Rules for setting up a new Business in Argentina

Gateway to South America on 14/05/2015 - 14:41 in All categories of countries are, Argentina Lifestyle, Argentina Mendoza, Argentina-General, Argentine farms, Buenos Aires Residential

Post available in: English

The Business Associations Law (No. 19550) establishes a wide range of business association forms. The forms most widely used by foreign investors are corporations (sociedades anónimas or SAs as regulated under Argentine law) and limited liability companies (sociedades de responsabilidad limitada or SRLs as regulated under Argentine law). In these cases, unlike branch offices, liability is limited to the amount invested in the business.

Unlike local companies, before foreign companies can set up a company or acquire ownership interests in an existing one, they must submit proof of their formation or incorporation in their countries of origin to the Registry of Companies. They must also file their articles of formation or incorporation, bylaws, their amendments and any other document relating to their legal representatives that may be required to do business.

BRANCH OFFICES

A branch or representative office, which is created when a foreign company establishes a branch in Argentina, does not imply the creation of a new legal entity. Even though a branch must be registered with the Registry of Companies, the laws governing its existence and validity are primarily the laws of the company’s home country.

A branch may undertake all activities pursued by a company’s head office (HO) on behalf of the HO through the person appointed as the company’s representative. The assets of the entire foreign business, that is, the total value of the HO’s capital, not only the capital the HO assigns to its Argentine branch, is subject to liability. The branch’s accounts must be kept separately from the HO’s operations and its financial statements filed periodically with the Registry of Companies.

The branch must be managed by a legal representative vested with broad administrative and judicial authority—which may be limited in certain circumstances—to ensure that all of the branch’s affairs and business transactions are conducted efficiently.

Branch offices are subject to Registry of Companies’ supervision and must comply with the same requirements as corporations.

Creation of a new company or acquisition of ownership interests in an existing one:

CORPORATION

A corporation (sociedad anónima or SA in Spanish) has a legal existence separate and distinct from its owners. Its shareholders are limited in liability in terms of the amount they have invested in the corporation.

At least two shareholders are required to form a corporation. Ownership interests are represented by shares of stock, which may or may not be offered to the public. A shareholder is not allowed to hold more than the 90% shares of a corporation.

The operation of these companies is regulated by the corporate bylaws. The general business affairs of the corporation are managed by a board of directors, which is made up of one or more members, who may be shareholders or not. The majority of the board members must be Argentine residents. There are no restrictions regarding shareholders’ residency or nationality; however, if the shareholder is a foreign commercial company, it should register first with the Registry of Companies.

The board members are jointly and severally liable, without limitations, to the company, its shareholders and third parties for poor performance – there is a mandatory insurance policy to cover for risks concerning performance; breaking the law and/or bylaws; and any other damage arising from fraud, acting ultra vires (beyond the scope of their authorities) and gross negligence.

LIMITED LIABILITY COMPANY

While a limited liability company (sociedad de responsabilidad limitada or SRL as regulated by Argentine law) shares many characteristics with an SA, there are important differences to highlight:
— An SRL must have at least two members and no more than 50;
— An SA cannot be a member;
— SRLs are not eligible to list on the stock exchange;
— A change in one of the members requires an amendment to the articles of formation;
— The steps to establish an SRL are simpler than an SA; and
— The bylaws are more flexible than an SA.

Ownership interests are represented by membership units (cuotas under Argentine law). As with a corporation, the members’ liability is limited to the number of units to which they subscribe. A member may acquire one or more units. There are no statutory restrictions on the transfer of units, but the bylaws may contain imposed by law, although they may be imposed by the bylaws.

An SRL is administered and represented by one or more managers, who may or may not be members.
The managers’ liability may be several, but not joint, or joint and several, depending on the management’s organization and the provisions of the bylaws or articles of formation.

An SRL may be created through either a public deed (i.e., certified by a notary) or private (i.e., contract) instrument which must be filed with the Registry of Companies corresponding to its domicile.
No minimum capital is required, but the capital should be in line with the company’s purpose.

FOREIGN COMPANIES WITH OWNERSHIP INTERESTS IN AN ARGENTINE COMPANY

A foreign company that wishes to purchase ownership interests in a new or existing company must also meet the requirements mentioned above, but first register the company with the Registry of Companies. This procedure involves the following steps:
— Prove that it has been formed or incorporated in accordance with the laws in force in its home country.
— File the company’s original articles of formation or incorporation, their amendments and any other qualifying documents, amendments and documents related to its legal representatives with the relevant Registry of Companies (if a corporation, these documents must also be filed with the Registry of Corporations).
— Submit the resolution whereby it was decided to register the foreign company in Argentina in order to establish the local company or purchase ownership interest in a local company, which must include the closing date of the fiscal year, the principal place of business in Argentina and the designated legal representative.
— Notify the existence of any legal prohibition or restriction in the company’s home country to carry out any of its activities, demonstrated by the company’s articles of formation or incorporation and their amendments, if any.
— Provide evidence that the company meets at least one of the following requirements outside
Argentina on the date of application for registration:
— Existence of one or more branches or representative offices, proven by the relevant good standing certificates issued by the appropriate authorities in their respective locations.

As always, seek independent legal advice when starting a new enterprise.

Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.

www.gatewaytosouthamerica.com

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