27 February 2019

Update On The Corporate Regime Of Argentina: Single-Partner Companies, Simplified Corporations, Foreign Companies, And Some Key Issues To Evaluate When Legally Organizing A Business Structure

The corporate regime of Argentina has had many changes, from the original Commercial Code to the present.
Argentina Corporate/Commercial Law
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The corporate regime of Argentina: main legal vehicles

The corporate regime of Argentina has had many changes, from the original Commercial Code to the present. In this opportunity, we will sum up the basics to be evaluated to set up a business structure, focusing on the corporation ("Sociedad Anonima", or SA), the limited liability company ("Sociedad de Responsabilidad Limitada", or SRL), and the simplified corporation ("Sociedad por Acciones Simplificada", or SAS), leaving out the other corporate types that are of very little or no use in the business practice.

Keys to the corporate regime of Argentina

The keys to the corporate regime of Argentina to consider when organizing a business are the following:

1. The corporate regime of Argentina is basically regulated by the General Companies Act No. 19,550 ("Ley General de Sociedades", or LGS), and by the Law of Support for Entrepreneurial Capital No. 27,349 specifically for the SAS;

2. Companies may be formed by a written public or private document (the SA only by a public deed, and the SRL and SAS by a public deed or a private instrument with certified signatures). The SAS may also be incorporated electronically with a digital signature. Within the jurisdiction of the Autonomous City of Buenos Aires, the SA and the SRL are allowed to use a fast-track procedure, and will be registered within 24 hours if there are no objections. The SAS will also be registered in 24 hours when the partners choose to organize with the sample by-laws approved by the General Inspectorate of Justice ("Inspección General de Justicia", or IGJ);

3. Single-partner companies are allowed for the SA and the SAS. Any company with more than one partner may be transformed into a single-partner company by adopting one of the aforementioned company types. The SRL may not have more than fifty partners;

4. The partners may be individuals (Argentineans or foreigners), and legal entities (incorporated in Argentina or abroad). The whole share capital may be owned by foreign individuals and /or foreign legal entities, with the only requirement for the former to obtain their Tax Identification Code (CDI) in Argentina, and for the latter to register in advance with the Public Registry and obtain also their CDI;

5. The foreign companies´ registration and maintenance of the good standing has been greatly simplified within the jurisdiction of the Autonomous City of Buenos Aires, eliminating the need to show proof of assets or economically significant activity abroad;

6. Within the jurisdiction of the Autonomous City of Buenos Aires, the companies´ corporate purpose may be multiple. In the case of the SAS, the corporate purpose may be even broad and plural, and the comprehended activities may or may not keep a connection or relationship between them.

7. Certain types of companies legally require a minimum share capital: in the SA the minimum share capital must be AR$ (Argentine "Pesos") 100,000, and in the SAS the amount equivalent to two minimum salaries in force at the time of the incorporation (notwithstanding the special rules on significant minimum share capitals that exist for certain regulated activities, such as banking and insurance). In case of contributions in cash, they must only be disbursed by 25% at the time of incorporation, and the balance within the two subsequent years (except for the single-partner SA, where the share capital must be fully paid up when setting up). Contributions in kind must be fully executed in  all cases at the time of incorporation;

8. In the SA and the SAS, the company capital is divided into shares, represented by non-endorsable nominative titles or book-entry form. In the SRL, the share capital is divided into quotas. Shares may be assigned privately, while the transfer of quotas is more complex since it must be registered with the Public Registry;

9. To fund the companies, the partners can make irrevocable money contributions on account for future capital increases, which can be kept as a balance sheet account up to a maximum of twenty-four months in case of the SAS (the SA has shorter terms to decide between the capital increase or return of the money);

10. The liability of the partners is always subsidiary and limited. Exceptionally, in certain cases of loss of the share capital, undercapitalization, or bankruptcy, the partners might be held unlimited and jointly liable for the corporate debts;

11. In the SA and the SRL, the absolute majority of the managers must have legal residence in Argentina (although they may not be Argentinean). In the SAS only one of the managers must be resident in Argentina; the foreign managers of the SAS must appoint a representative in the country;

12. The management body may be held by a single active manager; however, it is mandatory to also appoint an alternate manager if no controlling body is organized. When the SA is subject to permanent government control – except in the case of a single-member SA -, it is requested the appointment of at least three active directors and one alternate director. The SRL needs not appoint an alternate manager;

13. The office of manager has a maximum term of three years in the case of the SA. SRL and SAS´ managers may not expire in their tenures if so decided by the partners;

14. The managers of a SAS are exempt from getting liability insurance or submitting any other kind of guarantee to the Public Registry within the jurisdiction of the Autonomous City of Buenos Aires;

15. The organization of a control body (statutory audit, or supervisory board) is optional, except for the SA and the SRL whose share capital is higher than AR$ 50,000,000, which must appoint one or more active syndics and the same number of alternate syndics. Except in the cases of a share capital exceeding AR$ 50,000,000 and of the single-partner SA, when an SA is subject to permanent state control (for example, when offering it shares publicly) the control body must be collegiate in an odd number;

16. When its share capital exceeds AR$ 50,000,000 (among other causes), the SA is subject to permanent state control by the Public Registry, with stiffer surveillance and additional obligations on some issues of the corporate operation, such as shareholder´s meetings;

17. Just the SA and the SRL are required to file their financial statements with the Public Registry (in the case of an SRL, when the share capital is higher than AR$ 50,000.000);

18. Only the SA pays an annual charge to the Public Registry within the jurisdiction of the Autonomous City of Buenos Aires;

19. The SAS has many additional advantages, derived from its digital nature and very few mandatory provisions to comply with, allowing the organization of the company in the way most appropriate to the particular needs and desires of the partners. Thus, for example, the SAS´ by-laws and corporate books are digital; the articles of organization may determine the classes of shares and the rights that each one of them grants to its partners, and may even grant rights to different dividends on certain specific businesses of the company (these are called "tracking stocks", or shares whose valuation and performance are related to an asset or group of specific assets); the partners may determine the procedures to transfer the shares they deem most convenient; the organization and function of the corporate bodies may be freely established (the quorum, the majorities, the system of challenging  decisions, etc., are left to the regulation of the partners).

Based on the above very brief review on the corporate regime of Argentina, it might be concluded that due to its ease of incorporation and digital breed, flexibility for the partners to decide how to organize it and lower costs, the SAS should become in the preferred business vehicle to do business in Argentina, although the specific needs of each particular company should always be analyzed in detail prior to choosing any business form of organization over another.

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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