What is the main source of law authorising this entity form?
Commercial Code.
Give a brief summary of this entity form, including
Does the entity possess separate legal personality?
Has separate legal personality.
(Maximum) period of existence
No maximum period of existence.
Governing document(s)
Articles of Incorporation (Escritura de Constitución).
Liability of incorporators / shareholders
Responsible only for their contributions to the social or corporate capital.
(Governing) bodies
Shareholders Meeting (Junta General de Accionistas), Board of Administrators (Consejo de Administración) or Single Administrator (Administrador Único).
Other particularities
The Shareholders Meetings may be ordinary and/or extraordinary, depending on the subject to be decided on.
Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?
There are no legal limitations on ownership of a Salvadoran company by foreign corporations or individuals.
Any company in El Salvador can be merged, acquired, sold, dissolved, or transformed into a different type of company.
Can this type of entity be publicly listed or held?
Yes, they can be listed or publicly held.
Can this type of entity be used for a non-profit or charitable organization?
No, the main purpose of this type of company is commercial. For non-profit or charitable uses, there are other types of legal entities such as civil associations, which are incorporated under Civil Law.
Give a brief summary of the process of incorporation, formation, or organization, including: Main documents required; Involvement of notary, company register, governmental authorities; Timing (estimate); Main costs, including registration and similar fees (excluding legal fees)
An S.A. must be incorporated by a Notary Public in a special type of document (Escritura Pública) by at least two (2) persons (Shareholders or partners) (Accionistas o socios). The minimum initial capital is US$2,000 for its constitution. Five percent (5%) of the initial capital must be paid on incorporation and the balance must be paid within one year.
The Articles of Incorporation must be registered before the Commerce Registry (Registro de Comercio). The cost of its registration depends on its capital, starting on $11.34.
The Company must register its Business License (Matricula de Comercio) and deposit the Initial Balance Sheet (Balance Inicial) at a cost of $125.72 and $17.14, respectively.
The Company must obtain the Tax Identification Number and a VAT Card (NIT and IVA).
Minimum number of incorporators / shareholders and residency requirements
Two (2) individuals or artificial entities without residency restrictions. They need to be registered at the Ministry of Treasure of El Salvador and obtain their Tax Identification Number (Numero de Identificacion Tributria).
Minimum number of directors (or other applicable officers) and residency requirements
There is no minimum number of directors.
When the administration of the corporation is entrusted to several people, a board of directors must be constituted. If the number of directors exceeds two (2), the position of president will be entrusted to one (1) of them, who – in the event of a tie – will decide with a casting vote.
Minimum share capital, or equivalent, and payment requirements (including opening a bank account)
The minimum capital is US$2,000.
Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?
Not necessarily; they can act through a power of attorney, and only the initial shareholders are required to sign the incorporation documents, either in person or through a registered representative.
Is a tax identification number, or equivalent, required? If so, how is it obtained?
Yes, the Tax Identification Number is obtained at Ministry of Treasury (Ministerio de Hacienda).
What is the title of the applicable company registry?
Registry of Commerce (Registro de Comercio).
What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles, Ownership identification (direct and/or indirect ownership, 'beneficial owners'), Group structure, Share capital, Directors, Accounts, Insolvency, good-standing, liquidation, Liens and encumbrances on the shares, Liens and encumbrances on assets of the entity, Other (e.g. litigation, tax matters)
The information listed below must be filed at the Commercial Registry and which will be publicly available once the company is registered:
- Articles of Incorporation.
- Date of incorporation.
- Name and address details.
- Activities of the company.
- Share capital (issued and paid).
- Legal representatives of the Company and their personal information.
- Constituting shareholders and their personal information (there must be at least two (2) initial shareholders).
- The annual accounts.
- Information regarding General Assembly and its meetings.
What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?
Board of Administrators (Junta Directiva) or Sole Administrator (Adminstrador Unico). Its main responsibilities are to oversee the operations of the company and appoint its managers (when they are not appointed by the Shareholders Meeting (Junta General de Accionistas).
How are the members of the executive body appointed, dismissed and replaced?
The type of body that is the Board of Administrators or Sole Administrator is determined in the Articles of Incorporation, and are appointed, dismissed, and replaced by the Shareholders Meeting.
Is it possible to appoint corporate directors or must all directors be natural persons?
The directors/administrators can act as a body, although the legal representation is held by one (1) single person.
Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?
The term “director” is not specifically referred to in the Commercial Code. There are either Members of the Board of Administrators, which function as directors or a Sole Administrator, and as many Managers as the company requires.
Additionally, there can be several legal representatives appointed to act on behalf the company, either in general issues or in specific ones.
The term director can also be used for an internal structure.
What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?
The Shareholders Meeting (Junta General de Accionistas) is made up of the company’s shareholders. Its main responsibilities are to oversee the stewardship of the Administrators, oversee the results of the company’s business, determine investments and revenues, and appoint the Administrators.
What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?
The General Meeting is legally constituted to deal with ordinary matters on the first date of the call, if at least half plus one (1) of the shares with voting rights are be represented, and the resolutions will only be valid when they are approved by a vote of half plus one (1) of the shares present or represented. The General Meeting is legally constituted to consider matters of an extraordinary nature on the date of the first call, if three-quarters of the total shares are represented and the resolutions will only be valid when they are approved by a vote of three quarters of the shares present or represented.
Extraordinary matters are those contemplated in article 224 of the Commercial Code, such as:
- Modification of the Articles of Incorporation.
- Issuance of negotiable obligations or bondsi.
- Amortisation of shares with resources from the company itself and issuance of certificates of enjoyment.
- Other matters that, in accordance with the law or the Articles of Incorporation, must be known at an extraordinary general meeting.
Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?
There are a few instances where a special regime is required, such as a financial institution.
What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?
The Financial Statements must be approved at the General Shareholders' Meeting and deposited in the Commercial Registry before May of each year.
The financial statements include financial information of the company for the fiscal year (from 1 January to 31 December).
Is the entity permitted to determine its own financial year?
No. The financial year of a company must correspond to its fiscal year which runs from 1 January to 31 December.
Is the entity subject to any statutory (external) auditor obligations?
No, it is not.
Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?
No legal requirements. They will depend on the Articles of Incorporation. In any case, there are no residency requirements.
The Appointment of the External Auditor and Fiscal Auditor (if applicable) will be made on a General Shareholders Meeting.
What is the title designated for ‘ownership interests' (e.g. shares, quota, interests, membership)?
Shares (acciones).
Are different classes of ownership interests possible? If so, what are some examples of different classes?
Yes, they are. For example, different classes may have a priority when the company pays dividends or may have different buy-out options.
What documentation is required for the transfer of ownership interests?
The transfer of the shares must be registered in the company’s Shareholders Book.
Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?
If the Shareholder has a share certificate, the Shareholder must endorse it. This endorsement includes the signature of the Shareholder.
If there is no certificate, a private notarial document can support this transfer.
This transfer of shares must be recorded in the books of the company.
Are there any applicable stamp duties imposed when transferring ownership interests?
No.
How are shares issued? (including information on payment obligations, registration requirements)
All shares are registered in the Shareholders Registry Book and through share certificates which are provided to each shareholder. There are no further payment or registration obligations or requirements.
Further information on equity contributions, e.g. , Non-cash payments on shares; (Share premium) contributions without issuance of shares; Can partially paid shares/ownership interests permitted and what are the restrictions on them?
There are no special requirements.
Any requirements with respect to share cancellation, share repurchase and other capital reductions
Capital reductions must be determined by a Shareholders Meeting. The minimum capital for every Company is US$2000.
Any requirements with respect to distributions to shareholders?
Capital reductions must be determined by a Shareholders Meeting. The minimum capital for every Company is US$2000.
Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?
Yes, a Shareholders Agreement, which is not public information.
Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?
There are no legal maintenance costs due, other than corporate and income taxes.
What are the general corporate tax rates? (Specify if there is a national versus local distinction).
Depending on the activity of the company.
VAT (13%).
Rent (depending on income).
Municipal Taxes (depends on the municipality).
Summary of any specific matters, e.g. recent or prospective major legal developments
There are not particular or specific matters regarding its constitution.
Every Company must renew its Business License before the Registry of Commerce every year in the month of its constitution.
Any Company must inscribe before the Registry of Commerce any document such as appointment of auditor, financial statements, appointment of legal representative, powers of attorney, modifications to the Articles of Incorporation, resignations of directors, among others. To inscribe any of the aforementioned documents (or any others) the business License must be up to date.