AREAS OF INTEREST

1. Introduction

Paraguay enjoys an economic system that is based on free trade. A free currency exchange system, free import and export, tax exemption on investments and free transfer of capital has been introduced, at the same time a strict monetary stabilizing program has been put into effect, with tax adjustments designed to control inflation. There are no price controls or other types of restrictions.

With regard to economic activity, national laws contemplate a more limited participation on the part of the State in entrepreneurial activities and grant private initiative a more important role in investment and economic growth. The private investment law that grants fiscal exemptions and administrative and legal facilities to foreign and national investors has established this base.

2. Economic Sectors for Investment in Paraguay

Paraguay offers important options for private investment, such as industries aimed at the local and export market (cast metals, textiles, vegetable oils, dairy products, leather and hides, assembly of electronic appliances, as well as wood, beef and other products).

The principal Paraguayan products are: cotton, soybean, sugar cane, meat, wood, vegetable oils, corn, rice, tobacco, manioc (cassava), fruit, vegetables among others.

3. Privatization of State Enterprises

Law 126/91, of Privatization of State Enterprises establishes procedures for the transfer to the private sector of steel, alcohol and railway and shipping companies. This law makes possible a larger participation of the private sector in the administration of state owned corporations. Privatized companies include the airline, shipping, alcohol and steel companies. New projects are expected in relation to the privatization of other sectors currently owned by the state.

4. Electricity

Paraguay possesses abundant hydroelectric energy provided by the Acaray (national), Itaipú (binational) and Yacyretá (binational) power stations, with countrywide supply networks.

A proposed law is currently being analyzed by Congress, which introduces to the free market the possibility of purchase of electricity for the realization of wholesale transactions. In this way all industrial activities shall be developed by artificial entities independently from the regulatory and supervisory authorities. The proposed draft legislation intends to clearly differentiate the operation of the electric system from the typical functions of State control and scrutiny.

5. Telecommunications

 The National Telecommunications Commission (CONATEL), created by Law N° 642 in 1995, is the regulating agency for basic services, broadcasting and other telecommunications services. The short term objectives of the regulating agency were to bring into operation a first and second cellular operator, de-monopolize the international carrier service and create a second full telephone service company to cover the entire territory of Paraguay. License to operate the A and B Mobile Cellular Bands have been granted.

Currently in study is the possible capitalization of the state-owned National Telecommunications Administration (ANTELCO) with private investment.

6. Natural resources

 Paraguay has substantial natural resources mainly for agriculture and cattle raising. With the raw materials obtained from agricultural sources, Paraguay offers a wide range of income-producing investment opportunities related to the industrialization of agricultural products and food production.

Law 536/95 establishes the following incentives (tax and non-tax) for forestry activities:

  1. 50 percent reduction of real estate tax on land used for forestry development.

  2. Government refund of 75 percent of planting and maintenance cost during the first three years. These refunds are not considered taxable incomes.

  3. It is presumed that the net income is equal to 10 percent of the commercial value of the timber and related products.

7. Means of Communication

 Paraguay has a highway network and modern means of communication, which facilitate adequate connections within the country.

8. International Waterway "Hydrovia"

 Currently an ambitious multi-lateral project known as the "Hydrovia" or international waterway is being developed, which will require substantial investment and is designed to make 3,500 Km. of the Paraguay and Paraná Rivers permanently navigable, from Puerto Cáceres (Brazil) to Puerto Nueva Palmira (Uruguay). The geographic position of Paraguay, the Hidrovía, other projects such as the Paraná-Tieté Hydrovia in Brazilian territory, Bioceanic Corridor (that will join the Atlantic and Pacific Oceans), will facilitate communication between the countries of the region and will place Paraguay as an extremely advantageous alternative as a center of production, supply and for rendering services. The Hydrovia Project is part of a River Integration Plan between MERCOSUR member countries and Bolivia.

9. Financial Legislation

 Law 861/96 establishes the requirements and procedures for the opening of banks, financial undertakings, general stores and warehouses, security, brokerage firms and other credit entities, without restriction, except for compliance with operational and supervisory regulations.

The Insurance market is regulated by the law N° 827/96. This law sets out the requisites needed for authorization to operate, as well as the minimum capital. The Superintendency of Insurance dependant from the Central Bank acts as the authority of control.

10. Migrations Law

 Law 978/96 regulates the migration of foreigners and the emigration and repatriation of Paraguayans, with the purpose of promoting the movement of populations and the incorporation of the labor force the country needs.

This law establishes categories of immigrants, on the basis of particular characteristics and the objectives of foreigners in coming to Paraguay. Foreigners can become permanent residents under one of the following categories: spontaneous immigrants, assisted immigrants, immigrants with capital, investors, retirees and those who have independent incomes.

The law creates an interesting concept: that of "organized migration", seeking to facilitate the entry and permanence in Paraguay of communities that devote themselves to activities that are of interest to the nation. It is to be regulated by the Executive Power, with the intervention of the General Migrations Office.

In addition, the procedure established to obtain residence is innovative, since it permits a foreigner to initiate immigration procedures through a third party, who may submit the required documents to the General Migrations Office.

11. Capital market

The Capital Market Law N° 1284/98 has been approved replacing several laws which covered this area. The National Securities Commission has produced, since June 1992, a series of regulations covering requirements for the opening of securities exchange and brokerage firms, qualifying issuing corporations, etc.

The Stock Market initiated operations and the economic agents expect that this institution will provide a valuable service in making private investments more dynamic.

12. Free Trade Zone

 The Law regulating free trade zones has the purpose of encouraging investments, employment, exports and international trade. Transactions in a free- trade zone that are oriented to exportation are exempt from all national, departamental and municipal taxes. The sole tax is a free-tradezone tax of 0.5 percent on gross sales.

The concessionary of a free-trade zone is a legal entity that signs an agreement with the executive power to build and develop a specified areas as a free-trade zone. The agreement will last 30 years, and the concessionary is granted the benefits of Law N° 60/90, that is, 95% exemption from income tax for five years and 100 percent exemption from customs duties.

Users of a free trade zone- whether individuals or legal entities - contact with the concessionary to perform commercial, industrial or service activities.

13. Maquila operations

 A maquila operation allows the transfer of highclass technology by the subcontracting of national companies. It is to be based on an agreement signed between the foreign company and a local company which needs to be approved by the Maquiladora Council.

Materials and equipment for processing are to be imported under the drawback system that suspends the payment of taxes and tariffs until re-export of the finished product. The Customs Authority demands a guarantee in order to clear goods imported under the drawback system. It is possible to take out a bond with an insurance company in order to fulfill this requirement.

The law requires that the materials must be re-exported within a maximum term of six months. Machinery and equipment may remain in the country for the duration of the program, at the end of which may be re-exported without paying taxes.

This law practically scratches income tax and establishes instead a 1% tax to be levied on the value added inside the country (i.e. the sum of all leases, cost of light, salaries is calculated 1%). Value Added Tax is also levied however this is recovered once the goods are exported.

It is worth mentioning that until the year 2001 the items under the list of exceptions are labeled as "made in Paraguay" provided that at least 50% of the value originates in Paraguay. The value increases to at least 60% from 2001 until 2006.

Paraguay offers good possibilities for the maquila because it has a cheaper value of work force, and abundance of electric energy and a determinant element: its geographical position.

14. Leasing

 A new leasing law has been recently enacted introducing a commercial and financial alternative to Paraguay`s market. The law denotes the intention of introducing two main objectives: offer legal security to both the lessor and the lessee and provide tax incentives making the operation attractive for all parties.

Leasing companies who wish to operate in Paraguay must constitute a stock corporation and include the following legal denomination after its commercial name: "Sociedad Anonima de Locación Financiera" or Sociedad Anonima de Leasing Financiero." Capital must be represented as registered stock and the corporate purpose must be limited to the realization of financial and commercial leasing operations subject to the terms of the law contained thereof.

Once the company is constituted it must be registered in the Registry of Artificial Entities and Associations and an authentic copy must be forwarded to the Paraguayan Central Bank. The minimum capital stated in the law is 750.000.000 guaraníes (approximately US$ 263,157). This amount shall be up dated in accordance to the Consumer Price Rate calculated by the Central Bank.

Regarding the tax incentives the law describes quite accurately the tax regime to be applicable in view of the existing tax legislation. Tax base for the Value Added Tax (10%) shall be calculated over the amount of each net installment accrued, including the capital and financial portion, as well as the readjustments convened and the residual price when the purchase option is undertaken. Rent Tax shall be payable as annual rent which shall include the total accrued in a fiscal year. In case of imported goods by a lessor destined for leasing, the application of the Value Added Tax shall remain in suspension upon a guaranty bond which shall be returned to the lessor once he demonstrates that the good has been delivered to the lessor.

An appropriate procedural norm provides that the lessor is entitled to an executive summary proceeding (as opposed the ordinary full trial) in case the lessee fails to pay the installment agreed, including interests and penalties.

The law also describes the exoneration regime and the determination of the net rent, accounting regulations and utility reinvestment.

15. Labor legislation

 Paraguayan labor legislation is based on the Labor Code, adopted by Law 213/93. Parties subject to the provisions contained in the Code are employees employing intellectual, manual or technical skills in a dependency relation, and their employers; teachers of private academic institutions and those carrying out sport or professional activities; labor unions and employers of the private sector; and, employees of State and Municipal entities renderor of services and products. All other State-employees, or employed by Decentralized entities or by the Municipality or Departments shall be governed by special law. Therefore, if an administrator enjoys notorious independence in view of his/her position as company representative, pay level, nature of work and technical ability such administrators are not subject to the Labor Code, in which case the general norms of the Civil Code would apply.

Furthermore, the Code establishes, in its article 3, that the rights recognized by such code may not be waived, limited, renounced, or transacted upon in any way. The Code is inspired by the principles contained in the Universal Declaration of Human Rights and the American Declaration of the Rights and Duties of Men and remaining international labor conventions ratified by Paraguay. Paraguay has also ratified numerous International Labor Organizations Agreement such as the Regulation for Safety, Hygiene, Convenience and Medicine in the Workplace.

There is in force a legal minimum salary which at present is Gs. 22,748 (guaraníes) per day for unskilled labor. A worker receiving a monthly salary due to the nature of the work or the agreement of the parties gets thirty times the daily minimum wage which adds up to Gs. 682,440 (Exchange rate is Gs. 2,920 per dollar).

Except in special cases mentioned in the Labor Code ordinary working hours shall not exceed 8 hours per day or 48 hours per week for daytime work, and, 7 hours per day and 42 hours per week for night-time work.

There is no Unemployment Insurance in Paraguay. Social Security is governed by the Law and Regulations on Social Security. The Social Security Institute [Instituto de Previsión Social] is an autonomous organ with legal capacity created by Decree- Law N° 17071/43 in charge of directing and administrating social security. It is funded with contributions from employers and workers and coming from its own sources; 9% is deducted from employees' base salary to be paid to IPS, and 14.50% contributed on employee base salary by employer (employer is also obliged to pay 1% to the National Professional Promotion Service and an additional 1% to the Ministry of Health). Social security covers risks of non-professional sickness, maternity, occupational accidents and sicknesses, invalidity, old age and death of salaried workers in the country.

Labor organizations are guaranteed in the Constitution and the Law. The role of the union and federations is still very limited. The great majority of these organizations are new and lack the experience and standing of higher level organizations. However, they do participate in the defense of worker's interests. The perception of the organizations' actual ability to represent the sector is another problem. Lack of tradition of association for the representation and defense of interest is an additional factor in the limited representation of unions and federations. Employers' unions can be formed with a minimum of three members. Workers' unions are required a minimum of 20 members for company unions, 30 for trade unions and 300 for industrial unions. Registration of a union gives it full legal status.

Registration of individual labor contract is not compulsory, except in the case of apprentices.

Paraguay's government policy is to welcome foreign investment, provided it contributes to the country's economic and social development. In general, all forms of business activities are open to the foreign investor, but special preference is given to those that will use local raw materials and labor. Law 60/90 establishes the system for economic development incentives, grants specific benefits, permits the repatriation of capital and profits, and provides guarantees against inconvertibility.

Investment climate is attractive in Paraguay for three basic reasons: political and economic stability in a free-enterprise environment, low cost labor and abundant electrical power.

Paraguay offers one of the most advanced legal systems of investment incentives, since investors need no government approval to invest. Application must be made only to obtain the special benefits granted by Law 60/90.

1. Equality on the Treatment of National and Foreign Investments

 There are no restricted areas, no discrimination and no limitations. The only difference between foreign investments and those made by Paraguayan nationals lies in taxation on net earnings, as foreign investments are subject to a five percent additional tax on remittances or credits in favor of beneficiaries, who are not residents of this country. Said profits or dividends are taxed 10% (the general rate of tax is 30%). If these funds are reinvested in installations improvements, renewal of the capital assets or destined to cover the costs of planting, forestation and reforestation in rural areas, then this additional tax is not levied. The profits and dividends are exempt from taxation for a period of five (5) years if the investment is benefited by Law 60/90, paragraph (h), of article N° 5.

2. Law 117/91 General Investments Law

 The Investment Law promulgated in late 1991 as Law 117/91 guarantees a framework of equal conditions for local and foreign investment for purposes of promoting Paraguay's social and economic development. This law allows investors to obtain investment insurance locally or overseas. It also sets the requirements for the establishment of joint ventures.

3. Investment Promotion Law 60/90.

 Law 60/90, promulgated on March 26, 1990, establishes a special tax system offering incentives for foreign investment projects. Companies falling under this legislation enjoy total exemption from taxes of any kind on certain aspects of the investment project, such as taxes on the formation or registration of companies, capital increases, exchange operations and the import of capital goods.

There is also a 95 percent income tax exoneration for five years for income derived from the investment. In addition there is total exemption from tax on the remittance of dividends, profits, royalties, and payments for rights to use trademarks and patents and for stamp tax on deeds and documents, including contracts, payments, receipts and promissory notes, related to the eligible investments. The same exemptions apply to reinvestment, improvement, expansion and modernization in respect of approved activities.

The importation of fixed assets directly applied to industrial or farming production cycles in a first installation eligible under Law 60/90 is exempt from value-added tax.

These benefits will be extended to 10 years if the investments are a result of capital repatriation or if the companies are located in the Departments of Guairá, Caazapá, Ñeembucú, Concepción and the Western Region, with the exception of Villa Hayes, these being considered preferential development areas.

The procedure for obtaining benefits include the presentation of a feasibility study to the Investment Council, based on information required by the Law's regulations; the approval of the project by Investment Council; and a joint resolution by Ministry of Finance and Ministry of Industry and Commerce granting the respective fiscal benefits.

Tax -payers not eligible for the benefits of Law 60/90 and consequently not entitled to the 95 percent income tax exemption may be able to benefit under the Law 125/91. This law establishes local reinvestment incentives for industrial and reforestation activities, consisting of a reduction of the income tax rate from 30 to 10 percent.

A fairly recent Capital Markets Law established fiscal incentives for companies listed on the Asuncion Stock Exchange. There are also incentives for forestry activities. (See number 11 and 6 above)

4. Investment Guarantees

The Paraguayan Ministry of Foreign Affairs has signed Investment Guarantee agreements with the governments of: Argentina, Austria, BENELUX, Brazil, Chile, China (ROC), Ecuador, France, Germany, Great Britain, Hungary, Korea, Peru, Rumania, South Africa, Spain, Switzerland, United States of America, Uruguay and Venezuela. These agreements seek to promote commerce, investments and industrial cooperation.

The Paraguayan Government has also signed an agreement with the World Bank's Multilateral Investments Guarantee Agency (MIGA), which was ratified by Law N° 124 of February 6, 1992. Moreover, investment guarantee agreements have been signed with the Overseas Private Investment Corporation (OPIC), ratified by Law N° 155 of May 3, 1993.

In addition, within the framework of the MERCOSUR, a protocol has been signed for mutual promotion and protection of investments in the member countries, as well as for the solution of controversies.

Paraguay has also ratified the 1958 Convention on Enforcement of Arbitral Awards.

MERCOSUR

 In international relations, Paraguay has achieved important agreements for cooperation and commerce, including the Mercosur Treaty, signed in Asuncion in 1991 by the Presidents of Argentina, Brazil, Uruguay and Paraguay. The MERCOSUR opens a large market of some 200 million consumers and its objective is the total elimination of customs tariffs by establishing gradual reductions every six months after the signing of the Treaty.

The effects from the establishment of the MERCOSUR are an improvement in the possibilities of productive specialization for a market of 200 million of inhabitants, with further possibilities of supplying external markets with Paraguayan products

This also implies new requirements for the national production, including quality, entrepreneurial capability and productivity, use of the adequate technology, and renewal of products destined to the larger market. In addition, integration will help satisfy the needs of the nation's population regarding employment, together with a better use of natural resources

Paraguay possesses an attractive geography with a wide range of natural resources of interest to investors. With the MERCOSUR and the process of internationalization of its economy, Paraguay opens its doors to capital investment.

The expectations of the economic agents for the future of the country are highly positive and it is hoped that Paraguay will become, in the mid term, an important business center in South America

I. General Principles

 Gradual implementation: to establish in each stage a reduced number of projects, integrated in all aspects, including the harmonization of policies.

Flexibility: to bring about adjustments in scope, pace and objectives.

Equilibrium: to stimulate inter-sectors integration and the progressive balance of interchange among large sectors and segments, through the expansion of trade.

Reciprocity: to promote reciprocal rights and obligations among the Party States.

II. Instruments for fulfillment of the objectives of the MERCOSUR

 * A Free Trade Program to be implemented among the Party States, which consists of gradual and automatic tariff reduction, together with the elimination of non-tariff restrictions or measures that have similar effects, as well as restrictions to commerce among the member countries.

* An In-zone Tariff of 0% beginning on January 1 1995, except for a list of items for which the tariff rate is above 0%.

* A Common External Tariff applied to third countries, with rates of 0-20%. Each member country has its List of Exceptions. The List of Exceptions include capital goods; computer science and telecommunications items; automotive products; tractors and their parts; other exceptions. The tariff rates for the products on the Lists of Exceptions are to converge towards the Common External Tariff by the year 2006.

* Coordination of macroeconomic policies and regional agreements among the Party States.

* An Origin Regime which establishes the minimum requirements for products considered as coming from the Party States, in order to enjoy exemption-related benefits.

In the case of Paraguay, for a product to be considered domestic its components must be at least 60% from the MERCOSUR area. This proportion shall be in effect until the year 2000; beginning in 2001 it shall be reduced to 50%.

* A System for the Solution of Controversies. Any controversy arising among the MERCOSUR countries shall be resolved through mechanisms included in the provisions of the Protocol of Brasilia; those that arise with a third country are to follow the terms of the World Trade Organization.

IV. Benefits for Paraguay in joining the MERCOSUR

 As an economic block, the Common Southern Market (MERCOSUR) offers its member counties a better chance of protecting the common interests of the region and of forming a common front to deal with such important topics as the establishment of a "Hemisphere Free Trade Zone" by the year 2005, negotiations for a new World Trade Organization, and negotiations with the European Union regarding a Free Trade Zone.

Paraguay enjoys advantages regarding production, among them three factors that contribute to making exports profitable: natural resources, location and human resource. The combination of these conditions provides both factories and assembly plants a competitive edge towards production for regional and world markets. Some of those advantages are:

* protection of investments and interests of economic units (both private and public) as provided for by the Asunción Treaty, the Ouro Preto Protocol (an addendum to the former) and the Brasilia Protocol on Solving Controversies.

* Generation of a greater export capacity towards other countries.

Possibility of gaining easier access to the world market, local production more competitive.

* Increase in direct investments due to a larger market.

Simplification and harmonization of norms and procedures.

* Participation with neighboring countries in regional production by furnishing certain links of the productive chain of an enlarged market.

ESTABLISHING A COMPANY IN PARAGUAY

1. Branches or Representatives of Foreign Companies

Companies established in a foreign country that wish to undertake commercial transactions in Paraguay can establish a branch or any other type of representative. The branches are subject, as are Paraguayan companies, to the dispositions of the Civil Code on the inscription of documents, bylaws and powers of attorney in the Public Trade Registry and in the Registry of Juridical Persons and Associations.

A) Requirements

 For such purposes, the following documentation must be prepared by the parent company, certified by a public notary, and legalized by the nearest Paraguayan Consulate.

(1) The bylaws or incorporation documents of the head office.

(2) A certificate from a public officer or from the chamber of commerce, to the fact that the parent company is legally registered in the country of origin.

(3) A resolution of the Board of Directors of the parent company agreeing to:

a. establish a branch in the Republic of Paraguay.

b. allot a nominal capital to the branch (a minimum of US$ 10.000 to operate as exporter).

c. establish the address of the branch in Asuncion or another town.

d. designate the person or persons that will administer the branch.

e. grant powers of attorney to the person or persons that will administer the corporation.

(4) The powers of attorney for the administration of the corporation, granted by the parent company in favor of the person or persons that will administer the said corporation.

The documents are verified by the Internal Revenue Office and by the Ministry of External Affairs and then written in the protocol of a notary for their inscription in the Public Trade Registry and in the Registry of Juridical Persons and Associations.

C) Registration

 At the same time, the branch must register the corporation in the corresponding administrative and tax offices so that it can operate and undertake commercial transactions. Governmental authorization is not required. The procedure requires approximately 30 days.

The branch must comply with the tax laws just as the local companies must. The Finance Ministry inspectors control the accountancy, annual balance and other documentation. The agents (proxy holders) of the parent company that administer the branch have the same responsibilities toward third parties as the administrators of local companies have.

2. Companies with Limited Responsibility (S.R.L.)

 Companies in the form of a S.R.L. (Limited Liability Company) can be established by two or more natural or artificial persons but no more than 25. Investment is made in fixed payments and liability for corporate debts is limited to the amount of each partner contribution stated in the charter.

A Limited Liability Company may not engage in activities typically conducted by banks, financial organizations, insurance companies or savings and loan organizations.

A. Denomination

 These corporations can adopt any denomination, including the name of one or more of the partners, followed by the words "Sociedad de Responsabilidad Limitada" or "S.R.L".

B. Formation and Capital stock

 The legal contract is undertaken in the form of a legal document (deed) which must comply with formalities prescribed by the Civil Code. The S.R.L. may operate once the contract has been registered in the Public Trade Registry. This registration is not binding, but its omission will hold all partners jointly and fully liable for any act regarding third parties.

The capital stock cannot be represented by nominative, bearer or endorsable shares. The capital is divided into nominative shares of a value of Gs. (Guaranies) 1,000 each, or multiples of that amount, which will be indicated in the contract.

The capital stock must be fully subscribed and at least 50% must be integrated in cash. There is no minimum capital requirement but this must be sufficient to comply with the proposed objectives of the S.R.L. 50% of capital paid in cash must be deposited at a local bank or Central Bank. This is recoverable once the S.R.L. is constituted.

Companies that are dedicated to export or import will have to comply with certain requirements that are assessed by the Central Bank of Paraguay.

The capital stock can also be incorporated in kind or in fixed assets, that shall be transferred to the corporation in the initial document, or once the contract has been registered in the Public Trade Registry. The partners continue to be liable to third parties for the value of the assets and capital in kind incorporated into the company's capital.

C) Transfer of Shares

 If the S.R.L. has more than five partners then a transfer of shares to third parties will have to be approved by the partners that represent three fourths of the capital. If the number of partners is less than five, the approval must be unanimous. The transfer of quotas between partners does not have any limitations.

The partner that wishes to transfer shares must notify the other partners of his intention and they will have a 15-day period to reply.

Their approval is taken as affirmative if they do not express their disapproval. The partner that may not have been able to obtain the necessary consent to transfer his/her shares will be able to resort to court proceedings. If the opposition is considered unjustified, the other partners will be able to acquire the shares in the same conditions offered by the mediator or to the same. The S.R.L. can also acquire shares with the net liquid profits, or by reducing the capital. The transfer of shares must be made through a legal document and will not have effect until it is registered in the Public Trade Registry.

D) Administration

 The administration and representation of limited corporations can be delegated to one or more managers, who may be partners or not, and who will have the same rights and obligations as do the corporate directors. Limitations to their mandates do not exist.

The managers will not be able to act on their own account in businesses that are included within the objectives of the S.R.L., nor may they assume the representation of a third party of a commercial enterprise that has similar commercial practice without express authority of the partners. Managers are wholly responsible to the S.R.L. for bad administration or for breach of contract.

E) Decisions of the Partners

 All partners have a right to take part in the decisions of the undertaking. If the S.R.L. contract does not determine the way in which the partners will make decisions, then the rules governing corporations will apply. Any resolution that changes the objectives of the S.R.L., that transforms it, that merges it with other undertakings or that reviews the contract, such as to raise the responsibility of the partners, will require the unanimous consent of the partners. The majority capital holders must approve all other resolutions. Each share represents one vote.

F) Reserve fund

 Five percent (5%) of the net profits will have to be destined in each exercise to form a reserve fund until twenty percent (20%) of the capital of the S.R.L. is reached.

G) Books and records

 An S.R.L. must keep the same books and records as a corporation, except for the shareholder's register. The same stamping and registration formalities apply.

H) Dissolution

 An S.R.L. is not dissolved by the death, interdiction or bankruptcy of a partner, nor by the removal/resignation of the manager or of the managers, nor a managing partner appointed in the contract, unless said contract stipulates to the contrary. The bankruptcy of an S.R.L. does not imply bankruptcy of the partners.

3. Corporations (Sociedad Anonima S.A.)

 The Civil Code contains dispositions that govern the formation of corporations in which the participation of the partner is represented by shares of stocks and the corporation liability to third parties is only up to the amount of its capital contributions or assets.

The Corporation's name must contain the description that it is a corporation holding stock by including the words "Sociedad Anonima" or the initials "S.A." in Spanish.

This type of organization is preferred by most large enterprises and foreign investors. Ownership of the corporation is substantiated by shares of stock; owner of capital are described as shareholders or stockholders and their liability is limited to the amount of their stock.

A) Formation

The procedures to form a corporation are as follows:

  1. A founding shareholder's meeting is held to approve the corporate by-laws, appoint directors and syndics and subscribe the entire corporate capital.

  2. The bylaws must be notarized in a public deed complying with formalities prescribed in the Civil Code.

  3. Approval of the bylaws by the lower civil and commercial court must be obtained.

  4. The bylaws must be registered at the Legal Entities and Associations Registry and the Public Trade Registry,

  5. The bylaws must be published in the Official Gazette and in another broadly circulated newspaper for three days.

Companies become corporate entities and begin to operate once their inclusion in the Registry of Legal Entities and Associations has been effected. Founder shareholders are jointly and severally responsible without limit for all acts and business entered into before the legal constitution of the corporation and before its registration at the Public Trade Registry.

The bylaws should contain the corporation' s name, which must include the words "Sociedad Anonima" (or the abbreviation "S.A.") and indication of the activity; commercial, industrial, farming, financial, etc, business objectives, duration, corporate capital and regulations governing its internal management (e.i. election, duties and responsibilities of directors, meetings). Subsequent amendments to the bylaws must be approved by a shareholder' s extraordinary meeting with the same formalities required for the initial formation.

Any unregistered stipulation that detracts from that established by the Civil Code shall not be valid with regard to third parties, whether said stipulations restrict the rights of said third parties or the powers granted to the administrators.

B. Capital Structure

 The civil code does not prescribe a minimum capital amount required to set up a corporation. It only requires that capital be fully subscribed by the shareholders in order to form the corporation.

Shares of stock may not be issued for less than their stated or nominal value. Capital may be issued as bearer or registered nominative shares and as common or preferred stock, having different voting rights. Shares may be deposited with banks for safekeeping. The banks will issue a holder certificate for voting purposes at shareholder' s meeting.

Capital can be increased or decreased as authorized by the shareholder' s meeting. For banks, finance companies and insurance companies, authorization from the Central Bank of Paraguay is required.

Shares can be freely transferred, unless a preferential right can be duly proved.

If allowed under the corporate bylaws, corporations may obtain funding from private or public sources through issuing negotiable debt securities or debentures.

C. Administration

 One or more directors, designated in the annual General Assembly will undertake the administration of the corporation. The number and duration of the mandate will be determined by the bylaws.

The directors can be shareholders or not. They can be re-elected and their designation is revocable. The appointment of the directors will be made for one fiscal exercise, unless there are provisions to the contrary in the bylaws.

D) Responsibility of the Directorate

 The directors are not responsible for the obligations of the corporation, except in the event of incorrect execution of duties, or breach of law or bylaws or any other damage incurred by deceit, abuse of powers or serious fault. In such cases, the director' s responsibility to the corporation, shareholders and third parities shall be unlimited. The director that did not participate in the meeting or resolution, or that left a record in writing of his/her dissension shall be exempted from responsibility.

The directors shall undertake commercial operations with the corporation only in special circumstances. They shall not realize, in representation of the company, any operation that is contrary to the objectives of the company.

E) Control

 One or more internal auditors (syndics) can also be nominated by the annual Assembly to oversee the administration of the corporation. The internal auditors should be competent regarding the control entrusted to them by virtue of the bylaws.

The bylaws will establish the time period for which the Internal Auditors will be appointed, the maximum being five years. The trustees should be domiciled in Paraguay and they can be re-elected.

The Internal auditor shall oversee the administration and management of the corporation and shall participate without vote in the annual Assemblies and meetings of the Directorate. He shall also oversee the accountancy and the documents when considered convenient. Moreover the Internal Auditor must ensure the compliance of the corporation with all the legal obligations and with the resolutions of the Assembly.

F) Shareholders Assemblies

The General Assemblies can be Ordinary or Extraordinary and they shall take place in the company's registered office.

Ordinary Assembly shall be called, each year, by the directors or by the internal auditors, to consider and resolve the following:

a) Annual report of the directors, balance, profit and loss account, payment of dividends, report of the trustee(s) and all other pertinent measures, according to the competency granted by law and the bylaws, or that are submitted for their decision by the Directorate and the Trustees.

b) Designation of Directors and Internal Auditors and the establishment of their fees.

c) Responsibility of the directors and internal auditors and their replacement.

d) Stock issues.

Extraordinary Assemblies will be called by the directors at any moment, or by the internal auditor(s) when considered necessary or convenient, or at the request of shareholders that represent five percent (5%) of the capital stock (unless the bylaws stipulate otherwise) to consider the following:

a) Amendment of by-laws.

b) Increase or reduction of capital.

c) Redemption, reimbursement or stock amortization.

d) Merger, transformation or dissolution of the company and all matters related to the liquidation and the liquidators.

e) The issue of debentures or the exchange of the same stocks.

f) Issue of share-bonds.

G) Call to Meeting

 The call to meeting of the Assembly must include the complete agenda of the items to be considered and any requirement contained in the bylaws regarding the participation of the shareholders. The call to meeting must be published for five days, at least ten days prior to the date of the Assembly. The second call, if the first meeting did not take place, will be made within the following thirty days. Resolutions taken on matters not included in the agenda shall be null and void.

H. Attendance

 To attend the Assemblies, shareholders shall deposit their stock certificates or bank deposit certificates with the secretary of the corporation for their registration, not less than three business days prior to the meeting. Representatives (proxy) that are not directors, internal auditors, managers or personnel of the corporation can represent shareholders in the Assemblies.

I) Stock

 The capital of the corporation will be represented by nominative (or bearer) stocks. The stock certificates should be numbered and signed by one or more directors.

The certificates shall bear the name of the corporation, date and site of their constitution, amount of the capital subscribed, number, face value and stock type. Stock certificates may be issued when they are paid in full. Up to this moment the shareholders may receive nominative provisional certificates and they can be required to pay the balance of the unpaid price. The bylaws may create different stock types with different rights; stocks may be nominative or issued to the bearer.

The alienation of nominative capital may be adjusted to particular conditions.

Corporations will be able to acquire their own stock when the purchase is authorized in an Extraordinary Meeting. Said purchase shall be made with the net profits, as long as the purchased stock is totally integrated.

G) Patrimonial State

 Every year the directors shall prepare an inventory, an itemized profit and loss account, a balance, an annual report and any other necessary documents to demonstrate the patrimonial state of the corporation. The accounts and annual report should be submitted for the consideration of the Annual Assembly.

Five percent (5%) of the net profit shall be destined annually for reserves until these represent twenty percent (20%) of the subscribed capital. Only dividends originating from net profits of the corporation may be paid. The directors shall be jointly liable for the breach of this norm.

Law 772/79 and the Civil Code authorize the issue of debentures by corporations, within the provisions established in the legislation.

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