Simplified Stock Companies.
Leonidas Villagran
A new type of company has been introduced into Ecuadorian corporate law, seeking to reduce incorporation times and facilitate agreements between shareholders. It is very likely that many companies will decide to switch to this new system.
With its publication in the Official Registry on February 28, 2020, the Entrepreneurship and Innovation Law came into effect, incorporating a new category of company in Ecuador, known as SAS (Simplified Stock Companies). This type of company, initially inspired by the French model, offers several differences compared to traditional companies in Ecuador.
Some of the characteristics of SAS companies are the following:
The incorporation document can be a private instrument. A public deed is not required. This is a revolution compared to traditional companies, which are required to be incorporated by a public deed before a Notary Public.
SAS companies can be formed by a single shareholder. This differs from other types of companies that require at least two shareholders or partners.
SAS companies allow for multiple business purposes; they can stipulate engaging in any lawful activity, whereas other types of companies are closed corporations, must have a specific purpose, and do not allow for multiple purposes.
There is no minimum capital requirement for incorporation or operation in SAS companies; it is implicitly one US dollar, which is the par value of each share. Traditional companies have minimum incorporation requirements, but no more than $800.
The approval of the bylaws and the registration of the appointments of legal representatives in SAS companies are done at the Superintendency of Companies, and that is sufficient. Other types of companies require approval of the articles of incorporation by the Superintendency, and from there, the company and the appointments must be registered in the Mercantile Registry, a duplication of registrations that does not generate any useful value. Shareholder meetings in SAS companies can be convened by letter or even email. Other types of companies require publication in the press, unless the bylaws specify other means.
SAS meetings can be convened at the company’s registered office or elsewhere. The general rule for other companies is that meetings must be held at the registered office, unless it is a Universal Meeting.
The Companies Act expressly states that SAS shareholders can meet by videoconference. Other companies do not have this legally mandated benefit, but regulations may grant them this option.
Other types of companies can be converted into SAS companies through a simplified process; a public deed is not required.
Two or more SAS companies can merge through a simplified process. There is no simplified process for other types of companies.
SAS companies allow restrictions in their bylaws or direct agreements between shareholders regarding their rights, such as limiting the transferability of shares. Other types of corporations prohibit this. SAS companies are not authorized to trade their shares on the stock exchange or conduct stock market activities. Traditional corporations have this option.
SAS companies cannot engage in banking, finance, the stock market, insurance, or any other activity subject to special treatment under the law. Corporations have this option.
For foreign shareholders, the following should be considered:
Foreign individuals and companies can be shareholders of Ecuadorian companies.
An Ecuadorian company with one or more foreign shareholders that are also companies must report the beneficial owner of those foreign companies. This includes information on the directors and shareholders of each shareholder company reported in the Ecuadorian company. This must be reported from the company’s formation and annually thereafter.
Each foreign company that holds shares in Ecuadorian companies must appoint a legal representative. The representative must be an Ecuadorian citizen or a foreigner with a resident visa.
According to tax regulations, at least one manager or legal representative of the company must be registered with the Internal Revenue Service (SRI). This representative must be an Ecuadorian citizen or a resident foreigner. Additionally, the company must provide its address in Ecuador where it will operate.