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Colombia • June 10, 2022 • Written by: admin
Understanding Legal Structures in Colombia
Starting a business in Colombia requires careful consideration of the legal environment, and your enterprise's compass will be determined by the legal structure you choose. This guide shows the six notable legal frameworks in Colombia, each of which has a unique impact on the development of businesses and reflects the ever-changing dynamics of the Colombian market. Each organization meets a different need, from Simplified Stock Company (S.A.S.) with its streamlined efficiency to Stock Company or Corporation (S.A.) with its traditional solidity.
Simplified Stock Company (S.A.S.)
The SAS company structure was introduced into Colombian legislation in December of 2008 to simplify the process of setting up a company. It is now the highly preferred company structure in Colombia because they are very easy to incorporate and quite flexible, which has led to over 95% of companies incorporated in recent years with the SAS structure.
Key points:
- 1 shareholder is required (natural or legal persons, Colombian or foreign), and there is no maximum limit.
- Shareholders are liable up to the amount of the contributed capital, and there is no minimum capital requirement.
- May be incorporated by way of a private document, and the company bylaws may be amended in this manner as well.
- Company name must be followed by the acronym SAS or by the words “simplified stock company” in Spanish, Sociedad por Acciones Simplificada.
- May have an indefinite duration and an unlimited or undefined corporate purpose, so it may conduct nearly any type of business activity.
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Stock Company or Corporation (S.A.)
An SA can be advantageous in situations where there are a large number of shareholders. In contrast to the Simplified Stock Company, the key features of an SA are:
- Must have at least 5 shareholders (natural or legal persons, Colombian or foreign), and there is no maximum limit.
- Shareholders are liable up to the amount of the contributed capital, and there is no minimum capital requirement.
- Incorporated by means of a public deed executed before a public notary, and any amendments to the bylaws must be made in the same way.
- Deed may be kept private if one of two conditions are met:
- Company has less than 10 employees OR
- Company assets are below 500 minimum wage salaries (approximately USD $125,000)
- Company name must be followed by the acronym S.A. or by the words “stock company” in Spanish, Sociedad Anónima.
- Must appoint a statutory auditor.
Limited Liability Company (LTDA)
The LTDA’s are formed by partners as opposed to shareholders, but they do share some similarities with SA’s. Key features include:
- Must be incorporated before a public notary with a public deed unless one of two conditions are met (in which case the document may be kept private):
- Company has less than 10 employees OR
- Company assets are below 500 minimum wage salaries (approximately USD $125,000)
- Must have between 2 and 25 partners (either natural or legal persons, Colombian or foreign persons).
- Partners are only liable up to the amount of their contributed capital, except for labor and tax obligations, in which case they are called to answer jointly with the company.
- Bylaw amendments or transfers of company shares or equity interests must also be made through a public deed.
- Company name is always followed by the abbreviation “LTDA,” (Sociedad de Responsabilidad Limitada)
General Partnership (Sociedad Colectiva)
Key Points:
- Minimum two partners; maximum none.
- Subsidiary personal liability exists for partners.
- Corporate taxation is based on earnings, while partner dividends are subject to individual taxation.
- A third party may be authorized by partners collectively or actively managed.
incorporation through public deed registered. - The partnership board is in charge of overall management.
- With a veto power, partners can halt operations until a majority vote is obtained.
- The board approves the annual financial statements at its regular meetings.
- Colombian law requires the declaration of foreign investments.
- Statutory auditors are not required unless the asset threshold is exceeded.
Limited Partnership (Sociedad en Comandita Simple)
Society in Comandita Simple is specified through a balance of limited and general partners. This legal framework promotes risk sharing and division of labor, which makes it a good option for businesses looking to pool resources and experience in the Colombian business environment. Key features include:
- The two partner types are limited (1 or more) and managing (1 or more).
- ≥5 partners are needed for share limited partnerships.
- Limited partners have limited liability; managing partners have personal liability.
- Corporate taxation (earnings) and personal taxation (dividends)
- The limited partnerships' hybrid nature:
- Transfer of managing partners: unanimous consent, amendment of bylaws
- Transfer of limited partners: agreement reached by all limited partners
Public deed and Commerce Registry incorporation - Top body of the partnership, the managing partners oversee and provide legal representation
- Capital: Contributions from managing partners may be restricted.
- Each managing partner has one vote, and limited partners have a vote based on their ownership percentage.
- The partnership board approves the financial statements every year.
- Declaration of foreign investments made through the Colombian Central Bank.
- According to Colombian law, limited partnerships do not require a statutory auditor unless their assets surpass a specific threshold
Limited Partnership with Shares (Sociedad en Comandita por Acciones)
A dynamic combination of shared management and limited liability is offered by Sociedad en Comandita por Acciones. This legal framework is a creative option for joint ventures in Colombia since it is ideal for companies looking for a balance between flexibility and efficiency.
- Rules: Like other commercial entities, they are governed by the General Law of Commercial Companies.
- Partners: Made up of both limited and limited partners.
- Bylaws: Corporation rules apply, with legal exceptions.
- Business Name: Needs permission from the Ministry of Economy to be used.
- Holdings: 5% of yearly earnings up to 20%, or 25% of the fixed capital stock, will be allocated.
- Count of Partners: No maximum, a minimum of two partners.
- Transfer of Shares: Two thirds of limited partners and 100% of limited partners must consent to the transfer.
- Body: Corporate and supervisory bodies are the commissioner, administrators, and shareholders' meeting representatives.
Branch Office of a Foreign Company
Branch offices are a possibility for companies headquartered in foreign countries, and they have been attractive options to foreign investors in mining and hydrocarbons because of foreign exchange benefits within those sectors. From a purely legal point of view, Colombian law views the branch office of a foreign company and its parent company as the same legal entity.
- Parent company is therefore liable for the entire obligations of the branch.
- Branch must be registered in Colombia by way of a public deed.
- Bylaws and corporate stakeholders are the same as those of the parent company.
- Statutory auditor must be appointed.
There are a number of unique scenarios that could apply to any particular legal structure, so your company strategy and needs will determine the most appropriate option for you. A local partner with expertise in this area can help you identify tax saving measures in advance, so you would be well-advised to seek help and ensure you don’t make an expensive mistake that has to be corrected down the road, especially after you’ve already lost tens of thousands of dollars in unnecessary taxes.
As Latin America market specialist, Ongresso has the expertise to assist you with your expansion efforts based on your unique needs. Deciding on the right market entry strategy and legal representation is a complex process with many unknown and inherent risks. We will simplify this process by reducing complexity, saving you countless hours of researching local regulations and norms, and giving you peace of mind so you can focus on your core business. Contact us via email at contact@ongresso.com to determine which strategy and legal structure is optimal for your business.