Volume 4, Number 26, Page 4

Establishing a Company

by Aldunate y Compañía Abogados

Legal Entities

The Chilean juridical system allows for the following commercial entities, among others:

w corporation (sociedad anónima)

w branch of foreign corporation (agencia de sociedad anónima extranjera)

w limited partnership (sociedad de responsabilidad limitada)

Corporation

A sociedad anónima is formed under Law 18046. The corporate name must contain the words Sociedad Anónima or the initials S.A. Any two or more entities or individuals, national or foreign, may form a corporation. Closed corporations are not subject to the control of government agencies, except tax authorities. The liability of the shareholders is limited to the amount of their contributions to the company.

The corporation is formed through a public deed, which must contain the following:

1. Complete name, nationality, profession, marital status, domicile and identity card number (foreigners’ passport numbers) of the partners. If one or more of the original shareholders is a company, that entity must be mentioned by its official name, activity, nationality and domicile, and its representative(s) must be mentioned as indicated above.

2. Name and domicile of the company. The name can be in Spanish or in foreign languages, adding the words Sociedad Anónima, or S.A. Domicile refers to the place of its incorporation: the city in Chile where the company will perform its activities.

3. Indication of the corporate purpose(s).

4. Term, which can be indefinite.

5. Capital, with indication of number of shares; privileges to series of shares, if any; form and terms of payment; and valuation of the contributions other than cash.

6. Organization, form of administration and control by the shareholders. Corporations are administered by a board of directors with a minimum of three members. Certain matters of importance, such as transformation, division and mergers, reductions of capital, and reduction/increase of the members of the board of directors, require the approval of a general shareholders’ meeting. Shareholder meetings can be for ordinary purposes: to approve the balance sheet, distribute profits or elect the members of the board. They can also be for extraordinary purposes: to dissolve the company, issue bonds or debentures, divide or merge the company, change its bylaws, and so on.

7. Financial period and date of shareholder meetings.

8. Form of distribution of profits.

9. Form of liquidation.

10. Arbitration.

11. Appointment of the provisional board of directors.

12. Other agreements of the shareholders. A summary of the bylaws must be published in the Official Gazette and registered at the appropriate Commercial Registry within 60 days of the date of the deed containing the bylaws.

13. Capital structure. No minimum capital is required. Capital and value of the shares are modified whenever the financial statements are approved at a shareholders’ meeting. Corporations can only issue registered shares, which can be common or preferred.

Limited Partnership

The limited partnership is the most typical commercial structure in Chile for individuals or corporations doing business together. Limited partnerships are governed by their deed of constitution, Law 3918 and the Commercial Code. The liability of each partner is limited to the amount specified in the partnership deed, which is normally each partner’s declared share of the partnership’s capital.

The principal formation requirement is the execution of a simple partnership deed before a Notary Public. The affairs of a limited partnership are not subject to government control (except in the case of bankruptcy), and the partnership has no obligations to publish accounts or file these with any government department other than the tax authorities who demand a complete accounting from all taxpayers. Foreign entities may become partners in a sociedad de responsabilidad limitada, and two or more foreign legal entities may form such a partnership.

The enterprise must operate with the name of one or more of its partners, or with a name indicative of its object, ending with the word limitada or an abbreviation thereof, Ltda.

Limited partnerships are formed under Law 3918, and the public deed must contain the following:

1. (see number)

2. Partnership’s name.

3. Name of partner(s) or third persons appointed as administrators and entitled to use the firm name. If the partners are foreign legal entities, they can be appointed as administrators, and it can be stated that they will exercise that right through their own representative(s) appointed under the public deed.

4. Capital of the company, indicating the contribution of each partner.

5. Nature of business.

6. Basis of distribution of profits and losses between partners.

7. Duration of partnership.

8. Liquidation procedures.

9. Arbitration clause.

10. Domicile of the firm.

11. Any other clauses agreed upon by the partners.

In addition, the deed must contain a declaration that each partner’s liability is limited to the amount of his or her capital contribution . Within 60 days of the execution of the partnership deed, an excerpt must be registered in the Commercial Registry corresponding to the domicile of the firm and published in the Official Gazette. No minimum capital is required. The sale of the rights of a partner can only be effected with the consent of all other partners.

Branch of a Foreign Corporation

Any corporation legally incorporated abroad may form an authorized branch in Chile under its own name.

To incorporate the agency, the following documents must be registered with a Chilean Notary:

1. Certification granted by the corresponding authorities stating that the foreign corporation is valid in its country of origin and is legally in existence.

2. Copy of its articles of incorporation and bylaws.

3. Power of attorney to the agent who will represent the company in Chile. This power must be broad, including all faculties established under Article 7 of the Code of Civil Judicial Procedure. The person appointed as the manager with power to transact business is the agent or legal representative whose power of attorney is registered in accordance with the formalities described herein. The legal representative’s power of attorney should permit delegation of special powers to other officers. No annual meeting is required. An agent with residence abroad can be appointed, but in such a case a delegation of the agency’s local officers is necessary for performing daily procedures.

The above documents must be issued in the official language of the country of origin and legalized before the corresponding Chilean consulate. Documents must be remitted by courier, and their official translation into Spanish must be obtained.

On the same date of the registration of those documents with the Chilean Notary, the agent must declare the following in a public deed:

purpose and name under which the company will operate in Chile;

the company’s acknowledgement of Chilean law;

assets of the branch subject to Chilean law;

the branch that will maintain liquid assets to cover its local liabilities;

capital in Chile and date and manner in which the capital will be brought into the country (no minimum capital is required);

domicile of the principal branch.

A summary of the registration and declaration must be published in the Official Gazette and registered in the Commercial Registry within 60 days. The branch must publish its yearly balance sheet in a local newspaper within the four months following the closing of the financial period.

The law firm of Aldunate y Compañía Abogados is located in Santiago, Chile. Its practice areas include taxes, commercial, banking, finance, mining, and foreign investment.