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)

The Charter of Incorporation or Articles of Incorporation (Pacto Social) which contain(s) the incorporation deed or subsequent amendments made to the Charter of Incorporation deed. It must 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.

The Board of Directors (Reunión de Junta Directiva) comprised of at least three (3) directors, who can be natural or legal entities. They are in charge of the corporation's management.

Other particularities

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

Under Panamanian Law, it is possible for Panamanian corporations to enter into legal mergers, spin offs (escision), asset and equity acquisitions and divestures. Also, a Panamanian corporation may convert into a Limited Liability Company.

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

Can this type of entity be publicly listed or held, or its securities be issued to members of the public?

Yes, Panamanian corporations can be publicly listed or held.

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

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

Under Panamanian law, only non-profit foundations or associations can be used for this purpose. They have to be approved by the Ministry of Government.

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

Main documents required

The client must submit due diligence documentation to the registered agent.

A public deed must be executed before a Panamanian Notary Public. It will include the protocolisation of the Charter of Incorporation.

A board of director’s resolution approving the issuance of the share certificates (not mandatory).

Share certificates signed by at least one of the officers unless otherwise provided in the Charter of Incorporation or the aforementioned resolution.

Involvement of notary, company register, governmental authorities

Notary: issuance of the public deed containing the Charter of Incorporation.

Public Registry: registers the corporation. The corporation is not formed until it is registered at the Public Registry.

Timing (estimate)

Once Due Diligence proceedings are completed, the corporation's incorporation takes between two (2) to five (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?

The Charter of Incorporation, also known as the ‘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 (2) subscribers in order to incorporate a Panamanian corporation. There is no minimum number of shareholders or shareholder residency requirement.

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

The minimum number of directors is three (3) (corporate or legal entity). In addition, the corporation requires at least a president, secretary and treasurer.  The directors can be officers, but it is optional. The same person can hold more than one (1) 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 one (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 of capital. Shares can be issued as fully paid, partially paid, or not paid.

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

The Registered Agent carries out the incorporation with the help of two (2) local persons acting as incorporators. There is no need grant a power of attorney or authorisation to those persons. Directors do not need to be Panamanian or present in Panama.

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

All Panamanian companies must be registered before the General Revenue Department (‘Dirección General de Ingresos’ in Spanaish or “DGI”) in order to obtain a Registro Unico de Contribuyente (RUC), an equivalent to a taxpayer identification number.

What is the title of the applicable company registry?

The Public Registry of Panama (Registro Público de Panamá). It is a government entity.

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles or other formation document, Articles or other formation document, 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 below must be filed at the Public Registry and it is publicly available:

• Charter of Incorporation and its amendments, which include the following items.
• Name of the corporation
• Purpose of the corporation
• Share capital
• Name and address of the directors
• Name of the officers
• Name and address of the resident agent.
• Name of the subscribers of the Charter of Incorporation

• Powers of attorney (optional)
• Elections and appointment of directors and/or officers
• Merger/spin off corporate documents
• Dissolution documents
• Confirmation that the liquidation of the corporation is complete
• Conversion of the corporation
• Continuance of the corporation under the laws of another jurisdiction

The information regarding the ultimate beneficial owners has to be provided to the Superintendency of Non-financial Entities, but it is not available to the public.

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 the 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 vacancies. The Shareholders can remove and appoint directors at any time.

Is it possible to appoint corporate directors or must all directors be natural persons?

Yes, an entity can be appointed as a director.

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?

There is no need to have non-executive directors.

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

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 tasks 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 dissolution of the corporation, as well as confirm that its liquidation is complete. 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 can 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 are no special governance regimes, except in the case of listing on 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 point in time. These accounting records must be provided to the Registered Agent yearly.

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 engaged in 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, and 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 usual process is for the shareholder to 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. In the case of bearer shares, the share certificated have to be delivered to the transferee. Regardless of the type of shares, 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)?

Although not mandatory, it is usual to have a resolution of the Board of Directors issuing the new share certificates.

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

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

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

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

Shares are issued pursuant to a resolution of directors. In the case of a transfer of shares, an endorsed share certificate is presented to an officer or directors of the corporation who will order the cancellation of the endorsed share certificate and the directors shall issue a new one in the name of the new shareholder. The directors must arrange for the share register to be updated.

If the sale of the shares is 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) from 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 contribution. No external assessment is required. Share premium contributions can be made without issuing new shares.

A shareholder may provide a contribution to the company without getting shares in return. In that case, there shall be a capital surplus situation.

Non-paid and partially paid shares are permitted.

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

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

A capital reduction can also occur by amendments to the articles of incorporation; but no distribution of its assets may be made pursuant to such reduction that 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. A certificate issued under oath by the President or a Vice President and the Treasurer, or an Assistant Treasurer must be annexed to the articles of amendment 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 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 dividend tax rate is 5%.

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

Yes, but 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. The rules and restrictions may also be included in the bylaws of the company that do not have to be recorded in the Public Registry, but cannot contravene the Charter of Incorporation or any of its amendments.

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 vary among registered agents. Question 38. What are the general corporate tax rates? (Specify if there is a national versus

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 in the Republic of Panama or receive income from Panamanian sources is 25%. There are special rules in the 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.