Company Law in Venezuela

The options available to foreign companies to set up business in Venezuela are (a) the registration of a branch; (b) the corporation; (c) the limited liability company; (d) the general partnership, (e) the limited partnership; (f) the stock limited partnership; and (g) the consortium. In this memorandum we use the term “company” to indistinctively refer to any of the options described in this paragraph, including the branch, the corporation or any of the partnership, but excluding the consortium.

The branch and the corporation are the two most common options used by foreign companies to do business in Venezuela. The corporate features of the companies are set forth in the Venezuelan code of commerce.

Corporation

The Venezuelan corporation is owned by shareholders and is a legal entity separate and distinct from its shareholders. The corporation is indistinctively known as compañía anónima (C.A.) or sociedad anónima (S.A.).

Limited Liability

The liability of the shareholders of a corporation is limited to the payment of the nominal value (and premium, if any) of the shares such shareholder owns. As a general rule, the shareholders of the corporation are not liable for the obligations of the corporation.

However, most Venezuelan commentators accept the piercing of the corporate veil by a Venezuelan court in the event of certain exceptional circumstances, such as: (a) when the corporate form −a legal and valid mean to conduct business− has been intentionally used against the purpose of the law to circumvent the application of a mandatory rule or to attain an otherwise illegal result (fraude a la ley or fraus legis); or (b) when there has been an abuse of the corporate form that has caused damages or an unfair consequence (abuso de derecho). Venezuelan courts have also accepted the application of the piercing of corporate veil when the separation of the legal entity from its shareholders would produce an unfair situation or when the corporate form is abused to avoid a legal consequence. In addition, the Constitutional Chamber of the Venezuelan Supreme Court issued a widely criticized opinion (Transporte Saet case) in which it applied the piercing of corporate veil doctrine without explaining or invoking an exceptional circumstance to do so. In the decision, the Supreme Court held that any company that is part of an economic group may be held liable for the obligations of any other party of the group. Note however, that this decision was related to a labor matter.

Foreign Direct Investments

The only areas currently reserved to companies owned or controlled by Venezuelan investors are open-air television, radio broadcasting, newspapers in Spanish and professional services regulated by law. There are other areas, such as oil, that are reserved to the Venezuelan government in which foreign investors may participate only through minority participations in joint venture companies with the Republic or Venezuelan state-owned companies.

Foreign investors (i.e., foreign companies (head offices), foreign shareholders or foreign partners) must register their direct foreign investments in a Venezuelan company (branch, corporation or partnership) with the Venezuelan foreign investment authority within 60 days following the date on which investment was made (the “foreign investment registration”).

Several documents must be submitted to the Venezuelan foreign investment authority by the foreign investor to obtain the foreign investment registration, including evidence that the capital of the company was paid with foreign currency or contribution in kind that entered Venezuela. To obtain such evidence, the foreign investor must (a) in case of payment in cash, order a wire transfer to the Venezuelan bank account of the company from an account of the foreign investor located outside Venezuela (as a result of the wire transfer, foreign currency transferred out of the offshore account of the investor will be converted into bolivars at the official exchange rate and deposited in bolivars in the Venezuelan bank account), and (b) in the case of contribution in kind, demonstrate that the asset being contributed to the capital of the company was imported into Venezuela (copies of the import manifest, commercial invoice and other custom documents).

The foreign investment registration must be updated annually by the foreign investor within 120 days of the end of the fiscal year.

Financing a company

The corporation must have a stated or subscribed capital (“stated capital”), which is the amount of capital that the shareholders of the corporation agree to subscribe.

Although there are no statutory minimum capital requirements applicable to the stated capital, each Venezuelan commercial registry sets forth a minimum stated capital requirement on a case-by-case basis or depending on the purpose of the corporation.

The stated capital of the corporation can be paid in cash or in kind. In case of payment in cash, at least 20% of the stated capital must be paid by the shareholders at the time of the registration of the shareholders’ meeting approving the incorporation of the corporation or the corresponding capital increase (the amount of stated capital already paid by the shareholders is known as “paid-in capital”). Payment in cash of the stated capital must be made by a deposit in bolivars in a bank account opened with a Venezuelan bank under the name of the corporation. In case of payment in kind, assets for a value equal to 100% of the stated capital must be contributed to the corporation. To be eligible for foreign investment registration, the stated capital must be paid out of foreign currency or assets brought into Venezuela from abroad.

The stated capital of the corporation is represented by shares. The shares can only be issued in registered form (bearer shares are not permitted). All shares must have a par value (valor nominal), and such par value must be denominated in bolivars. The stated capital of the corporation is equal to the sum of the nominal value of the shares.

The corporation can issue different classes of shares. Issuance of shares of different classes is convenient where different shareholders or groups of shareholders are each entitled to appoint a number of directors. Preferred shares can also be issued, granting their holders preferences in the payment of dividends, liquidation or otherwise.

The ownership of the shares of a corporation is evidenced by the notations made in the book of shareholders kept by the corporation. Shares can also be represented in certificates, but the issuance of share certificates is not required

The corporation must have at least two shareholders at the time of incorporation. However, immediately after incorporation, all the shares of the corporation may be transferred to one of the shareholders and thus the corporation may become a wholly-owned subsidiary of such shareholder.

The only areas currently reserved to companies owned or controlled by Venezuelan investors are open-air television, radio broadcasting, newspapers in Spanish and professional services regulated by law. There are other areas, such as oil, that are reserved to the Venezuelan government in which foreign investors may participate only through minority participations in joint venture companies with the Republic or Venezuelan state-owned companies.

As in most other jurisdictions, there are certain controls on money laundering which generally require banks and other professional bodies to identify clients and their sources of funding and to report suspicious transactions.

Opening a branch office

The registration of a branch (sucursal) in Venezuela by a foreign company does not result in a separate legal entity being formed in Venezuela. Therefore, the foreign company (head office) will be liable for all the obligations assumed by the branch.

The branch must be registered with a Venezuelan commercial registry located in the city of domicile of the branch, and such registration must then be published in a Venezuelan newspaper. The foreign company can choose the domicile of the branch.

The name generally used for the branch is the same name of the foreign company (head office) or its abbreviation followed by the expression Sucursal Venezuela (which means Venezuelan branch).

The branch must have at least one representative. The branch representative will have full powers to represent and manage the branch, except for the power to sell or transfer the business (unless such power is expressly granted to the representative). Any limitations to the powers of the representative are not effective against third parties. If the branch representative is not a Venezuelan citizen, he may have to obtain a working visa in order to sign documents on behalf of the branch before public notaries or registries in Venezuela.

The foreign company must assign a capital to the branch (capital asignado or “branch capital”). The branch capital does not constitute a limitation of the liability of the foreign company (head office), since the branch is not considered a legal entity separate from the foreign company. Although there are no statutory minimum capital requirements applicable to the branch capital, the Venezuelan commercial registry sets forth a minimum branch capital requirement on a case-by-case basis.

The branch capital must be paid by the foreign company (head office), either in cash or in kind. In case of payment in cash, an amount in bolivars equal to the branch capital must be deposited in a bank account opened with a Venezuelan bank under the name of the branch. In case of payment in kind, assets for a value equal to the branch capital must be contributed to the branch. To be eligible for foreign investment registration, the branch capital must be paid out of foreign currency or assets brought into Venezuela from abroad.

Unlike the corporation, the branch is not required to appoint statutory auditors or file annual balance sheets with the commercial registry. However, the branch is required to keep accounting books for tax purposes, i.e. the journal book, the ledger book, the inventory book and the VAT books.

The branch capital and any subsequent increases in the branch capital are subject to a registration tax equal to 1-2% of the branch capital, plus other registration fees and expenses, the tax depend on the commercial registry.

Filings with the Commercial Registry

All Venezuelan companies must be registered with a Commercial Registry. The Commercial Registry contains copies of the company’s articles of incorporation and by-laws, information on its standing (i.e. annual financial statements, liquidation or bankruptcy proceedings), registered address, directors and officers, the existence of branches, and other information. All information filed with the Commercial Registries is public. Companies must notify the Commercial Registry of changes to their articles of incorporation and by-laws and update other information filed with the registry. Companies must also file annual financial statements and periodically file minutes of shareholders appointing directors and officers.

Opening a bank account

Opening a Venezuelan bank account is required to incorporate a corporation or register a branch in Venezuela. The bank account shall be opened with a Venezuelan bank under the name of the corporation or the branch by one of its authorized representatives.

A non-resident (individual or corporation) can also open a bank account in Venezuela. The bank must only check the non-resident’s identity and capacity. In the case of a corporation, the requirements are: (i) the articles of incorporation duly apostilled or legalized by the Consulate of Venezuela in the respective country and translated in Spanish by interpreter public; (ii) the Fiscal Information Registry (RIF) issued by the Venezuelan fiscal authorities; (iii) the Identity Card for Venezuelan or foreign natural persons resident in the country, empowered to mobilize the account; and (iv) the minutes of shareholders meeting in which the authorization granted to the persons empowered to mobilize the account to act on behalf of the Company.

Additional information may be required by banks to better identify the corporation or the persons authorized to mobilize the account in accordance with anti-money laundering and other banking regulation.

Utilising office space

Office spaces may either be owned by the Company or rented. Multinational companies may often acquire offices or acquire land and construct their own offices, especially given the existing Venezuelan exchange controls, see section on Regulatory Compliance below.

Rental rates in Venezuela, and in particular in Caracas, are usually high, even when compared to international standards, Residential leases are strictly controlled under Venezuelan law; these controls do not apply to commercial leases.

Immigration controls

Foreign individuals intending to work in Venezuela are required to obtain a working visa or a business visa. Working visas grant their holders the right to a continued stay in Venezuela for an extendable one-year term, renewable for the same term, and authorize their holders to work in Venezuela as well as to enter into and depart from Venezuelan without restrictions. Business visas are granted to foreign citizens traveling to Venezuela to conduct business or to take part in commercial, technical, advisory, scientific, or cultural activities. Business visas are primarily designed for brief stays in the country and are valid for one year from the date of issue, renewable for the same term, entitling the holders to multiple entries during that term. However, under this type of visa the holder is limited to a maximum length of stay in the country of not more than six months. The process to obtain visas may be cumbersome.

The author of this post is Fulvio Italiani