Gesellschaften in Chile

 

The three most important legal forms of business entities ... Chile are:

 

1.                  Limited liability company ("LLC"), ... Spanish "sociedad de responsabilidad limitada".

 

2.                  Stock corporation ("SC"), ... Spanish "sociedad anónima".

 

3.                  Registered branch of a foreign stock corporation ("Branch"), ... Spanish "Agencia".

 

1. Limited Liability Company

An LLC ... formed by ... execution of ... charter agreement between ... partners by public deed before a Chilean Notary Public. ... formation process takes approximately 15 days from ... execution of ... public deed. Foreign partners have ... appear with ... corresponding powers of attorney duly legalized up ... a Chilean Consul. ... main characteristics of a LLC are ... following:

· There must be at least two partners who may be either Chilean ... foreign, individuals ... companies.

· ... liability of ... partners ... limited ... the amount of their capital contributions.

· No minimum capital ... required;

· ... timing for capital contributions ... fixed ... the charter agreement; and

· ... rights of ... partners are personal ... as such cannot be incorporated ... negotiable titles.

There ... a great flexibility ... the provisions that can be included ... the charter agreement.  ... establishment of a LLC requires no governmental approval ... LLCs are not supervised by any state entity aside from ... Internal Revenue Service. Financial statements of LLCs are not published.

The public deed that creates a LLC must express: (1) ... name ... domicile of ... partners; (2) ... name ... purpose of ... LLC; (3) ... system of management; (4) ... amount of capital contribution ... form of payment of each partner; (5) ... liability of ... partners limited ... the amount of capital contributions; (6) ... form of distribution of profits ... losses; (7) ... date when ... LLC ... to begin ... end; (8) liquidation ... arbitration procedures; (9) ... domicile of ... company. An abstract of ... public deed ... registered ... the Registry of Commerce ... published ... the Official Gazette. LLCs are denoted by ... words "Limitada" following ... firm name.  ... name of ... LLC has ... make reference ... the purpose of ... company ... include ... complete name of one ... more of its partners.

Management responsibilities are shared by all partners ... by managers selected by ... partners. ... management of ... LLC ... basically done by a general manager that should be a resident ... Chile who ... appointed by ... partners ... the managing partner. ... partners make ... appointment through a power of attorney that lists all ... faculties with which he ... entrusted. ... general manager may be removed by ... partners ... by resignation. LLCs do not require board of directors ... shareholders meetings.

 

2. Stock Corporations

SCs are classified as open ... closed corporations. Open SCs are those that: (a) have 500 ... more shareholders; (b) where at least, 10% of ... capital subscribed belongs ... a minimum of 100 shareholders, excluding those that individually, ... through other natural ... juridical persons, exceed such percentage; ... (c) are registered ... the Registry of Securities voluntarily ... in fulfillment of a legal provision.  Closed SCs are those corporations which do not fulfill any of ... above requirements. However, closed SCs may voluntarily fulfill ... obligations of open SCs.

Open SCs are registered at ... National Securities Registry ... are supervised by ... Superintendency of Securities ("SVS"). Closed SCs are not subject ... control by ... SVS. Financial statements of closed SCs are not published.

SCs are formed without special government authorization, except for SCs dedicated ... the management of pension funds, banking, insurance, mutual funds, ... stock exchanges. Both open ... closed SCs have ... be organized by two ... more shareholders. Shareholders can be non-resident foreign, individuals ... companies. Shareholders' liability ... limited ... capital contributions made ... promised ... the SC.

SCs are governed by ... corporate charter ("Estatutos") contained ... the public deed of incorporation, having been duly executed before a Notary Public ... Chile. An abstract ... published ... the Official Gazette ... registered ... the Registry of Commerce.

Under Chilean law there ... no distinction between articles of incorporation ... by-laws. ... corporate charter must basically state: (1) ... initial shareholders; (2) ... name ... domicile of ... SC; (3) ... corporate purpose; (4) ... duration, if any, of ... SC (SC can have indefinite duration); (5) capital of ... SC; (6) manner of payment of capital; (7) assessment of all contributions other than ... money; (8) ... board of directors ... appointed officers; (9) ... time ... process for calling Regular ... Special Shareholders Meetings; (10) ... method for ... distribution of profits; (11) liquidation procedure ... dispute resolution; (12) ... time for ... receipt of balance sheets. Foreign companies should grant powers of attorney ... form ... SC. ... formation process takes approximately 15 days from ... date of ... execution of ... corporate charter.

The capital of ... SC must be determined ... the corporate charter ... may be increased ... reduced by amending ... charter. Shares have no fixed par value. Both capital ... value of ... shares automatically change with ... approval of ... balance sheet for each fiscal year. ... initial capital must be fully paid within three years. Bearer shares are not authorized; preferred shares may be issued upon fulfillment of certain conditions. Except by unanimous consent, open SCs must distribute profits of no less than 30% of ... total net profits. However, closed SCs may expressly adopt another rule ... the corporate charter. Shareholders have preemptive rights.

The board of directors manages ... SC. ... board ... elected ... Regular Shareholders Meetings where ... shareholders may be represented by proxies. ... board consists of a minimum of three directors ... closed SCs ... five directors ... open SCs. Directors do not need ... be shareholders ... can be foreigners. ... law does not sanction ... lack of attendance ... board meetings.

Duties of directors cannot be delegated, though alternate directors can be appointed. Directors must be physically present ... participate ... board meetings. Directors must exercise their duties with ... care ... diligence that individuals ordinarily use ... their own business endeavors. Directors who as result of their fraudulent acts damage ... SC, shareholders, ... third parties, are held jointly ... severally liable for damages.

Regular Shareholders Meetings are held annually ... elect ... members of ... board of directors, approve ... annual financial statements ... distribution of dividends. All matters, other than those reserved by law ... the Estatutos for ... Special Shareholders Meetings, may be discussed ... voted by ... Regular Shareholders Meetings.

Special Shareholders Meetings are required for: (1) ... dissolution of ... SC; (2) ... transformation, merger ... split-off of ... SC, ... the amendment of ... Estatutos; (3) ... issuance of bonds ... convertible debentures; (4) ... alienation of ... fixed assets ... liabilities of ... SC, ... its entire assets; (5) ... granting of real ... personal guarantees ... secure obligations of third parties, unless these are affiliates, ... which case approval by ... board ... be sufficient; ... (6) any other matter as specified ... the Estatutos.

Except as specified below, resolutions of both Regular ... Special Shareholders Meetings shall be adopted by simple majority of ... shares present with voting rights.

A resolution involving amendment of ... Estatutos, must be adopted ... accordance with ... majorities required by ... then existing Estatutos which ... the case of closed SCs cannot be less than absolute majority of ... shares issued with voting rights.

There are some matters which require ... affirmative vote of two-thirds of ... shares issued with voting rights.

The amendments of ... Estatutos for purpose of creating, modifying ... eliminating preferences, must be approved by two-thirds of ... shares of ... affected class of stock.

 

3. Registered Branch

Foreign corporations permanently doing business ... Chile should form a Branch, if they are not establishing a local company as those described above. ... Branch ... not subject ... the control of a governmental agency either ... its formation ... in its operation. ... foreign corporation ... required ... appoint a representative ... Chile, granting him broad powers of attorney. ... Branch does not require board of directors ... other formalities for its management. Although ... Branch needs a certain assigned capital, there ... no minimum requirement.

In order ... register a Branch, ... following documents ... the official language of ... country of origin, officially translated into Spanish by ... Chilean Ministry of Foreign Affairs, have ... be submitted for notarization before a Chilean Notary Public: (1) evidence of legal incorporation of ... foreign corporation under ... laws of ... country of origin ... certificate of present existence ... good standing; (2) a copy of ... current by-laws of ... foreign corporation; (3) general ... broad power of attorney granted by ... foreign corporation ... the agent ... Chile.

Once these documents are duly certified by a Notary ... the country of origin ... legalized up ... Chilean Consul, ... agent must declare before a Notary Public ... Chile: (1) ... name under which ... foreign corporation ... operate ... Chile; (2) its corporate purpose; (3) its acceptance of Chilean law ... submit that its assets ... be subject ... Chilean law; (4) that ... Branch ... have enough liquid assets ... cover its local liabilities; (5) ... amount of capital assigned ... the Branch; (6) ... domicile of ... Branch. An abstract of ... certification ... of ... public deed ... published ... the Official Gazette ... registered ... the Registry of Commerce. ... formation process takes approximately 60 ... 90 days if ... documentation has ... be translated, which would be your case.

 

4. Comparison of ... Three Corporate Structures

SCs ... the LLCs are legal entities distinct ... apart from their owners and, therefore ... partners ... shareholders are only liable for ... amount of their equity contributions.  ... contrast, a Branch of a foreign corporation ... an extension of ... foreign corporation ... therefore, ... acts of ... legal representative of ... Branch are binding ... the foreign corporation.  ... Branch requires only one foreign corporation, but any Chilean company (SC ... LLC) needs at least two partners ... shareholders.  ... Branch, as such, cannot be a partner ... shareholder of a local company because it ... not a legal entity.  However, ... Branch ... considered a separate taxpayer for tax purposes.

Three important differences exist between a closed SC ... a LLC.  First, ... management of ... LLC ... much simpler than that of a closed SC because a LLC does not require board of directors ... shareholders meetings ... approval.  Second, any amendment of ... partnership agreement of a LLC requires ... approval of all partners, but with a SC, ... majority rule applies for most decisions at ... board of directors ... shareholders.  Third, ... a LLC any assignment of equity rights ... the entrance of a new partner requires ... consent of all partners while with a SC ... transfer of shares may be freely made.

 

 5.           Income Tax.

Generally speaking, it can be said that ... tax implications of setting-up a branch, a stock corporation ... a limited liability company ... Chile are almost ... same. However, there are some relevant aspects we are not dealing with ... this memo that need ... be resolved ... a case by case basis.

Irrespective of ... type of legal entity, ... corporate tax ... a flat 15% rate payable ... an annual basis. However, there are monthly provisional payments ... account of ... corporate tax throughout ... year. ... addition, ... once profits are made available ... the nonresident investor, ... 35% tax becomes due. From ... 35% additional tax, ... investor can deduct as a tax credit ... corporate tax actually paid by ... company (15%). Thus, ... effective additional tax rate ... 20%, ... the total overall tax burden for nonresident entities doing business through a branch ... subsidiary ... Chile ... 35%.

Typically ... investor prefers ... set up a holding company ... Chile, which ... turn owns ... rights, interests o shares ... the Chilean subsidiary. ... aim of using a holding company ... to postpone ... 20% additional tax that accrues ... profits' distribution, given that ... holding domiciled ... Chile are not taxed until distribution of profits. Thus, if ... investor decides ... expand its activities ... other areas of business ... Chile, it can better use ... funds already available ... the holding company, without incurring ... any tax costs.

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