What is the main source of law authorising this entity form?

Law No. 32 of February 26th,1927

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

The S.A. has a separate legal personality.

(Maximum) period of existence

There is no maximum period of existence.

Governing document(s)

‘Pacto Social’- Charter of Incorporation or Company's Articles and Memorandum of Association (Contains the incorporation deed or subsequent amendments made to the Charter of Incorporation deed. For validity, it needs to be registered at the Panamanian Public Registry.)

Liability of incorporators / shareholders

Incorporators/shareholders are not personally liable for the debts of the company, except to the extent to which their shares are not fully paid-up.

(Governing) bodies

The General Assembly of Shareholders (‘Asamblea de Accionistas’) is the highest governing body of the corporation.

Other particularities

Board of Directors (‘Reunión de Junta Directiva’)– comprised by 3 directors, which can be natural or legal entities. They are in charge of the corporation´s management.

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

Under Panamanian Law, it is possible for Panamanian corporations to enter into legal mergers, spin offs (‘escision´), and asset acquisitions.

International restructuring like the above are possible, however, in case of mergers, if the surviving corporation is a foreign corporation, the surviving corporation shall remain registered at the Public Registry of Panama for a period not less than five (5) years as of the date of the Merger.

Can this type of entity be publicly listed or held?

Yes, Panamanian corporations can be listed or publicly held.

Can this type of entity by used for a non-profit or charitable organization?

No, this entity cannot be used for a non-profit or charitable organization.

Under Panamanian law, only nonprofit foundations or associations can be used for this matter. They have to approved by the Ministry of Government.

Give a brief summary of the process of incorporation, formation, or organization, including:

Main documents required

Client must submit due diligence documentation to the registered agent.

A public deed must be executed before a Panamanian Notary Public to protocolize the Charter of Incorporation.

A resolution issuing the shares and share certificates must be granted.

Involvement of notary, company register, governmental authorities

Notary: Execute the Charter of Incorporation.

Public Registry: registers the corporation at the registry. (The corporation is not formed until registered at the Public Registry.)

Timing (estimate)

Once Due Diligence proceedings are completed, the corporation´s incorporation takes between 2 to 5 days.

Main costs, including registration and similar fees (excluding legal fees)

Notary fees/Public Registry fees/government formation tax.

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

‘Pacto Social’ must state the corporate object/purpose of the corporation. Common practice is to include a general corporate object, which includes all legal activities.

Minimum number of incorporators / shareholders and residency requirements

There must be at least two subscribers in order to incorporate a Panamanian Corporation. No minimum shareholder or residence of the shareholder is required.

Minimum number of directors (or other applicable officers) and residency requirements

The minimum number of directors is 3 (corporate or legal entity). The directors can be officers. The same person can hold more than one office.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

The minimum share capital that can be issued is US$0.01 and 1 share. The common practice is to have a share capital of US$10,000.00 since the minimum registration fee is up to that amount. Shares can be issued as fully paid, partially paid or not paid.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

The Registered Agent does the incorporation with the help of two local persons acting as incorporators. There is no need grant a power of attorney or authorization to those persons. Directors do not need to be Panamanian nor be present in Panama.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

All Panamanian companies receive at their incorporation a RUC ‘Registro Unico de Contribuyente’, an equivalent to taxpayer identification number.

What is the title of the applicable company registry?

The Public Registry of Panama (‘Registro Público de Panamá’)

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:

Information below must be listed at the Public Registry and is Publicly available:

• Charter of Incorporation and its amendments.
• Date of incorporation
• Name of the corporation
• Share capital.
• Names of the directors and officers.
• Publicly filed power of attorney.
• Merger/Spin off corporate documents.
• Dissolution documents.

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The Board of Directors

The Board of Directors represents the corporation and must carry out management duties in the corporation´s interest in accordance with the business thereof.

How are the members of executive body appointed, dismissed and replaced?

First appointments are made through the Charter of Incorporation. Directors can resign at any time, the Board of Directors or Shareholders fill their vacancies. The Shareholders can remove and name directors at any time.

Is it possible to appoint corporate directors?

Yes.

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?

No.

The articles may specify other structures in which you have non-executive directors or separate bodies.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

The Shareholders constitute the Assembly of Shareholders when they meet.

The main task of the shareholders is, through a duly convened general meeting of shareholders or through a written resolution, to appoint the directors of the corporation, amend the Charter of Incorporation, approve mergers, spin offs and the dissolution of the corporation. In addition, they must approve the transfer of any real property owned by the corporation or a substantial portion of the assets of the corporation. More responsibilities can be added to the Charter of Incorporation.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

The majority and quorum are usually more than 50% of the issued and outstanding shares. This could vary or change depending on the Charter of Incorporation. Amendments to the Charter of Incorporation to vary the majority and quorum are possible.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

There is no special governance regimes, except in the case of listing in a stock exchange.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

The corporation must maintain accounting records, which are sufficient to determine the financial position of the corporation at any moment.

Is the entity permitted to determine its own financial year?

Yes, but approval from the General Revenue Department (tax authority) is required.

Is the entity subject to any statutory (external) auditor obligations?

No, unless it is a regulated activity, however if the capital of the company is greater than US$100,000 or its sales are greater than US$50,000, the financial statements must be countersigned by a CPA.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

Yes. The corporation must have at least a president, secretary and treasurer. Also, if the company will operate within Panama, it is important to appoint a legal representative.

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

Shares.

Are different classes of ownership interests possible? If so, what are some examples of different classes?

Different classes of shares are possible, including preferred shares, priority shares, non-voting shares. The separate classes and relevant rights are defined in the Charter of Incorporation or its amendments.

What documentation is required for the transfer of ownership interests?

In order to execute a transfer of interest, the shareholder must endorse the share certificate in the name of the buyer and submit it to the directors of the corporation to cancel the endorsed share certificate, issue the new share certificate in the name of the buyer and update the register of members. Also, the change of ownership must be recorded in the share register of the corporation.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

A resolution of the board of directors is needed to issue share certificates.

Every transfer or issuance must be recorded in the Share Register.

Are there any applicable stamp duties imposed when transferring ownership interests?

No stamp duties apply. However, if transferring shares of the corporation that directly or indirectly holds assets located in the Republic of Panama, generates Panamanian source income or the corporation carries out business inside of the territory of the Republic of Panama, a 5% capital gains tax is applicable.

How are shares issued? (including information on payment obligations, registration requirements)

Shares are issued through a resolution of directors. An endorsed share certificate is presented to the officer or directors of the corporation who will order the cancellation of the endorsed share certificate and the directors must issue a new one in the name of the new shareholder. The directors must update the share register.

If the sale of the shares are subject to the 5% capital gain tax, the buyer must retain 5% of the sale from the seller and submit the same to the tax authority (the General Revenue Department) within 10 days of receiving the funds. If the person buying the corporation is not a Panamanian corporation or a Panamanian citizen, the person must request a tax identification number (8NIT) to the DGI prior to submitting the 5% capital gain tax.

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

In the event that a share is issued, the board of directors must prepare a description of the non-cash contribution, including the value attributed to the relevant assets being contributed. No external assessment is required. Share premium contribution can be made without issuing new shares.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

Share repurchases must be effected in the manner of any other share transfer.

A capital reductions can also occur by amendments to its articles of incorporation; but no distribution of its assets may be made pursuant to such reduction, which will reduce the actual value of its remaining assets to an amount less than the total amount of its debts and liabilities plus the, amount as reduced of its issued capital stock. There shall be annexed to the articles of amendment a certificate issued under oath by the President or a Vice President and the Treasurer or an Assistant Treasurer, stating that the distribution of assets made or to be made pursuant thereto will not violate the provision contained in the articles. In the absence of fraud the judgment of the Directors as to the value of the assets and the debts and liabilities shall be conclusive.

Any requirements with respect to distributions to shareholders?

If the corporation carries out business or hold assets in the Republic of Panama or receives income from Panamanian sources, a 10% dividend tax must be withheld by the corporation. In certain instances the applicable tax rate is 5%.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes, the shareholders agreement cannot contravene the Charter of Incorporation or any of its amendments. In the event of inconsistencies, the Charter of Incorporation shall prevail.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

Usually, the annual maintenance cost is comprised by annual franchise tax and the registered agent fee. The annual franchise tax amounts to US$300.00. The registered agent fees varies among registered agents.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

The general corporate tax rate for corporations that do business, receive income from Panamanian sources or hold assets in the Republic of Panama is 25%. There are special rates and rules in case of corporations which have revenues over US$2.5 million in a fiscal year.

Summary of any specific matters, e.g. recent or prospective major legal developments

N/A.