Ecuador: Fines For Late Communication Of Stock Transfers To The Superintendence Of Companies, Securities, And Insurance. Are There Legal Grounds For This?

Last Updated: 16 August 2017
Article by Nathalie Viteri Jiménez

The Regulations for the Imposition and Collection of Fines whose target corresponds to the Superintendence of Companies, specify restrictively those cases in which the fine set forth in Article 25 and others of the Companies Act is charged, and, there is no fine among these for late notification to the Superintendence of Companies of the transfers of shares and equity interests made; therefore, the collection of a fine on these grounds (Article 21 of the Companies Act) invoking Article 25 of the Companies Act is not appropriate.

In 2016, the Superintendence of Companies issued a series of administrative resolutions to sanction, with a fine of one basic minimum wage, those company directors who are tardy to notify (after 8 days as of registration on the books) the transfers of shares or equity interests via the institutional website; based on Article 25 of the Companies Act, and from this article, specifically taking a general phrase: "Should the Superintendent not receive the documents to which the preceding articles refer in a timely fashion..."

This sanction does not refer to the preceding 24 articles logically, but rather Article 25 itself states, it is upon the lack of timely submission of the balance sheet, income statement, roster of directors, legal representatives, partners, or manager's and statutory auditor's report, etc. of the companies subject to its control (Articles 20 and 23 of the Companies Act), which must be submitted in the first quarter of each year.

The Regulations for the Imposition and Collection of Fines considers as taxpayers the directors, legal representatives, company, etc. that adapt their behavior to the one stipulated in Article 25 (et al.) of the Companies Act and enumerates the restricted cases in Article 2 therein.

In each one of the cases described in Article 2 mentioned above, it can be observed that a fine for the tardy notification of the transfer of shares or equity interests to the Superintendence of Companies (Article 20 Companies Act), as a mere notification does not affect the rights or obligations of the new partners or shareholders, or the control agency; as the obligation to submit the roster of shareholders or partners commences in the first quarter of each year, i.e., what is sanctioned in accordance with Article 25 of the Act, and according to the Regulations for Imposition of Fines created for the application of Article 25 mentioned above, is the lack of compliance with that obligation (Article 20 Companies Act); but not the mere notifications of transfers that arise during the rest of the year; as the Act provides that the transfer of shares becomes effective against the company or against third parties as of its registration in the Stock Ledger, and not as of the notification to the regulatory agency; however, and without being provided by the Regulations, starting in 2016, the delay in that notification began to be fined, as if that occasioned injury to shareholder rights and duties.

The Institution itself, on the roster of shareholders or partners that it provides via its website in the part that states:

"It is certified that, this roster of partners granted by the Companies Registry of the Superintendence of Companies, is drawn up in accordance with the provisions of Articles 18 and 21 of the Companies Act, which neither extinguishes nor creates rights with respect to the ownership of the equity interests (...) this corporate control institution does not assume with respect to the veracity and legality of the assignments of equity interests, any liability whatsoever and it holds harmless the variations of the ownership of said assignment that may occur in the future, as in accordance with the provisions of Article 256 of the Companies' Act, Section 3, company directors are jointly liable to the company and third parties: "On the existence and accuracy of the company books (...)."

–the boldface and underlining are the author's–This ratifies that the sole manner of evidence of those who are the shareholders or partners of a company, as provided by the Act, is the Stock Ledger or Equity Interest and Partners' Ledger as well as in the case of the limited companies, the transfer instruments of equity interests; but not the "notification" that the legal representative makes to the Superintendence of Companies, therefore, this does not affect any right, and the sanction for tardy notification to date, has no support, neither in the Act nor in the Regulations created for the imposition of fines determined in the invoked Article 25.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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