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

Commercial code (“Codigo de Comercio”)

Partnership deed (“Escritura Publica ante Notario Publico”) which is then duly registered in the commercial chamber.

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 by-laws (“Estatutos”)

Liability of incorporators / shareholders

The quotaholders (“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 or more administrators (“Administrador Unico”), board of directors (“Junta Directiva”) and/or general managers who may be partners or third parties to the LLC 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 administrators or general managers at any time.

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 limitations as to the involvement in international restructurings. The quotas (“Aportaciones”) in an LLC cannot be transferred to third parties. Also, an LLC can have a maximum of 25 partners.

Can this type of entity be publicly listed or held?

No. Only the 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, the companies are commercial companies used to generate profit. For nonprofit or charitable organization may use different types of associations and organizations.

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

(1) Main documents required (2) Involvement of notary, company register, governmental authorities; (3) Timing (estimate); (4) Main costs, including registration and similar fees (excluding legal fees); (5) Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

The deed of incorporation must 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 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 LLC.
• The manner in which the LLC is to be administered.
• The appointment of the administrators and the appointment of those who have to carry out the corporate signature.
• The way to make the distribution of profit or losses.
• The amount of reserves.
• The circumstances in which the company has to be dissolved in advance.
• The bases to practice 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 deed of incorporation must be subsequently registered with the corresponding mercantile or commercial registry The process to register takes approximately 1or 2 days.

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

Minimum number of incorporators / shareholders and residency requirements

There must be at least two incorporating shareholders. There are no residency requirements for a LLC.

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

One. If director is a foreigner who is employed under a work contract then there are some residency requirements to fulfill. The requirements to obtain a Special Permit of Permanence issued by the General Direction of Migration and Foreigners (“Direccion General de Migracion y Extranjeria”), are the following:

• Photocopy of the foreigner registration certificate issued by the General Direction of Migration and Foreigners (“Direccion General de Migracion 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 (“Direccion General de Migracion y Extranjeria”).
• Law stamps:
• Certificate of criminal record of the country of origin and of last residence, when appropriate, duly legalized.
• 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.
• 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 authorization 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 required in the jurisdiction for incorporation, formation or organization?

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 a RTN or VAT) at the Ministry of Finance revenues administration service (“Servicio de Administracion de Rentas” or SAR) using 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 a copy of those 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”)

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 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 partners, unless the parties appoint one or more managers who may be either partners or third parties and who may be appointed for fixed or indefinite terms.

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

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

The managers are liable to the general assembly (“Asamblea General

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 through a General Assembly (“Asamblea General”) in a LLC have the right to choose and to revoke its administrators at any time (including any member of the board of directors, and including 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 physical 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”), 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 an upcoming 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”), (which can be ordinary or extraordinary) 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”) (the “commissioner” or “Supervisory Board”), who must be a natural person or a collegiate board which is conformed by 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 Manager's decisions or the Board of Managers, which it deems harmful to the LLC;
• To approve the transfer and division of the social shares, as well as on the admission of new partners;
• To authorize, where appropriate, that supplementary contributions and ancillary benefits be required;
• To authorize the exercise of the corresponding actions to demand damages from the other corporate bodies, designating, where appropriate, the person who has to follow the trial;
• To authorize the dissolution of the company;
• To modify the social deed;
• To exercise other powers according to the law or the articles of incorporation;
• To authorize the transfer and division of the social shares, as well as on the admission of new partners;
• To determine, where appropriate, whether supplementary contributions by partners and ancillary benefits be required;
• To authorize the actions to demand damages and losses from the other corporate bodies, and designating, where appropriate, the person who shall supervise and instruct respecting the actions.

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

The general assembly (“Asamblea General”) will be validly constituted if there are partners representing at least half of the capital stock, unless the articles of incorporation require higher attendance and unless otherwise stipulated as per established in the Honduran Commercial Code (Articles 165 – 200) (“Código de Comercio”).

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

No, only the anonymous society (corporations).

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 Administracion de Rentas”) (SAR)

Is the entity permitted to determine its own financial year?

No. By law it is required to have a financial year which begins on January 1st and finishes December 31st.

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 Administracion 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 board of directors (“junta directiva”), has one president which has the legal representation of the LLC and one vice president that acts on behalf of the president whenever it is needed to.

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

There are other board members such as:

• the commissioner or the supervisory board (“El Comisario o Consejo de Supervision”) (the “commissioner” or “Supervisory Board”);
• board members called “vocales”, these members will have an advisory and consultative nature and will carry out functions entrusted by the Board of Directors, as well as the obligations that arise from the delegations or work commissions that the Board itself entrusts them.

The number of members (“vocales”) will be that number necessary for the proper development of the LLC.

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

If foreigners are employed by the LLC under a labor contract, then there are some residency requirements to fulfill. The requirements to obtain a Special Permit of Permanence issued by the General Direction of Migration and Foreigners (“Direccion General de Migracion y Extranjeria”), are the following:

• Photocopy of the foreigner registration certificate issued by the General Direction of Migration and Foreigners (“Direccion General de Migracion 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 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.
• Certificate of criminal record of the country of origin and of last residence, when appropriate, duly legalized.
• 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.
• Accreditation of technical and academic capabilities of the foreign worker.
• Two recent passport-size photographs.
• Proof of incorporation to 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 / Aportacion”)

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 LLC’s or for example, “Non-voting quotas” which are entitled to receive a minimum dividend (whether fixed or variable) as set out in the by-laws of constitution.

What documentation is required for the transfer of ownership interests?

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

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 other partners will enjoy a preferential right to acquire the quotas to be sold on such terms (“Derecho del Tanto”) during a period of fifteen days to exercise it, counted from the date of the meeting on which the authorization was granted. If there were several partners who want to use this right will be incumbent upon all of them in proportion to their 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 by-laws of constitution.

The social shares 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 twenty-five. Under Article 43 of the Commercial Code (“Codigo de Comercio”), partners cannot assign their rights in the company without consent of all the others, and without it, new ones cannot be admitted, except that one or the other case the social writing provides that it will be quite the consent of the majority. The 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)

he 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 will not be less than five thousand lempiras; will be divided into social parts that may be of unequal value and category, but that in any case will be of one hundred lempiras or a multiple of one hundred. When the company is incorporated, the capital must be fully subscribed.

The sum of the contributions made will not be less than five thousand lempiras.

Each partner will not have more than one social part. When a partner makes a new contribution or acquire all or a fraction of the part of a co-associate, the value of its social part will increase by the respective amount, unless it is deal with parties that have different rights.

When so established by the articles of incorporation, the partners, in addition to their general obligations, they 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 by virtue of this, the content, the duration and modality of these benefits, the compensation that corresponds and the 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, they 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 by virtue of this, the content, the duration and modality of these benefits, the compensation that corresponds and the sanctions against partners who do not comply.

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 which have the other partners who will enjoy a preferential right to acquire the quotas to be sold on such terms (“Derecho del Tanto”) during a period of fifteen days to exercise it, counted from the date of the meeting on which the authorization was granted. If there were several partners who want to use this right will be incumbent upon all of them in proportion to their contributions.

Any requirements with respect to distributions to shareholders?

There are no requirements with respect to the distributions to shareholders. Distributions will be according to participation percentages. Distributions are made as per the capital that each partner contributed with. These distributions will be 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 by-laws 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).

The sales tax rate will be of fifteen percent 15%. Income Tax (ISR): Taxes any income from capital, work 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 said income when the application of the rates indicated in literals a) or b) of Article 22 of the Law of the Income Tax (“Ley Impuesto Sobre la Renta”) is less than 1% of the gross income declared. The rate will be reduced to 0.5% for some sectors.

Net Asset Tax or Annual Cedular Tax (“Impuesto al Activo Neto o Impuesto Cedular annual”), applicable on the total net assets 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 listed in the taxpayer's balance sheet minus the deductions allowed by law.

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

No imminent major legal developments are expected.