Hacienda Virtual Realty Argentina - HVRA
Argentine Corporate Law
Main
Corporate Vehicles
As in most South American
countries, three basic corporate vehicles are available:
1. the Sociedad Anónima (S.A.)
2. the Sociedad de Responsabilidad Limitada (S.R.L.),
3. Argentine branch of a foreign company
4. Joint Venture
1.
Sociedad Anónima (S.A.)
(loosely the equivalent of a Corporation)
• Artificial person whose capital
is represented by shares
• Incorporation takes about six weeks to be complete
• At least two shareholders are mandatory
• Liability of shareholders is limited to the amount of shares subscribed
• Requires regular filing of various financial and accounting statements,
and keeping records detailing activities of the board of directors and shareholders'
meetings.
• One in-house auditor ("síndico") is mandatory
• Financial and insurance corporations, as well as corporations with stated
capital over $2,100,000 have to meet additional requirements
The Sociedad Anónima (S.A.) which receives its authorization to incorporate
from the province (or the Federal District) in which it is located, is the only
business entity entitled to issue shares to the public.
Government supervision and reporting requirements are more intensive than those
imposed on other companies or partnerships.
It is considered an artificial person, distinct from those who hold its shares,
and must be constituted by public deed. The related formalities take about 3
months.
The capital is represented by shares or "share deeds" and the liability of the
shareholders (who must be at least two) is limited to the amount of the shares
they have subscribed.
Capital
Corporate capital must be fully subscribed
and at least 25% must be paid up at the time of incorporation;
non-monetary assets must be fully contributed before the corporation control
authority's approval is requested.
Stockholders must pay the balance due of their subscribed capital within two
years; they are held liable for interest and damages arising from any default
in payment thereof, and all voting and other rights corresponding to shares
whose payment is in default are automatically suspended.
The minimum initial capital is $ 12,000.
The corporate capital may be increased fivefold, upon the decision of a Stockholders'
Meeting followed by appropriate publications and inscriptions, without having
to obtain official approval, if allowed in the bylaws and all previous issues
have been fully subscribed. In other cases, any increases in the corporate capital
require official approval.
In general, existing stockholders are entitled to preference for subscribing
new issues, and may even challenge subscriptions by outsiders when they have
been bypassed.
If a new issue is not fully subscribed, the stockholders who subscribed it and
the company are held liable for all obligations undertaken in connection therewith.
Shares corresponding to capital increases may be offered to the public.
Shares may not be issued below par (except in the specific cases contemplated
by Law 19,550 and its amendments). Shares issued above par must be approved
by an extraordinary meeting of stockholders, and entail the setting up of a
special reserve that may not be distributed except in the event of a reduction
in the corporate capital.
The corporate capital may be reduced upon the decision of an extraordinary meeting
of stockholders, which must be supported by a special report from the in-house
auditor, and entails the fulfillment of certain formalities designed to safeguard
creditors' rights, unless it is accomplished using profits or free reserves
to repurchase fully paid company shares.
A reduction of the corporate capital is compulsory when the accumulated loss
has eroded all free reserves and 50% of the corporate capital.
There may be different classes of shares or "share deeds"; they must all have
the same par value, which must be stated in Argentine currency.
Stock certificates may be issued to represent one or more shares. Shares may
be issued to bearer or registered; they may be transferable through endorsement
or non-transferable. Both ordinary and preferred shares are allowed.
The first may carry privileges of up to five votes per share provided they do
not also enjoy priority rights.
Multiple vote shares may not be issued once the corporation has been authorized
to issue its shares publicly.
Preferred shares may be entitled to priority rights for dividends or upon the
liquidation of the company, but may not carry voting rights (except in certain
cases covered by specific legislation or the terms of issuance).
Corporations must maintain a special book called a Register of Shares, in which
details of the shares issued are recorded, showing the names of the original
subscribers and those of successive stockholders.
Only corporations that are subject to permanent government supervision may distribute
interim dividends.
2.
Sociedad de Responsabilidad Limitada (S.R.L.)
( loosely the equivalent
of a Limited Partnership)
• Easier to form, subject to a lesser degree of supervision and required
filings
• Capital is represented by quotas
• Composed of a minimum of 2 and a maximum of 50 partners
• Liability of partners is limited to the amount of the quotas subscribed
• A more personal vehicle, its smooth operation usually depends on congenial,
efficient interaction between partners and a trustworthy manager Income tax
is applied on partners individually, not on the partnership
In general, the formation and administration of a Sociedad de Responsabilidad
Limitada (S.R.L.) is relatively uncomplicated. However, its effective continuity
is dependent upon the relations existing among its members, since majority -and
in some cases unanimous- consent is required for all changes.
As compared with an S.A., the time of formation for an S.R.L. is shorter, and
if the capital is below $ 2,100,000,
there is much less government supervision or interference.
Corporations may not be partners of S.R.L.'s. The name of the partnership must
include the words "sociedad de responsabilidad limitada" or the abbreviated
form "S.R.L."; otherwise the manager is held jointly liable to an unlimited
extent for all acts undertaken with the omission.
The capital is divided into quotas, and the liability of the partners (there
must be between 2 and 50) is limited to paying up the quotas they have subscribed.
S.R.L.'s may be formed through a public or private deed, which must be registered
in the Commercial Court of Record after being published in the Official Bulletin.
Capital
The capital must be stated in Argentine
currency; it must be fully subscribed and 25% thereof paid up by the partners
at the time the partnership is formed; the balance must be paid up within two
years.
Contributions consisting of non-monetary assets must be fully transferred to
the partnership at the time of formation.
The partnership contract may contemplate the issuance of additional capital
quotas, applicable only upon the consent of partners representing more than
half the partnership capital, and following the usual publication and registration
formalities.
The quotas must be of equal value and equal voting right. Partners may hold
more than one quota.
Transfers of quotas are not restricted by law, but may be restricted under the
partnership agreement.
The remaining partners have the right of preference to purchase any quotas up
for transfer.
Partners' Meetings
If the partnership contract does not
contain specific rules for meetings, the rules set for corporate stockholders'
meetings must be applied, except that instead of publishing notices convening
the meetings, the notices must be sent to the partners at their addresses. The
law guarantees the right of dissident partners to withdraw, in the same way
as it does for corporations.
Management and Representation
The partners must appoint one or more managers to assume direct liability for
the business' operations.
They need not be partners themselves.
The managers have the same rights and duties as the directors of corporations,
but their terms of office are not subject to the 3-year limitation. When there
are several managers, the rules concerning corporate directors apply.
Supervision
In general, the creation of a supervisory
body (consisting of one or more in-house auditors or a surveillance committee)
is optional for S.R.L.'s, but when such a body is appointed, the rules applicable
thereto in the case of corporations are applicable to the extent that they are
compatible.
When the capital of an S.R.L. is above $ 2,100,000, the rules concerning permanent
supervision by the Corporation Control Authority apply and the partners must
appoint in-house auditors or a surveillance committee and hold their annual
general meeting of partners within four months of the fiscal year end, to deal
with the financial statements.
3.
Argentine Branch of a Foreign Company
• Easiest formation process:
simply establish a domicile, appoint a representative and show evidence of incorporation
and good standing in the country of origin.
• No minimum nor maximum stated capital
• Financial statements must be filed only annually
• Main corporation and Argentine branch need to keep separate accounting
records.
While the basic rule is that foreign companies are subject to the laws of the
country in which they were formed, insofar as concerns their existence and formation,
they are specifically authorized to carry out isolated business operations in
Argentina and to be parties in legal suits.
Formation of a Branch
If a foreign company desires to engage
regularly in its line of business, by setting up a branch, office or any other
form of permanent representation, it must:
a. Prove its existence under the laws of its country (i.e., by filing its bylaws
or articles of association and other related documents);
b. Establish a domicile in Argentina;
c. Fulfill the same publication and registration requirements as Argentine companies;
d. Support the decision to set up an Argentine branch;
e. Appoint a representative or manager;
f. If a branch is elected, it must have an assigned capital (there are no maximum
or minimum limitations in this connection).
To speed up the formalities connected with the formation of a branch of a foreign
company, it is helpful to show proof of the existence of reciprocity of treatment
for branches of Argentine companies in the country of origin of the foreign
company involved.
Management and Representation
The management and representation of a branch of a foreign company is vested
in the person appointed in the deed of formation, or his successor, whose appointment
must be suitably recorded in the Commercial Court of Record.
In general, the managers of branches have the same responsibilities as the directors
of corporations.
It is mandatory for foreign companies operating in Argentina to keep separate
accounting records for their Argentine operations.
Branches of foreign companies are required to file their annual financial statements
with the appropriate corporation control authority.
4. Joint Venture
• Provided for in Argentine law,
but not a legal entity in its own right
• Business operations are conducted on behalf of partners individually
• Third parties obtain legal rights before the partners individually, not
before the joint venture
• No incorporation or registration of the joint venture is required
• Tax liabilities fall on individual partners, not on the joint venture.
Accidental or Temporary
Partnerships
The Argentine Corporate Law has a
section on what is termed an "accidental or temporary partnership", which has
the following characteristics:
it is not a artificial person; it does not have a firm name; it is not subject
to any formal requirements; it is not required to register with the Commercial
Court of Record; its purpose consists in the conduct of one or more specific
and transitory operations; its operations are carried out using contributions
made by the partners, but in the personal names of one or more managing partners;
outside parties acquire rights or undertake commitments only in relation to
the managing partners.
Such temporary partnerships have in the past been used principally as the best
vehicle for the joint participation of different companies in proposals made
pursuant to tenders called for by government entities or large private concerns.
Temporary Unions
of Companies
The Corporate Law also recognizes
Temporary Unions of Companies ("Uniones Transitorias de Empresas"), which are
joint ventures for conducting and/or carrying out a specific job, service or
supply within Argentina or outside it.
Foreign companies may participate in these Temporary Unions of Companies provided
they furnish proof of their existence under the laws of the country in which
they are organized, establish a domicile in Argentina and register in the Commercial
Court of Record.
It is important to highlight the fact that although it includes regulations
governing the management and operation of these organizations, Argentine law
does not consider them as legal persons in their own right.
Business Records
All businesses must maintain accounting
records; their design may vary according to the preferences of the management
and needs of the business. Two books are, however, mandatory: a journal and
an inventory book, both of which must be bound and have prenumbered pages, and
be initialized by the appropriate local commercial court.
The journal should include an entry for each transaction, and the inventory
book should contain very analytical, itemized annual financial statements. In
practice, only monthly summary entries are made in the journal, and copies of
any long lists may be press-copied into the inventory book.
The Commercial judge or the Securities Commission may authorize the use of modern
E.D.P. or mechanized records to supplement the initialized books or to partially
replace the journal, in which case the latter is written up with monthly summary
entries, and a description of the system must be included in the inventory book.
A special book must also be kept to record the minutes of company meetings (i.e.,
board of directors, shareholders, etc.), as well as a Register of Share Ownership
and a Record of Attendance at Shareholders' Meetings. These books must also
be initialized.
All the official records and papers of business firms operating in Argentina
must be kept in Spanish.
Stockholders' Meetings
An Annual General Meeting of Stockholders
must be convened within 4 months of the annual fiscal closing date, to deal
with the corresponding financial statements, the distribution of profits and
the appointment, removal and compensation of the managing and control bodies.
A General Meeting of Stockholders must also be convened (at any time) if it
becomes necessary to determine the liability of the members of the aforementioned
bodies, or for increasing the capital within the fivefold limitation.
Extraordinary meetings of stockholders are required to deal with all matters
not incumbent on ordinary meetings of stockholders. All stockholders' meetings
must be convened through the publication of notices for 5 days (or 3 days in
the case of a second meeting required due to lack of a quorum).
The law does, however,
waive the need to publish notices in the case of unanimous meetings (when stockholders
representing all the outstanding capital attend and decisions taken are unanimous).
Stockholders may be represented by proxies at meetings, but neither members
of the managing and control bodies nor company employees may hold proxies. The
directors, in-house auditors and managers have the right and duty to attend
stockholders' meetings. They have a voice, and such voting rights as they may
be entitled to as stockholders.
The law sets requirements concerning the quorum needed to hold meetings, and
the majorities required for decisions, depending on whether the meetings are
ordinary or extraordinary, and on whether they are being held for the first
or second time; the requirements are more stringent when matters fundamental
to the life of the corporation are dealt with.
In certain cases, the law guarantees the right of dissident stockholders to
withdraw; in such cases they must be reimbursed on the basis of their equity
according to the most recently approved financial statements.
Management and Representation
The management is vested in a board
of directors composed of one or more directors (they must be at least three
in the case of corporations subject to permanent government supervision), who
are appointed by the stockholders' meeting or the surveillance committee, as
applicable.
Directors need not be stockholders. Their terms of office are limited to 3 years,
but they may be re-elected.
The bylaws may provide for the election of alternate directors.
A majority of the directors must reside in Argentina. The board must meet at
least once every three months; half plus one of its members constitutes a quorum.
T
The compensation of directors and members of the surveillance committee are
restricted to 25% of the profits for any given year when the remaining profits
are fully distributed as dividends; the limitation is 5% when no dividends are
distributed; limitations for intermediate situations are apportioned accordingly.
Compensation include salaries and other payments made in respect of technical
and management functions carried out on a permanent basis.
Additional remuneration are permitted when they are for the performance of special
assignments or permanent technical and management functions, provided the matter
is included on the agenda for the stockholders' meeting and meets with the latter's
approval.
The position of director is personal and non-transferable; directors may not
cast votes by mail.
A corporation is normally represented by the president of the board of directors;
its bylaws may, however, authorize one or more directors to represent it.
Private Supervision
Private supervisory functions are
normally vested in one or more in-house auditors appointed by the stockholders'
meeting, which must also appoint a similar number of alternate in-house auditors.
The use of in-house auditors is optional for corporations not encompassed by
article 299 of the Company.
Corporations subject to permanent government supervision (except when this is
only due to the amount of their capital) must have an odd number of in-house
auditors, which must be at least three.
Whenever there is more than one in-house auditor, they must act as a body.
The function of in-house auditor may be exercised by an individual holding a
degree as a lawyer or public accountant, or by a firm composed exclusively by
such professionals, and domiciled within Argentina.
The in-house auditors have the following rights and duties, among others:
to examine the company's books and records and verify its funds, commercial
paper and securities at least once every three months; to attend board meetings
and stockholders' meetings with a voice but no vote; to report on the annual
board report and financial statements; to check that the corporate bodies abide
by the law, the bylaws and the decisions of stockholders' meetings.
They are jointly and severally liable to an unlimited extent for the failure
to fulfill their duties and are jointly liable with the directors for any acts
or omissions of the latter causing damages that would not have occurred if they
had discharged their duties properly.
The bylaws may provide for the appointment of a surveillance committee consisting
of between 3 and 15 stockholders by the stockholders' meeting for terms of up
to 3 years, to control the actions of the board of directors, either directly
or through expert advisors.
Such a committee also carries out the other duties normally performed by the
in-house auditors, so there is no need for the latter. In such cases the committee
must appoint independent auditors, whose annual report must be submitted to
the stockholders' meeting. The existence of surveillance committees is uncommon
among existing Argentine corporations.
Government Supervision
Article 299 of the Corporate Law provides
that corporations encompassed in any of the following circumstances must be
subject to permanent government supervision exercised by the appropriate control
authority:
a. Those that offer their shares or bonds to the public;
b. Those whose corporate capital is above $ 2,100,000 (this limit is subject
to adjustment at the discretion of the Executive Power);
c. State-controlled corporations and mixed ownership companies (these differ
from standard business corporations, but are subject to similar regulations
in many respects);
d. Those engaging in capitalization or savings and loan operations, or otherwise
soliciting funds or commercial paper from the public with the promise of future
consideration or benefits;
e. Those operating government concessions or public utilities;
f. Any corporation that controls or is controlled by another that is comprised
in one of the foregoing situations.
Certain types of corporations are subject to a permanent form of control by
government or semiofficial organizations other than the corporation control
authorities: those whose shares or bonds are publicly traded come under the
National Securities Commission; banks and finance companies are controlled by
the Argentine Central Bank; insurance companies by the National Insurance Superintendent,
and cooperatives by the National Institute of Cooperative Action.
All other corporations are subject to government control by the appropriate
corporation control authority, but it is only exercised in connection with the
incorporation contract, subsequent amendments thereof, and changes in the capital,
although the corporations are also required to file their financial statements
and other papers relating to annual stockholders' meetings.
Debentures and Corporate
Bonds
Although the Corporate Law contains
lengthy provisions regarding the issuance of debentures, these have never been
broadly used in Argentina. Therefore, to provide a means of indebtedness more
closely suited to the needs of companies and investors, law 23,576 was passed
in 1988 instituting a system of negotiable (corporate) bonds.
The issuance of negotiable bonds does not require to be provided for in the
bylaws and may be resolved by a stockholders' meeting (except for some cases
involving bonds convertible for shares).
The act of issuance may be instrumented by public or private deed; the bonds
may be issued in Argentine currency or foreign currency; they may carry floating,
specific or general guarantees, and be guaranteed by banks or other financial
entities, or not.
The system involving negotiable bonds is already in use among top companies,
which have issued them to bearer in U.S. dollars, through banks acting as underwriters,
and a number have had them listed on the Stock Exchange.
These negotiable bonds are in fact competing with dollar bonds issued by the
National Government (BONEX) on the capital market.