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Establishing a Business Presence in Costa Rica

Rechtsanwalt Dr. Dirk Roger Rissel, LL.M.

  * * *

 

I.                Introductory remarks

The Commercial Code of Costa Rica (Código de Comercio = CCom) sets out the rules of how to organize business enterprises and commercial activities. The notarized articles of incorporation or partnership agreement must be filed with the Mercantile Section of the Public Registry. In addition, for the company to be legally constituted, a summary of the incorporation articles must be published in the Official Journal called "La Gaceta".   In order to act as a legal entity, the company must also have an identification number (“cédula jurídica”) issued by the Public Registry once the registration process is fulfilled.  In every legal procedure or document, this number must be disclosed in order to demonstrate the legal existence of the company.

II.                Types of Business Presence

There are four types of commercial entities: the General Partnership (Sociedad en Nombre Colectivo), the Limited Partnership (Sociedad en Comandita), the Limited Liability Partnership (Sociedad de Responsabilidad Limitada) and the Corporation (Sociedad Anónima or "S.A.").

A.         General Partnership (Sociedad en Nombre Colectivo), Articles 33 – 56 CCom

This is a family-type business association no longer in use in Costa Rica, mainly because it does not limit the liability of the owners. It is comparable to the general partnership of other countries.

B.         Limited Partnership (Sociedad en Comandita), Articles 57 – 74 CCom

Similar to the general partnership in the U.S., the Sociedad en Comandita consists of at least one general partner with unlimited liability (for all debts and obligations of the company) and one or more limited partners (whose liability is limited to the extent of their capital contribution). The limited partner generally cannot actively participate in the administration of the company. If he does so, his limited liability status is eliminated (Art. 65 CCom). The limited partner´s contribution must be in the form of cash, property or commercial patents. According to Art. 67 CCom contributions in the form of services or credit are not allowed.

C.        Limited Liability Partnership (Sociedad de Responsabilidad Limitada), Articles 75 – 101 CCom

This type of company – generally characterized by the ending S.R.L. (Art. 76 CCom) – resembles a closed corporation or partnership in the U.S. The main chararcteristics of the Sociedad de Responsablidad Limitada are (1) the shareholders' liability is limited to the amount of their capital contribution (Art. 75 CCom), (2) its capital is divided into individual shares which cannot be sold in the public (no public market for the shares) (Art. 79 CCom), (3) at least two persons, either individuals or companies, are required to form it (but its status is not altered by the fact that a single person may become the sole owner of the capital stock). There is no limit as to the maximum number of shareholders allowed. The Sociedad de Responsabilidad Limitada does not have a real importance in Costa Rica. Even family owned businesses choose the form of a S.A.

D.         Corporation (Sociedad Anónima or "S.A.") – Articles 102 – 200 CCom

The Sociedad Anónima – the most widely used commercial entity – is the equivalent of a U.S. corporation. Companies or individuals can form a corporation, but eventually it may become the property of a single person without altering the legal status of the corporation. The liability of the shareholders is limited to the extent of their capital contributions.
The corporation can be formed with nominative and preferred shares, either of which may be freely transferable. However, the shareholder may establish limitations for the transfer of shares. Bearer stocks are not allowed in Costa Rica (Art. 120 CCom). A minimum amount of capital is not required.
A corporation may be established either privately or by public subscription. However, the private incorporation is the most common procedure. At least two individuals or corporations must sign the articles of incorporation and the company´s bylaws in the Protocol of a Public Notary  Art. 18 CCom establishes which information the articles of association must contain (see below under III. C.). Art. 106 CCom requires that the articles of incorporation also set forth (1) the amount of paid in capital, (2) the number, par value, and classes of shares and (3) the terms and methods of payment for the shares. The notarized document must then be filed in the Mercantile Section of the Public Registry for registration. 
Art. 181 CCom establishes that the company must be managed by a board of directors of at least three members (President, Secretary and Treasurer). If the company is established by public subscription (Art. 105 CCom), the company must be supervised by an overseer or statutory auditor, called ”Fiscal”, Art. 195 CCom.

E.         Branches of Foreign Corporations (“sucursales”) – Articles 226 – 233 CCom

Subsidiaries of foreign companies may be established by appointing a representative with full powers (Art. 226 CCom). For registration in the Public Registry, all documents must be authenticated by the Costa Rican consul in the country where the main office of the company is located. An official translation of the document and the authentication of the consul´s signature by the Ministry of Foreign Relations are also required. All these documents must be then filed in the Mercantile Section of the Public Registry, where they issue the identification number once the registration process is fulfilled.
 

III.    Commercial Code Articles Referring to Foreign Enterprises

Art. 5 d) CCom considers foreign companies, their subsidiaries and branches as commercial entities for local legal purposes.  According to Art. 226 CCom foreign entities are required  to name a legal representative with full powers concerning the business of the branch.

A.         Unlimited and universal proxy (“poder”) must include:  
 

The purpose of the subsidiary and the capital assigned to (Art. 226 a) CCom).

The purpose, capital, full names of officials or managers, and the duration of the main enterprises (Art. 226 b) CCom).

An explicit statement which expresses the representative and the subsidiary will be subject to the laws and the courts of Costa Rica in respect of all acts or contracts made in or to be executed in the country, and in which they explicitly renounce the laws of their domicile (Art. 226 c) CCom).

A statement stating that the grantor of the power of attorney has sufficient legal authority to do so (Art. 226 d) CCom).

Legal representative with power of attorney, for registration purposes, if necessary, will be complete if the agency contract is presented to the Mercantile Registry together with a certificate issued by the appropriate Costa Rican consul or consul in a friendly nation, attesting that the company is organized and pursuant to the laws of its principal domicile, and a statement issued by the legal representative accepting the power of attorney (Art. 226 CCom).

B.          Transfer of Foreign Companies to Costa Rica

Art. 227 CCom authorizes foreign companies to transfer their domicile to Costa Rica, as long as under the laws of the country where they are organized this procedure is allowed. The transfer to Costa Rica can be achieved after submitting to the Mercantile Registry, the following documents, all of which must be properly legalized:
 

 

Copy of the articles of incorporation and any amendments (Art. 227 a) CCom).

Consular certificate issued by the appropriate Costa Rican consul or consulate in a friendly nation, attesting that the company is organized and pursuant to the laws of its principal domicile, and a statement issued by the legal representative accepting the power of attorney (Art. 227 b) CCom).

Certificate of the agreement authorizing the transfer of the headquarters to Costa Rica (Art. 227 c) CCom).

List with the full names of the board of directors and other officials of the company (Art. 227 d) CCom).

Transfer of the headquarters to Costa Rica may not imply dissolution or liquidation of the company in their original country. The company’s equity statement in the country of origin is disclosed solely to demonstrate locally the financial solvency. It does not imply any obligation to pay special registration fees for that concept (Art. 227 CCom).
Foreign companies that have transferred their headquarters to Costa Rica must register in the Mercantile Registry the amendments to their articles of incorporation and any instrument of merger and dissolution, when applicable (Art. 228 CCom). These companies may, at any time, transfer again their headquarters to any other country. To accomplish that, they must file to the Mercantile Section of the Public Registry a certificate attesting  the agreement by which the decision was made, duly legalized (Art. 230 CCom).
Foreign companies that have transferred their headquarters to the Costa Rica shall continue to be regulated by the country where they were incorporated, according to these companies’  articles of incorporation, but they shall remain subject to the Costa Rican laws. They are also liable to pay local income tax, only for those businesses conducted within the Costa Rican territory. Ventures which are effective in a foreign country, are tax exempt (Art. 229 CCom).
For purposes of the preceding articles, the headquarters is the place where the board of directors holds its meetings or where the center of the company’s management is located (Art. 231 CCom).
A full power of attorney implies submission to the laws and courts of Costa Rica; in case of special powers, the company may expressly except specified cases or concrete matters from such submission (Art. 232 CCom).
Anyone who, in the name of a foreign company, advertises or performs businesses as agent or representative, without having issued the documents addressing him as legal representative, will incur in joint liability in respect to obligations contracted or to be fulfilled in the country, without harming any criminal risk in which the person may have incurred (Art. 233 CCom).

C.         The Corporate Charter

The corporate charter (“escritura social”) of every commercial company must state detailed information about the company and its organizers, as well as explanations of the company structure, financial assets, and dissolution  procedures.  Any  change  in the  company  must  be recorded in the  Mercantile Registry and a brief note must be published in the newspaper “La Gaceta”.  Once recorded in the Mercantile Section of the Public Registry, companies are deemed as legal entities. 
Shareholders have the right to examine the company books, mail, and other documents showing the status of the company management (Art. 26 CCom). 
According to Art. 18 CCom the basic contents of the corporate charter are:

 
 

Place and date of incorporation.

Names and surnames, nationality, occupation, marital status, and address of the incorporators.

The type of the corporation being formed.

Complete name of the company.

Amount and kind of capital, and payment conditions.

A detail registration of each partner’s contributions, assets, cash, or securities.

Exact address of the company in Costa Rica.

Authority and powers of the administrators.

Appointment of officers, indicating who will represent the company.

Appointment of the resident agent.

Procedures to follow in the preparation of the balance sheet and profit or losses distribution among partners.

Stipulation of the legal reserve, if applicable.

Provisions for the premature dissolution of the company.

Provisions for the liquidation of the company.

Procedure for the election of liquidators and the powers assigned to them.

 

 


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