Volume 4, Number 34, Page 2

Panama: Panama's Corporations Law Modernized

by Morgan & Morgan

Three months ago, Panamanian lawmakers enacted legislation designed to push domestic business practices into the 21st century. Decree-Law No. 5 of July 2 (published a week later in Official Gazette No. 23327) modernizes Panama’s law for corporations.

Consistent with the modernization of certain Panamanian legal institutions, Decree-Law No. 5 combines into one legislative document several topics important to Panama’s legal system and allows the implementation of modern technology and procedures used in today’s dynamic business world.

The amendments enacted by Decree-Law No. 5 facilitate transactions and businesses, but, most importantly, they preserve the security of Panama’s mercantile instruments, particularly the law on stock corporations so respected in the local and international business communities.

Some of the most important changes legislated are described below.

Continuation, Migration and Change of Nationality

Continuation of a foreign corporation under Panamanian laws. A company validly incorporated under a foreign law may choose to subject itself to the laws of the Republic of Panama and to continue its existence under said legislation as a Panamanian corporation, notwithstanding the provisions of the laws of its incorporation.

Conditional continuation of a foreign corporation under Panamanian laws. A company validly existing and in good standing under foreign law may register its continuation conditionally at the Public Registry of the Republic of Panama subject to the condition that such continuation is made effective by registering a statement to this effect.

Continuation of a Panamanian corporation under a foreign law. As may be established in its articles or amendments, a company incorporated under Panamanian law may continue under the laws of another country provided only that the laws of said country so allow it and that the company is in good standing with regard to its fiscal obligations in the Republic of Panama.

Corporate Records

The stock registry and minutes may be kept not only in books but also by electronic or other means, provided that they may be printed. If the company uses books, the books do not need to be countersigned by a local circuit court.

Registration of Financial Statements

At their discretion, Panamanian companies may register at the Public Registry their financial statements, provided they have been approved by the board of directors or company shareholders and duly certified by a licensed accountant.

Contracts and Meetings through Electronic Means and Validity of Agreements

The agreements, acts or contracts of directors, shareholders, members, managers or liquidators of companies performed by telephone, fax or electronic communication will be considered to have been performed in person if the parties, their representatives or attorneys-in-fact have been directly in contact and shall be valid even if they may have signed the documentson different days and in different places.

Interest Limits

Interest collected on operations perfected, completed and having their effects outside the Republic of Panama will not be subject to the maximum legal limit.

Subscribers, Directors and Liquidators

Natural as well as judicial persons may now act as subscribers or organizers of a corporation. They may also act as directors, officers or liquidators of a corporation.

General or Special Powers of Attorney

General or special powers of attorney need not be protocoled or registered in the public registry. General or special powers of attorney granted by public deed or by private document with a legally designated date will be effective with respect to third parties as of the date of their execution and may be registered at the public registry at the discretion of the interested party. However, the revocation of a previously registered power of attorney must be registered.

Pledge of Assets

Any company may pledge assets located outside of the Republic of Panamain a general form, without the requirement of physical delivery to the creditor and without affecting those credits which have preference over specific movable properties or real estate.

Reservation of Names in the Public Registry

The name of the corporation may be reserved at the Public Registry for a period not to exceed 30 calendar days, upon verification of its availability.

Trust

Trusts constituted by private documents will be considered valid if authenticated by a notary from any country. Previously, it was required that they be authenticated by a Panamanian notary public.

The law firm of Morgan & Morgan is located in Panama. Practice areas include banking, securities, insurance, tax, labor, intellectual property and environment. The law firm has branch offices in London, Madrid and Belize, as well as operating offshore services offices in Zurich, Geneva and Lugano.