Election of the juridical structure for the foreign investor
Different alternatives for doing business in Argentina.
1. Introduction
Argentine legislation guarantees an equal treatment to the foreign investor. Nevertheless, to
enjoy of that right and for being in a real situation of equality, the foreign investor must be well
advised. That advising starts with the necessary information for the election of an adequate juridical
structure through which develop activities in the country. A mistaken election may signify a
competitive disadvantage definitely affecting the success of the undertaking.
The present work is directed to a Foreign Investor constituted and registered as a Regular
Company in its country of origin, and that pretends to develop a commercial, industrial or
construction activity in Argentina, with an on going investment of important capital.
According to the business association law (LSC) (19.550), arts. 118 to 124, the foreign
corporation, that is the one constituted in a foreign country, is ruled on it existence and form
requirements by the laws of the constitution place. The mentioned foreign corporation is enable to
execute isolated acts and being in trial in the country without the fulfillment of any requisite. On the
other hand, for the habitual exercise of acts included in its social object, establish a branch, or any
other kind of permanent representation, constitute a Corporation in Argentina, or form a Joint
Venture in the country, must fulfill with some Register requisites before the national authorities,
(Registro Público de Comercio RPC), the Inspeccion General de Justicia (IGJ) is in charge of that in
Buenos Aires.
2. The different choices.
The LSC gives the principal choices for the development of a commercial activity in
Argentina. We disregard the possibilities that the Civil Code offers (Sociedad Civil, Asociaciones y
Fundaciones), the same as the Cooperativas of the law 20.337 because they do not fit in the selected
guidelines for the present analysis.
Within the possibilities that the LSC contemplates, we have:
a) Business Associations with juridical personality
i) Sociedad Colectiva (similar to Partnerships)
ii) Sociedad en Comandita Simple (Limited Partnerships)
iii) Sociedad en Comandita por Acciones (Limited Partnerships by shares)
iv) Sociedad de Responsabilidad Limitada (Limited Liability Companies)
v) Sociedad Anónima (Corporations)
b) Other figures without juridical personality
i) Sociedad Accidental o en participación (Accidental Business Association)
ii) Joint Ventures
1) Unión Transitoria de Empresas – UTE (Contractual Joint Venture)
2) Agrupación de Colaboración (Temporary Partnerships)
c) Business Associations not regularly constituted
i) Sociedad de hecho (Corporation in fact)
ii) Sociedad Irregular (Irregular corporations)
d) Branch or local representation of Foreign Company
Our analysis will be focused on those figures that according to our criteria are more suitable for the
development of a commercial activity within the parameters already described. Those juridical
structures are:
a) Corporation
b) Branch of Foreign Corporation
c) Contractual Joint Ventures (Union Transitoria de Empresas – UTE)
A. Corporation
Basic Issues
The structure and functioning of the Corporation (Sociedad Anónima - S.A.) in Argentina is similar
to those of any other country of the world. Nevertheless, we will highlight some aspects that may
result of particular interest.
In Argentina, the concurrence of 2 persons (natural or artificial) is an essential requisite for the
constitution and functioning of the corporation (it’s also a requisite for the constitution of any legal
entity).
As any corporation of this type, its capital is divided in shares, and the shareholders limit their
responsibility to the subscribed shares. The running of the corporation is ruled in accordance to the
provisions of the statute, which must respect minimal rules that the LSC establishes.
Social Capital
The social capital of the corporation has to be totally subscribed at the moment of setting up
the Corporation. The minimum capital amount necessary to establish a S.A. in Argentina is $
12.000. Likewise, when its capital exceeds $ 2.100.000 or when publicly offers its shares, makes
financial operations or capitalization an saving, like when it is a public services concessionaire, it
will be under greater state control, in some cases with the additional supervision of other organisms
like the Comisión Nacional de Valores (CNV) equivalent to the USA SEC (Security Exchange
Commission) for the corporation that publicly offer their shares, Banco Central de la República
Argentina (BCRA) (Central Bank) relating to financial activity, Superintendecia de Seguros, AFJP y
ART respectibly, when it deals with Insurance Companies, Administradoras de Fondos de
Jubilaciones y Pensiones (I.R.S.) o Aseguradoras de Riesgo de Trabajo. In all these cases, greater
requisites exist in the LSC to which these corporations are bound.
If the capital is paid in cash, the LSC allows in accordance with the statutes provisions,
performing the integration by steps, accrediting 25% of the cash money through deposit in an Official
Bank (Banco Nación within the City of Buenos Aires) at the moment of filing the corporation at the
I.G.J.In almost all the cases, the existing shareholders possess a preemptive right. Capital
increment is possible to a quintuple of its value without the necessity of statute amendment through
ordinary shareholders meeting. Capital increment can only be resolved if the former ones were
totally subscribed.
Shares
Shares must be of equal value, expressed in argentine money (pesos), although diverse classes
can be issued with different rights within each class. There can be ordinary or preferred stock. The
first ones will give their holders right to, at least, one vote, being able to give five votes per share.
The second ones, will grant to their holder an economic advantage, and may give right to only one
vote or not give right to vote.
The LSC prohibits share issuing below its nominal value, on the other hand, it is possible the
issuing of shares with premium.
Dividend or interest payment to the shareholders is subject to the existence of surplus profit
and that they arise from a regularly prepared balance sheet, approved by the shareholder’s meeting.
Presently, according to law 24.587, share representative titles could only be nominative, nonendorsable. Likewise, the issue of the title could be omitted (acciones escriturales).
In principle, there is no limitation for the shares transfer, although some restrictions can be
established, like giving preemptive right to the remaining shareholders, as long as the limitations do
not became into a prohibition of doing the transmission.
Shareholders agreements are not foreseen in the LSC. Although the jurisprudence has given
them validity provided that they were not against the social interest, some decisions still exist that
limit their validity and in consequence the possibility of judicial enforcement.
Shareholder’s meeting
The notice must indicate the issues to be treated in the Meeting (Orden del Día), other issues
can not be dealt with in the meeting under nullity punishment. A publication must be done on the
Boletin Oficial for the periods and with the requisites that foresees the LSC. Only the unanimous
meeting is exempt of fulfilling with the mentioned requisite. Unanimous meeting is the one to which
assist shareholders representing 100% of the social capital and in which the decisions are adopted by
all the shares with voting right.
The quorum requisites substantially differ depending on the kind of meeting, Ordinary or
Extraordinary, and taking into account if it is the first or the second notice, being stricter the required
quorum for the Extraordinary Meeting on its first notice (it’s necesary shareholders representing 60%
of the shares with voting rights, being possible a more aggravated representation by the statute) and
more flexible for the Ordinary Meeting in its second notice (regardless the number of shares with
voting rights present).
Majorities in both cases are absolute majorities of votes present that may be cast in the
respective decision, except if the statute foresees an aggravated majority.
Some issues, like: transformation, extension of time for the standing of the corporation,
anticipated dissolution of the corporation, transference of the domicile abroad, a fundamental change
on the object, total or partial reintegration of capital, and the merge or division decision of a business
association, in first or in second notice, must be adopted for the favorable vote of the majority
number of shares with voting rights, without applying the plurality vote.
The hypothesis named in the preceding paragraph, give to the shareholders that voted against
or were absent, the right to exercise the withdraw option, retiring from the corporation with
reimbursement of the participation based on the last approved balance sheet. Under nullity sanction,
this right can not be restricted.
From every meeting a minute must be made in a special book, that must be bounded, signed
and sealed by the RPC. The minute must contain a summary of the declarations done during
deliberations, the voting form an its results, with full expression of the decisions, having to be done
and signed within five days, by the president and the partners elected for that duty in the Meeting.
Management
A Board of Directors (Directorio) is in charge of the Corporation administration, and it shall
manage the business and affairs of the Corporation. The representation of the Corporation
corresponds to the President of the Directory or to the Directors established by the bylaws. The
Board of Directors is formed by one or more Directors. The Directors can be shareholders or not and
will be appointed basically by the Ordinary Shareholders Meeting. If the statute foresees it, the
directors can be appointed by the Surveillance Committee (Consejo de Vigilancia). If different
classes of shares exist, the election of directors within each class can be stated. Furthermore, the
minority shareholders can vote in an accumulative way to accede to 1/3 of the Board of Directors
positions. Open business associations (included in the art. 299 of the L.S.C.) requires at least 3
directors.
In all the cases the absolute majority of the directors must be argentine residents with real
domicile within the country. All the directors must constitute a domicile in the country for all legal
purposes.
There are no specific limitations as regards as age, profession, etc. to be director. Also, the
directors can carry out executive functions or designate an executive committee for that purposes, or
delegate the different issues in one or more managers. The organization of the executive committee
or the designation of managers does not release the directors from the responsibility derived from the
position.
Directors can be elected for a maximum term of 3 financial years, with the possibility of
indefinite reelection. When elected by the surveillance committee, the maximum period extends to 5
years. Directors continue in office until their successors are elected.
The Director position is personal and impossible to delegate. Voting by mail is not allowed,
although it is possible in the absence case the delegation of the vote in another director, if the
necessary quorum is obtained (it could never be inferior to the absolute majority of directors).
Participation by telephone conference or other electronic means in Board of Directors meetings, is
not foreseen in our legislation and it might be considered contrary to general law dispositions. The
Board of Directors must gather at least once every three months. Meetings must be celebrated
basically at the principal office of the corporation, or within its jurisdiction.
The directors salary can be established in the bylaws or determined by the Shareholders
Meeting or the Surveillance Committee. When fixed by the Meeting or Surveillance Committee, the
salary total amount could not exceed 25% of the profits. That percentage reduces to a 5% of the
profits when they are not distributed to the shareholders. Those percentages can be raised to pay
technical or administrative performance when approved by a shareholder’s meeting that includes that
topic as a special issue in its notice (orden del dia).
Directors are jointly and severally responsible before the corporation, shareholders and third
parties in case of non compliance of the duties imposed by the law or the bylaws and, in case of
unfulfillment of the duty of acting with loyalty. The responsibility will not be jointly when some
duties of the directors were specifically assigned and registered in the RPC.
Control
The control of the S.A. can be held by the Surveillance Committee or one or more Auditors
(Sindicos) or both. Within Argentinean corporations the most common choice is the second one.
Both organs have the purpose of controlling the managers of the S.A. and protecting the shareholder
rights. The difference between both organs lies fundamentally in that the first one is formed only by
partners (from 3 to 15) and their duties and powers are wider, including the possibility of appointing
the Corporation Directors; the second one is formed by 1 or more Auditors that must be attorneys or
accountants, argentine residents.
Auditors are elected by the Shareholders Meeting, with the possibility of accumulative voting
or election by classes. The same number of substitutes must always be elected. For the election of
auditors all the shares have only one vote. Auditors can be removed by the shareholders meeting
without expressing the cause, with the exception of having 5% of the capital opposing.
Auditors will last in their positions a maximum of 3 periods and can be reelected indefinitely.
Directors, managers or employees of the corporation or their controllers or controlled,
relatives or spouses of directors or general managers can not be auditors.
The Auditors Committee in the case of an open S.A. (excepting when the capital exceeds
2.100.000), must be collegiate in an odd number (Auditor Commission). It is possible to omit all the
Auditors when the corporation is closed and it is foreseen in the statute. In this last case, the
shareholders exercise the direct control over the administration of the corporation and has broaden
access to the corporation’s documents.
Auditors are jointly and severally responsible in the case of wrong performance of their
duties. Likewise, they will be jointly responsible with the Directors when they can avoid the damage
caused by directors if they have fulfilled their obligations.
Requisites and Costs
The main charges for the formation of the Corporation are the following:
- Publication charges $200
- Notary public fees, around 0.5 percent of the subscribed capital
- Professional fees
Tax consequences
Resident corporations are taxed on income from both Argentine and foreign sources. All the profits
are taxable but dividends and branch remittances are not subject to tax. The Corporate Income Tax
Rate is 33%.
Fulfillment of maintenance requisites
Legal reserve
Corporations must perform a reserve not inferior to 5% of their annual profits up to a 20% of capital
has been accumulated. If by any reason this reserve decreases, no profits can be distributed until its
restoration.
Office of the Inspector General of Justice annual fee (Inspección General de Justicia - I.G.J.)
The payment of annual registration fees to the IGJ by corporations is mandatory. These fees varies
depending on the corporation’s capital. Generally these fees does not exceed $600
Books and records
In accordance with the Commercial Code, commercial entities in Argentina must keep accounting
books. These official books must be registered in the Public Register of Commerce.
Annual financial statements must be audited by an independent public accountant and subsequently
filed with regulatory authorities.
Social Security and Directors
Directors of corporations, nationals or foreigners must tribute as self-employed workers to the Social
Security System. There are two main categories applicable, depending on the number of employees
of the corporation. If the corporation has less than 10 employees the amount of the contribution is $
245,12 monthly, if more than 10 employees, the amount raises to $ 409,28 per month. If the director
also works as an employee of the entity, he may opt to add the pertinent legal contributions with
obligations to both parties (employer - employee).
B. Registered branch of a foreign corporation
Requisites and Costs
The branch office is basically governed by it’s head office country law; consequently, it is authorized
to perform all the acts that its head office is allowed to.
The head office must prove the existence of the corporation in accordance with its own country laws,
establish a domicile in Argentina, justify the creation of the branch, designate a representative and
determine the capital of the branch that not always is necessary. It is obligatory for the branch to keep
and register official books separate from the parent company and prepare annual financial statements
in the same manner as corporations do. Although the formalities and costs to form a branch office
are less burdensome than the creation of a corporation, the liability of the branch could involve the
assets of the head office.
Form of management
A fully empowered representative administers the branch. The representative is not required to be
resident in Argentina. Daily affairs may be handled by branch employees.
Tax consequences
Branches are taxed on income at a 33% rate. This tax is applicable for Argentine-source income
only.
Requisites and Costs
The main charges for the registration of a local branch of a foreign corporation are the following:
-
Publication charges $200
-
Registration charges, approximately $100
-
Professional fees
Social Security and Representatives
The representative designated to direct the branch must tribute as self-employed workers to the
Social Security System There are two principal categories applicable to the representatives depending
on the number of employees of the branch. If the branch has less than 10 employees the amount of
the contribution is $ 245,12 monthly, if more than 10 employees, the amount raises to $ 409,28 per
month.
Fulfillment of maintenance requisites
Every branch must issue annual financial statements certified by independent public
accountants. These statements have to be filed in the I.G.J.
C. Joint Venture (Unión Transitoria De Empresas - Ute)
Requisites and Costs
Argentine law recognizes two classes of joint ventures. The first one is the Agrupación de
Colaboración; this joint venture can not pursue profits. That characteristic makes it useful only for
some specific kind of projects seeking economic advantages to fall directly into the company’s
patrimony. The second one, is the Union Transitoria de Empresas. Under this type of contract, the
parties may develop or execute a specific work, service or supply.
We focused exclusively on the
second type of joint venture, the UTE.
Entities incorporated in Argentina and individual entrepreneurs domiciled in the country, can
participate in a Joint Venture. Joint ventures are contractual agreements, entered through private or
public deed, with an object and a term. The contract must be filed in the RPC. This contractual
relationship does not create an independent legal entity different from its members.
A foreign corporation may participate in these agreements after fulfilling the same requisites
of registered branches of foreign corporations.
The UTE’s duration will be limited, and equal to the time needed to fulfill its object.
Members limit their responsibility up to the percentage of their participation in the UTE, unless they
decided to extend their responsibility.
Form of management
The UTE’s members have to provide in the contract and filed in the RPC the designation of a
representative, who must be fully empowered by the members. The decisions in the UTE must be
taken unanimously, unless otherwise decided in the contract. Members can choose freely the way of
adopting decisions, and they can appoint a Directive Committee for the administration of the UTE.
Tax consequences
The parties participating in the Joint Venture will be taxed separately and according to its
entities form.
Requisites and Costs
The main charges for the formation of an UTE are the following:
-
Registration charges $ 150
-
Professional fees
Fulfillment of maintenance requisites
The UTE must issue annual financial statements certified by independent public accountants. These
statements have to be filed to the I.G.J.
Social Security and representatives
Directors of corporations, nationals or foreigners must tribute as self-employed workers to the Social
Security System. If the director also works as an employee of the entity, he may opt to add the
pertinent legal contributions with obligations to both parties (employer – employee) There are two
main categories applicable, depending on the number of employees of the corporation. If the
corporation has less than 10 employees the amount of the contribution is $ 245,12 monthly, if more
than 10 employees, the amount raises to $ 409,28 per month.
Buenos Aires, April 30 1998.