Whoever intends to perform any kind of commercial activities in Chile will surely, at one point, face the question as to which is the most suitable form of organization or legal vehicle for its own particular line of business. Counsel from the translator and legal advice will be a key aspect for such purpose, since it will allow for a better understanding, and thus a better decision, about which of them provides the investor with greater benefits, especially from a tax and corporate governance point of view.
Even though Chilean law addresses several legal vehicles, the following three are the most used in practice: (i) Corporations, (ii) Limited Liability Companies, and (iii) Sociedades por Acciones. Each of these vehicles has a specific legal nature, determined by the legislator in different legal bodies.
Generally speaking, the aforementioned company types have the following characteristics:
1. Corporations:
a) Types: There are 3 types (Special Corporations, Publicly Traded Corporations and Closely Held Corporations).
b) Shareholders: They must be incorporated by at least 2 shareholders. Under exceptional circumstances, the company may eventually have only 1 shareholder for a maximum period of time, after which the company is dissolved.
c) Capital: There is no minimum capital requirement. Nevertheless, the Internal Revenue Service usually verifies that it is sufficient to cover the incorporation costs (normally CLP 1,000,000 or USD 1,600, approximately). The initial capital must be paid within 3 years as from the date of the incorporation deed.
d) Management: It is carried out by a Board elected at a shareholders meeting. The Board shall have at least 3 directors, for Closely Held Corporations, and 5 for Publicly Traded Corporations.
e) Share Transfer: The by-laws cannot impose any restrictions on the free transfer of shares. The shareholders usually regulate such issues in a shareholders agreement granted by a separate instrument.
f) Liability: Limited to the value of the shareholders’ shares.
2. Limited Liability Companies:
a) Types: There is only one type.
b) Partners: Must be incorporated by at least 2 partners, and may not have more than 50.
c) Capital: The term for capital contributions shall be the one defined in the by-laws, it usually does not exceed 3 years.
d) Management: Freely determined by the partners. It is usually entrusted to the majority partner.
e) Transfer of Equity Rights: The partners cannot sell their equity rights without express consent of the other partners.
f) Liability: Limited to the amount of the partners’ contribution or to a higher amount as determined by its by-laws.
3. Sociedad por Acciones:
a) Types: There is only one type.
b) Shareholders: May be incorporated and operated by 1 shareholder.
c) Capital: There is no minimum capital requirement. The same criteria explained above applies regarding the Internal Revenue Service. The initial capital must be paid within the term set out in the by-laws, which may not exceed 5 years.
d) Management: Freely determined by the shareholder(s). If nothing is provided for, the company shall be managed by a Board.
e) Share Transfer: Even though we believe it may be discussed from a constitutional point of view, the by-laws may eventually set out restrictions to the free transfer of shares.
f) Liability: Limited to the value of the shareholders’ shares.
Regarding the incorporation process of such companies, one should bear in mind that it begins with the drafting of a public deed containing the by-laws of the company (except for Sociedades por Acciones, which can be incorporated by private instrument prior compliance with certain requirements). Subsequently, an abstract of such public deed shall be prepared, which must be registered in the Registry of Commerce of the relevant Real Estate Registrar and published in the Official Gazette of Chile, in both cases, complying with the requirements and terms set out by the law. Depending on the complexity of the by-laws and processing in the Real Estate Registrar, the incorporation process will usually take about 2 weeks.
Even though the incorporation of such legal vehicles will be carried out by the investor’s legal advisor, the role of the translator in such matters will be essential. A good translator will try not only to prevent equating these legal vehicles to others existing in places like the United Kingdom (e.g., referring to the sociedad por acciones as a “company limited by shares”, which is wrong on many levels), but shall also be able to provide proper feedback and a double review of all instruments he translates. Due to the foregoing, the investor will not only receive a much more integral advice, but shall also be able to understand the nature and characteristics of each of these vehicles and, hence, the differences they may have with those of other countries.
Even though Chilean law addresses several legal vehicles, the following three are the most used in practice: (i) Corporations, (ii) Limited Liability Companies, and (iii) Sociedades por Acciones. Each of these vehicles has a specific legal nature, determined by the legislator in different legal bodies.
Generally speaking, the aforementioned company types have the following characteristics:
1. Corporations:
a) Types: There are 3 types (Special Corporations, Publicly Traded Corporations and Closely Held Corporations).
b) Shareholders: They must be incorporated by at least 2 shareholders. Under exceptional circumstances, the company may eventually have only 1 shareholder for a maximum period of time, after which the company is dissolved.
c) Capital: There is no minimum capital requirement. Nevertheless, the Internal Revenue Service usually verifies that it is sufficient to cover the incorporation costs (normally CLP 1,000,000 or USD 1,600, approximately). The initial capital must be paid within 3 years as from the date of the incorporation deed.
d) Management: It is carried out by a Board elected at a shareholders meeting. The Board shall have at least 3 directors, for Closely Held Corporations, and 5 for Publicly Traded Corporations.
e) Share Transfer: The by-laws cannot impose any restrictions on the free transfer of shares. The shareholders usually regulate such issues in a shareholders agreement granted by a separate instrument.
f) Liability: Limited to the value of the shareholders’ shares.
2. Limited Liability Companies:
a) Types: There is only one type.
b) Partners: Must be incorporated by at least 2 partners, and may not have more than 50.
c) Capital: The term for capital contributions shall be the one defined in the by-laws, it usually does not exceed 3 years.
d) Management: Freely determined by the partners. It is usually entrusted to the majority partner.
e) Transfer of Equity Rights: The partners cannot sell their equity rights without express consent of the other partners.
f) Liability: Limited to the amount of the partners’ contribution or to a higher amount as determined by its by-laws.
3. Sociedad por Acciones:
a) Types: There is only one type.
b) Shareholders: May be incorporated and operated by 1 shareholder.
c) Capital: There is no minimum capital requirement. The same criteria explained above applies regarding the Internal Revenue Service. The initial capital must be paid within the term set out in the by-laws, which may not exceed 5 years.
d) Management: Freely determined by the shareholder(s). If nothing is provided for, the company shall be managed by a Board.
e) Share Transfer: Even though we believe it may be discussed from a constitutional point of view, the by-laws may eventually set out restrictions to the free transfer of shares.
f) Liability: Limited to the value of the shareholders’ shares.
Regarding the incorporation process of such companies, one should bear in mind that it begins with the drafting of a public deed containing the by-laws of the company (except for Sociedades por Acciones, which can be incorporated by private instrument prior compliance with certain requirements). Subsequently, an abstract of such public deed shall be prepared, which must be registered in the Registry of Commerce of the relevant Real Estate Registrar and published in the Official Gazette of Chile, in both cases, complying with the requirements and terms set out by the law. Depending on the complexity of the by-laws and processing in the Real Estate Registrar, the incorporation process will usually take about 2 weeks.
Even though the incorporation of such legal vehicles will be carried out by the investor’s legal advisor, the role of the translator in such matters will be essential. A good translator will try not only to prevent equating these legal vehicles to others existing in places like the United Kingdom (e.g., referring to the sociedad por acciones as a “company limited by shares”, which is wrong on many levels), but shall also be able to provide proper feedback and a double review of all instruments he translates. Due to the foregoing, the investor will not only receive a much more integral advice, but shall also be able to understand the nature and characteristics of each of these vehicles and, hence, the differences they may have with those of other countries.
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