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

Commercial code (Código de Comercio).

Partnership deed (Escritura Pública ante Notario Público) which is then duly registered in the commercial chamber.

The Generation of Employment, Promotion of Entrepreneurial Initiative, Business Formalization, and Protection of Investors' Rights Law (Decreto 284-2013 Ley para la Generación de Empleo, fomento a la Iniciativa Empresarial, Formalización de Negocios y Protección a los derechos de los Inversionistas)

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

The LLC has a separate legal personality.

(Maximum) period of existence

The maximum period of existence is indefinite.

Governing document(s)

The governing documents are its bylaws (Estatutos).

Liability of incorporators / shareholders

The quota holders (Socios) are not personally liable for the debts of the LLC, and their liability is limited to the amount of their own share contributions.

(Governing) bodies

The administration of the LLC is the responsibility of one (1) or more General Managers (Gerente General) and a Board of Directors (Junta Directiva) and/or general managers (who may or may not be partners) appointed by the general assembly of partners (Asamblea General) for a fixed period or for an indefinite period of time unless otherwise agreed.

Other particularities

The general assembly of partners (Asamblea General de Socios) has the right to revoke the appointment of the general managers at any time.

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.)?

There are no limitations with respect to involvement in international restructurings.

The quotas (Aportaciones) in an LLC cannot be transferred to third parties by default, unless the general assembly of partners (Asamblea General de Socios) makes the decision according to its bylaws. An LLC can have a maximum of 25 partners.

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

No, only an anonymous society (Corporation) (Sociedad Anonima) can be publicly listed or held.

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

No, these companies are commercial entities created to generate profit and distribute it to their partners. Non-profit or charitable organizations typically use different types of associations and organizational structures and are regulated by different codes and laws.

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

The deed of incorporation may be granted before a public notary which shall contain the following at a minimum:

• Place and date in which the act is takes place.
• The names, nationality, and domicile of the physical or legal person that constitute(s) the LLC (a maximum of 25 partners).
• Type of company that is constituted.
• The purpose of the LLC.
• Name of the LLC.
• Declarations that the LLC is constituted for an indefinite period of time.
• While the amount of capital is variable; the minimum must be indicated.
• The contribution of money or assets by each partner.
• The domicile of the LLC.
• The manner in which the LLC is to be administered.
• The appointment of the administrators and the appointment of those who have the authority to bind the company.
• The manner in which to make a distribution of profit or losses.
• The amount of reserves.
• The circumstances in which the company has to be dissolved in advance.
• The methods and prioritised to carry out the liquidation of the LLC in case it has to be shut down, for example: To establish the order of priority of payments in case of bankruptcy.
• The corporate purpose which must be stated in the By-laws which are attached to the deed of incorporation.

* The LLC may also be created by a private contract or form. In these cases, it is not necessary to include the information referred to in letters G and H above. The law only requires indicating the partners' share of participation.

The deed of incorporation must be subsequently registered with the corresponding mercantile or commercial registry. The process to register takes approximately one (1) or two (2) days.

The main cost would be 5,000.00 lempiras to constitute the company (plus legal fees for its constitution). Also 200.00 lempiras are payable to register the LLC and 590.00 lempiras are payable to the chamber of commerce*.

*The affiliation fee to the chamber of commerce depends on the seed capital range and the city of incorporation.

Minimum number of incorporators / shareholders and residency requirements

The LLC can be created with one (01) incorporating shareholders. There are no residency requirements for an LLC.

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

One (1) – if the director is a foreigner who is employed under a work contract, then there are some residency requirements to fulfil. The requirements to obtain a Special Permit of Permanence issued by the General Direction of Migration and Foreigners (Dirección General de Migración y Extranjeria), are the following:

• Photocopy of the foreigner registration certificate issued by the General Direction of Migration and Foreigners (Dirección General de Migración y Extranjeria).
• Identification Card as a foreigner issued by the General Direction of Migration and Foreigners (Direccion General de Migracion y Extranjeria).
• Contract or proof of job offer issued by the employer who has employed him or who will provide him with work.
• Application to the General Direction of Migration and Foreigners (Dirección General de Migracion y Extranjeria).
• Photocopy of the passport, duly authenticated.
• Law stamps:
• Certificate of criminal record of the country of origin and of last residence, when appropriate, duly legalised.
• Certificate of medical record, when appropriate, duly legalised.
• Certificate issued by the employer where he is responsible for the subsistence of the foreign worker during his stay until his departure from the country at the end of the employment contract.
• Certificate issued by the Secretary of State in the Departments of Labor and Social Security (Secretaría del Trabajo y Seguridad Social), verifying that the employer complies with the provisions of Article 137 of the Constitution of the Republic and Article 11 of the Labor Code regarding foreign workers.
• Photostatic copy of the articles of incorporation or individual merchant declaration, duly authenticated;
• Copy of the current operating permit, authenticated;
• Certificate from the Tax Administration Service (SAR) confirming the commencement of operations and the functioning of the commercial establishment;
• Income Statement and Balance Sheet authorized by a duly registered accountant, with the corresponding stamps and professional seal;
• Payment of the corresponding fee for the Special Residence Permit per year: One hundred U.S. dollars exactly ($100.00) per person.
• Payment of the corresponding fee for certifications, certificates, or attestations: Two hundred lempiras exactly (L.200.00).
• Accreditation of technical and academic capabilities of the foreign worker.
• Two recent passport-size photographs.

In the case of LLC's carrying on certain professional practices, proof of incorporation and authorisation of that profession's regulatory association to carry on such practice.

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

The minimum capital is 5,000 lempiras.

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

Yes, the physical presence of incorporators is required. Third parties may be represented through a Power of Attorney.

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

All natural or legal persons must apply for a tax identification code (Registro Tributario Nacional called an RTN or VAT) at the Ministry of Finance Revenues Administration Service (Servicio de Administración de Rentas – SAR) using a 410B form.

To obtain the RTN for a company, the incorporator needs to present identification for the partners and a copy of each piece of identification, the personal RTN of each of the partners and a copy thereof, a copy of the public deed of incorporation, and a receipt from a utility company or the lease agreement to determine the company address.

What is the title of the applicable company registry?

Commercial Registry of Honduras and Chamber of Commerce (Camara de Comercio e Industria de Tegucigalpa; Registro Mercantil de Francisco Morazán), It is not a governmental agency or body, by Agreement 041-2005 of the Board of Directors of the Property Institute (Instituto de la Propiedad), published in the Official Gazette La Gaceta on July 7, 2006, the Tegucigalpa Chamber of Commerce and Industry (Cámara de Comercio e Industria de Tegucigalpa) was designated as an Associate Center of the Property Institute, and under this condition, it was delegated the administration of the Commercial Registry of Francisco Morazán (Registro Mercantil).

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

The following information is disclosed in the LLC's public deed of constitution and is publicly available:

• Articles;
• Ownership identification (direct and/or indirect ownership, 'beneficial owners');
• Group structure;
• Share capital;
• Directors;
• Liens and encumbrances on the quotas; and
• Liens and encumbrances on assets of the LLC (if documented in a public deed and duly registered in the chamber of commerce).

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

The General Manager or General Managers designated by the General Assembly of Partners (Asamblea General de Socios) shall perform all executive tasks and duties. In the absence of an elected General Manager, all partners must collectively undertake and assume responsibility for these tasks and duties.

Unless otherwise agreed, the partners of the LLC will have the right to revoke the appointment of the managers at any time.

The managers are liable to the partners. Unless managers are appointed, all partners attend to the administration.

The managers are liable to the general assembly (Asamblea General) and to the individual partners for the reimbursement of the social assets which belong to the general assembly. The social assets include all movable or immovable property that belong to the LLC as legal property.

The General Manager has the duty to carry out all activities to make the business grow in a safe and legal manner and to act in the best interests of the LLC.

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

The partners acting through a General Assembly (Asamblea General) in an LLC have the right to choose and to revoke its administrators at any time (including any member of the Board of Directors, and the LLC's general manager).

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

The director of an LLC must be a natural 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?

No, they are not required to have a non-executive director.

The executive structure of the LLC is established in the act of constitution (Escritura Publica). While a non-executive branch could be appointed but it must also be established in the act of constitution and statutes of the LLC or in a modification of the act of constitution.

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

The general assembly (Asamblea General) of the partners is the highest body of the LLC and has the following responsibilities:

• To discuss, approve, modify, or disapprove the balance sheet corresponding to the closed fiscal year and take with reference to it, the measures that it deems appropriate;
• To determine the distribution of profits;
• To appoint and remove managers;
• To appoint, where appropriate, the commissioner or the supervisory board (El Comisario o Consejo de Supervision) who must be a natural person or a collegiate board which is comprised of a group of individuals who are appointed by the general assembly and who have the power and faculties to supervise the procedures carried out by the administrators of a commercial company (LLC). It also has a veto right over the decisions of the Manager or the Board of Managers, which it deems harmful to the LLC;
• To approve the transfer and division of the shares, as well as the admission of new partners;
• To authorise, where appropriate, that supplementary contributions and ancillary benefits be required;
• To authorise the exercise of actions to demand damages from the other corporate bodies, designating, where appropriate, the person who has to follow the trial;
• To authorise the dissolution of the company;
• To modify the social deed; and
• To exercise other powers according to the law or the articles of incorporation.

To authorise actions to demand damages and losses from the other corporate bodies, and designating, where appropriate, the person who shall supervise and give instructions respecting such actions.

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

Constitutive quorum: The assembly shall be validly constituted if partners representing at least half of the share capital are present, unless the articles of incorporation require a higher attendance. Unless otherwise stipulated, if such attendance is not achieved in the first meeting, the partners shall be summoned a second time, and the assembly shall validly function regardless of the number of attendees.

Decision-making quorum: Resolutions shall be passed by a majority of the votes of those present at the assembly, except in cases of amendments to the articles of incorporation, which shall require the vote of at least three-fourths (¾) of the share capital, unless the amendment involves changing the company’s purposes or increasing the obligations of the partners, in which case unanimity of votes shall be required.

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

In general terms, no. However, if the LLC is considered an APNFD, it must comply with regulations regarding money laundering and establish policies, procedures, and certain governance structures, such as a Compliance Committee and a Risk Committee, among others.

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

Depending on the nature of business or purpose of the LLC, it must pay monthly or annual income and/or sales taxes and must submit the necessary accounts to the Income Revenues Administration Service (Servicio de Administración de Rentas – SAR).

Is the entity permitted to determine its own financial year?

The fiscal and financial year must be considered based on the civil or calendar year, which begins on January 1 and ends on December 31 of each year; however, the Tax Administration may, in exceptional cases and duly justified by the interested parties, authorize a special fiscal period.

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

The general assembly of partners can require external audits of the financial statements. The Ministry of Finance Revenues Administration Service (Servicio de Administración de Rentas) (the SAR) requires an external audit for the purposes of taxes payable to the State of Honduras.

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

The General Manager or General Managers have the legal representation of the LLC. In some cases, a Substitute General Manager may be designated to act on behalf of the General Manager in their absence.

The LLC also has one (1) secretary, who must have experience in corporate matters, with knowledge of corporate law and, especially, of the bylaws and ethical and corporate governance codes of the company.

There are other persons such as:

• the commissioner or the supervisory board (El Comisario o Consejo de Supervision);
• a Board of Directors.

The number of members will be that number necessary for the proper development of the LLC.

Administrative personnel such as accountants and internal auditors can be hired via a labour contract with no special requirements.

If foreigners are employed by the LLC under a labour contract, then there are some residency requirements to fulfil. The requirements to obtain a Special Permit of Permanence issued by the General Direction of Migration and Foreigners (Dirección General de Migración y Extranjeria), are the following:

• Photocopy of the foreigner registration certificate issued by the General Direction of Migration and Foreigners (Dirección General de Migración y Extranjeria).
• Identification Card as a foreigner issued by the General Direction of Migration and Foreigners (Dirección General de Migracion y Extranjeria).
• Contract or proof of job offer issued by the employer who has him employed or who will provide him with work.
• Application to the General Direction of Migration and Foreigners (Direccion General de Migracion y Extranjeria).
• Law stamps.

Proof of authorization of the respective professional association, in the case of professional subjects to the Law of Professional Association necessary for the exercise of the profession.

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

Quotas (Parte Social/Aportación).

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

Yes, different kind of quotas are possible. For example, quotas can be 'privileged quotas' which are entitled to a priority in the distribution of profits in the LLCs or, for example, 'non-voting quotas' which are entitled to receive a minimum dividend (whether fixed or variable) as set out in the bylaws of constitution.

What documentation is required for the transfer of ownership interests?

The transmission of quotas is restricted (not free). In order to transfer quotas, the transferors first notify the administrators of the intention of transfer and the number of quotas to be transferred, the identity of the acquirer and the agreed price.

The transfer of a partner's quota must be authorized by the Assembly of Partners with the vote of the partner quota as specified in the bylaws.

If authorized, A notarial deed of transfer must be executed before a notary to transfer a quota. No endorsement of quotas is permitted.

The other partners have a preferential right to acquire the quotas to be sold on such terms (Derecho del Tanto) during a 15-day exercise period beginning on the date of the meeting on which the authorisation was granted. If several partners who want to use this right, they will be able to do so in proportion to their respective contributions.

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

Transfer of a quota must be recorded in the Commercial Registry of Honduras and Chamber of Commerce (Camara de Comercio e Industria de Tegucigalpa; Registro Mercantil de Francisco Morazán) and the transfer must also comply with any restrictions on transfer under the law or as relevant, under the bylaws of constitution.

The quota are divisible, provided the provisions of the Article 43 are complied with and that as a result of the division, the number of partners does not become greater than 25.

Under Article 43 of the Commercial Code (Código de Comercio), partners cannot assign their rights in the company without the consent of all the others, and without it, new ones cannot be admitted, with certain exceptions. Assignments will not take effect against third parties, until they are registered in the Public Registry of Commerce.

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

No.

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

The capital is divided into quotas, which are cumulative and indivisible parts of the capital of a Limited Liability Company (LLC), and which cannot be incorporated into negotiable instruments.

Under the Commercial Code (Codigo de Comercio), the capital stock must not be less than 5000 lempiras and may be divided into social parts that may be of unequal value and category, but that in any case will be of 100 lempiras or a multiple of 100. When the company is incorporated, the capital must be fully subscribed.

The sum of the contributions made must not be less than 5000 lempiras.

Each partner will not have more than one (1) social part. When a partner makes a new contribution or acquires all or a fraction of the part of a co-associate, the value of such partner's social part will increase by the respective amount, unless it involves a transaction with parties that have different rights.

When so established by the articles of incorporation, the partners, in addition to their general obligations, will have to make supplementary contributions in proportion to their original contributions. It may also be agreed in the articles of incorporation that the partners are obliged to carry out ancillary services, and the articles may also provide for the content, duration and modality of such benefits and the corresponding compensation and for sanctions against partners who do not comply.

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?

Quotas must be in registered form.

When so established by the articles of incorporation, the partners, in addition to their general obligations, will have to make supplementary contributions in proportion to their original contributions. It may also be agreed in the articles of incorporation that the partners are obliged to carry out ancillary services, and the articles may also provide for the content, duration, and modality of such these benefits and the corresponding compensation and for sanctions against partners who do not comply.

Upon the incorporation of the company, the capital must be fully subscribed. A minimum of fifty percent (50%) of the value of each share may be paid in, but in any case, the total contributions made shall not be less than five thousand lempiras (L5000.00).

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

The only requirement for the repurchase of shares is to respect the right of first refusal of the other partners who will have a preferential right to acquire the quotas to be repurchased on such terms (Derecho del Tanto) during a 15-day exercise period beginning on the date of the meeting on which the authorisation was granted. If there were several partners who want to use this right, they will be able to do so in proportion to their respective contributions.

Any requirements with respect to distributions to shareholders?

There are no requirements with respect to distributions to shareholders. Distributions are made in accordance with participation percentage per the capital that each partner contributed. Distributions are approved in the general assembly.

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

Yes, they can have a restrictive or governing agreement when they have established it in the bylaws of constitution. Shareholders agreements in most cases provide protection of minority shareholders.

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

There is no annual maintenance cost for maintaining the existence of the LLC. Other than keeping up to date with tax and other payments.

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

A corporation is subject to the following taxes, which are all national:

• The general sales tax rate is 15%; and 18% is applied to the marketing of tobacco, alcoholic beverages and first-class airline tickets.
• Income Tax (ISR): It is levied on any income from capital, labor, or a combination of both, within the principle of territorial income. The rate for a legal entity is 25%, natural or legal persons who have obtained gross income of more than one billion lempiras in the previous fiscal period must pay 1% of such income when the application of the rates indicated in paragraphs a) or b) of article 22 of the Income Tax Law is less than 1% of the declared gross income. The rate will be reduced to 0.5% for some sectors.
• Annual Net Asset Tax or Cedular Tax, applicable on the total net worth of legal entities domiciled in Honduras, applying a rate of 1% on the taxable base, which is the difference resulting from the value of the assets that appear on the taxpayer's balance sheet minus the deductions allowed by law.
• The solidarity contribution is an additional contribution of income tax, 5% is paid on the excess of one million lempiras (L 1,000,000) of the net taxable income of income tax, this contribution is made annually, and the income tax is presented in the same return

With respect to the distinction between national and local, it can be said that local taxes are collected by municipalities specifically, such as the neighborhood/personal tax and the sales volume tax; and national taxes are those applied in a general way throughout the territory.

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

No imminent major legal developments are expected.