructions to the managing directors and to appoint or dismiss members of an optional supervisory board.

    A shareholders’ resolution is deemed to be passed, when more than a half of the given votes are favourable. In exceptional cases a majority of ¾ will be necessary, e.g. with regard to amendments of the articles of association, the dissolution of the company, resolutions on mergers, spin-offs and other measures under the Transformation Act (UmwG), execution of domination agreements and of profit and loss transfer agreements.

    Managing director

    The company must have one or more managing directors (Geschäftsführer). The GmbH is not legally required to have more than one managing director except in particular cases (e.g. in case indicated by the Co-Determination Act. Both shareholders and non-shareholders (however only natural persons, no legal persons) may be appointed managing directors. In the articles of association the shareholders can set requirements regarding the qualification for the position of managing director.

    If the GmbH has only one managing director, he represents the company severally. If several managing directors have been appointed, they must represent the company jointly. However, if the company has more than one managing director, the shareholders can also grant the power of representation to the individual managing director derogating the statutory rule of joint representation, by a corresponding clause of the articles of association. In other words any modification of the statutory powers of representation must be based upon a provision in the articles of association. That provision must either itself define directly the extended power of representation in favour of an individual managing director, or permit the shareholders to extend the power of representation of the managing directors by passing a relevant shareholder resolution.

    In detail, the shareholders may grant each managing director, or one or several managing directors, the right

    • to represent the company acting alone,
    • to represent the company acting jointly with one or several other managing directors, or
    • to represent the company acting jointly with one or several managing directors or Prokurist.

    The managing directors have authority to represent and act on behalf of the company in all legal transactions in and out of court.

    A limitation of the authority of managing directors to represent the GmbH – even within the articles of association or resolved by shareholder resolution – will have no effect with respect to third parties. Should the articles of association e.g. set forth that the managing directors are not entitled to execute agreements with a value exceeding 5,000 € and the managing directors enter into an agreement with a 10,000 € value, such latter agreement shall be nonetheless valid vis à vis the contractual counterparty.

    The limitation of the power to represent the company, however, operates in individual cases where the third party interacting with the managing director is not entitled to rely on the unlimited power of the managing director. This occurs in particular where a managing director abuses his powers to represent the company and the third party knows or deliberately ignores the abuse.

    The power to represent the company is further limited by the prohibition of self-dealing and multiple representations. A managing director is in general not allowed to enter into legal transactions on behalf of the company with himself as counterparty (so called self-dealing) or as the representative of the company and of a third party (multiple representations). However, he can be exempted from such prohibitions. Such exemption may be granted in the articles of association or, if the articles of association allow it, by the shareholder meeting.

    In the context of the internal relations between the company and the managing directors, the managing directors must observe the restrictions contained in the articles of association, the instructions set within shareholders’ resolutions or in the management contracts of the managing directors. The shareholders can issue instructions ad hoc or in a general way by establishing rules of procedure for the management (e.g. make certain kind of transactions subject to the consent of the shareholders’ meeting). In case the managing directors do not comply with such instructions, they are obliged to compensate the company for any damages incurred as a consequence thereof.

    The shareholders may entrust specific fields of responsibility – i.e. administration, accounting, finance, employment and social matters, production, distribution, sales or marketing – to one or more managing directors. The shareholders may also introduce a hierarchic structure under which one managing director is granted an overall responsibility for any fields, while other managing directors are required to report to him with respect to matters regarding the specific field for which they are responsible. However, no managing director can be completely released from the joint overall responsibility for the well-being of the company. Thus, any managing director in charge of a special area of responsibility must report to the other managing directors whatever matters arise in his particular area if said issues may have an effect on the whole company; moreover any managing director may decide upon matters falling under the area of responsibility of another managing director if he believes that the overall well-being of the company may be affected by decisions taken with respect to those matters. In any case, such internal allocation of specific fields of responsibility does not lead to a limitation of the power of the managing directors to represent the GmbH and has no effect with respect to third parties.

    Supervisory board

    The creation of a supervisory board (Aufsichtsrat) is either optional or mandatory. It is mandatory if it is required by the One-Third Participation Act (Drittelbeteiligungsgesetz, in case of more than 500 employees), the Coal, Iron and Steel Co-Determination Act (Montanmitbestimmungsgesetz, in case of more than 1,000 employees), the Co-Determination Act (Mitbestimmungsgesetz, in case of more than 2,000 employees) or the Capital Investment Act (Kapitalanlagegesetzbuch, in case the company’s purpose is the management of investment funds).

    In companies with up to 500 employees, no supervisory board needs to be established. However, the articles of association can provide for the formation of a supervisory board. In this event, the articles of association can even set forth rules for the supervisory board, including the board’s composition, competencies and mode of procedure. The scope of the competencies can be limited to monitoring and advisory responsibilities or even comprise decision-making and representation of the company vis-à-vis the managing directors.

    Roberto Luzi Crivellini

    Áreas de prática

    • Arbitragem
    • Distribuição
    • Comércio internacional
    • Contencioso
    • Imobiliário
    Contato Roberto