Business legal structures

FREEDOM OF FORM

The corporate form is not a formality

It defines who controls the company, how far the partners are liable with their own assets, how it is managed, how profits are distributed and how easily you will be able to transfer, finance or reorganize the investment.

Chilean law recognizes a plurality of vehicles, most of them familiar to international investors, and enshrines freedom of form as the general rule. Except for the exceptions detailed below, there is no obligation to adopt a predetermined type, and the decision is driven by the line of business, the number of participants, the committed capital and the management model.

Freedom of form and its exceptions Chile recognizes broad freedom to carry out economic activities and allows foreign investors to hold equity in Chilean companies. A foreigner may own the entire capital of a local company without, as a general rule, being required to have a Chilean partner or to obtain special authorizations merely for being foreign.

This rule operates without prejudice to sectoral restrictions or limitations tied to strategic activities, natural resources, transport, fishing, media, maritime cabotage or the acquisition of certain real estate in border areas. There, the analysis also depends on the line of business, the location of the assets and the investor’s nationality.

The exception to freedom of form is businesses subject to special sectoral regulation, for which the law requires a specific corporate type, an exclusive purpose and prior authorization from the regulator. That is the case for banks and financial institutions, insurance companies and general fund managers, which may only operate as special stock corporations under the permanent supervision of the Financial Market Commission (CMF); pension fund managers (AFPs), in turn, are governed by Decree Law No. 3,500 and supervised by the Superintendence of Pensions.

INCORPORATIONROUTES

General and simplified regimes

It admits, among other types, the SpA, the SRL, the EIRL and the closely held S.A., and cuts incorporation times from weeks to hours.

Recommended for companies with no major financing needs or a simple ownership structure. For multiple partners, shareholders’ agreements or tailored governance, the public deed provides greater legal certainty.

S T O C K C O M PA N Y ( S PA )

SpA: the standard investment vehicle

The SpA is a capital vehicle, very commonly used to channel investment into Chile, that combines the flexibility of a capital company with formalities markedly lighter than those of the stock corporation. It is governed by Articles 424 et seq. of the Commercial Code and, in matters not covered by its bylaws or those provisions, supplementarily by the rules of the closely held S.A.

Its main features are as follows.

It may be incorporated by public deed or by private instrument with signatures certified and protocolized before a notary, registering and publishing the extract within sixty days, or under the simplified regime of Law No. 20,659. Its main features:

It is formed by one or more shareholders, individuals or legal entities, Chilean or foreign, with liability limited to the amount of their contributions.

Capital is divided into shares and the law requires no minimum amount. Unless the bylaws provide otherwise, subscribed capital must be paid in within five years of incorporation, on pain of being reduced by operation of law to the amount actually paid.

Its most distinctive feature is broad statutory freedom, which allows nearly every aspect of the company’s operation to be regulated — from management (one or more administrators, a third party or a board) and voting rights to share series with differentiated rights, dividends and shareholder entry and exit mechanisms.

Unlike the stock corporation, it is not dissolved when all shares come to be held by a single owner, unless the bylaws so provide — making it ideal both for the individual entrepreneur and for a subsidiary wholly controlled by a foreign parent.

S TO C K C O R P O R AT I O N ( S . A . )

S.A.: tradition and formality

The stock corporation is the most traditional and formal structure in Chilean law: a legal entity formed by a common fund supplied by shareholders liable only for their contributions, managed by a board of essentially removable directors. It is governed by Law No. 18,046 and its regulations.

It is incorporated by public deed, the extract of which must be registered with the Commerce Registry and published in the Official Gazette within sixty days. The closely held form may use the simplified regime of Law No. 20,659; special corporations require the regulator’s authorization to exist. Capital must be fully subscribed and paid within three years of incorporation, and is reduced by operation of law to the amount paid if not completed within that term. It requires a minimum of two shareholders and is dissolved by operation of law if all shares come to be held by one person for an uninterrupted period exceeding ten days, except in the cases exempted by law.

Closely held S.A. Closely held stock corporation. It does not publicly offer its securities. Board of at least three members, shares not traded on an exchange and, as a general rule, no permanent CMF supervision or reporting. It is the usual alternative for ventures with several shareholders that do not open their capital to the securities market and seek the protection of formal legal requirements.

Publicly held S.A. Publicly held stock corporation. It publicly offers its securities or meets the other conditions established by law and the CMF. Board of at least five members, registration of its shares in the CMF Securities Registry and permanent supervision, with disclosure, transparency and corporate governance obligations. Unless unanimously agreed otherwise, it must distribute at least thirty percent of the year’s net profits as an annual dividend.

Special S.A.s Banks, insurance companies, fund managers and other entities with their own legal statute. Their incorporation requires the regulator’s authorization to exist and they remain under the permanent supervision of the CMF or another competent agency.

SRL AND EIRL

Limited liability company (SRL)

It is incorporated by public deed, with registration of the extract in the Commerce Registry and publication in the Official Gazette within sixty days, or through the simplified route of Law No. 20,659. Its business name must end with the word “Limitada”; omitting that word makes the partners jointly and severally liable for the company’s obligations.

Its logic is more personal and closed than the SpA’s. Any amendment of the bylaws requires, as a general rule, the unanimous agreement of the partners — unanimity usually also required to assign partnership rights, admit or withdraw partners and increase capital. That rigidity has displaced it in favor of the SpA, though it remains useful for a closed, stable company with few partners who value joint control.

BRANCHOFAFOREIGNCOMPANY

Operating without a subsidiary: the branch

The agency or branch allows a foreign company to operate in Chile without creating an entity with its own legal personality. It is not an independent legal person, but an extension of the parent company within Chilean territory. It is governed by Articles 447 et seq. of the Commercial Code and by Law No. 18,046. To establish one, the law contemplates, in general terms, the following steps:

1 Protocolize before a notary the documents evidencing the parent’s incorporation and good standing, a certified copy of its bylaws and the agent’s general power of attorney, legalized or apostilled and translated into Spanish where applicable.

2 Execute a public deed in which the agent declares, among other statements, that the parent knows and submits its assets located in Chile to Chilean law, that the branch will maintain readily realizable assets sufficient to answer for its obligations, and that the agent assumes the representation with broad powers.

3 Register the extract with the Commerce Registry and publish it in the Official Gazette within sixty days. Thereafter, the branch is required to publish its balance sheet annually in the Official Gazette.

Its most significant consequence lies in the risk: the foreign parent is fully and unlimitedly liable, with all of its assets, for the obligations incurred through the branch in Chile. It allows operating without a local company, but does not insulate the parent.

C O M PA R AT I V E TA B L E

The vehicles, side by side

↳ Comparison table available in the PDF