09-12-2021
The World Bank (Doing Business Report) catalogues Colombia as the fifth country in the world, among 183 countries, and as the first in Latin America, to protect investors. The Colombian investment atmosphere has been considered as one of the most favorable for foreign investment. Nevertheless, it is challenging to do business in a country where one does not fully understand the local corporate regulations.
1. Five things an investor should know about corporate regulations in Colombia:
a. Corporate Law in Colombia enjoys great stability by means of a stable legislation that has progressed with time.
b. Investors who wish to engage in permanent business in Colombia must as a general rule, channel their investments through a legal vehicle such as a subsidiary or branch of a foreign company.
c. Colombia’s’ commercial law is flexible and modern with regard to subsidiaries. It allows the creation of sole-shareholder investment vehicles, whereby the liability of the sole shareholder is limited to the amount of the corresponding contribution.
d. In order to carry out businesses in Colombia, foreign investors do not need a local partner or investor. With few exceptions, the entire equity participation of a legal entity can be foreign-owned and there are no legal restrictions on its subsequent repatriation.
e. The incorporation of a legal vehicle is, in general terms, simple and expeditious, and does not require prior government authorization, except for special cases.
In Colombia, constitutional principles such as the right of association, the right to equality, and the protection of free enterprise and private initiative, enable the creation of entities that receive local and foreign investments. This chapter summarizes some relevant legal aspects about the most commonly used types of legal entities in Colombia.
2. Common legal vehicles to carry out permanent activities in Colombia
The most frequently used vehicles to undertake permanent activities in Colombia are commercial companies and foreign company branches.
a. Commercial companies
Commercial companies most frequently used to channel investments in Colombia are: (i) simplified stock companies (S.A.S. by its acronym in Spanish); (ii) limited liability companies; and (iii) corporations (S.A: by its acronym in Spanish).
In recent years, the S.A.S. has become the legal vehicle of choice for the business community, particularly because of its flexibility in terms of the incorporation process, administration, and the ample freedom its shareholders have to establish the terms and conditions for its functioning and internal structure. With the entry in force of Law 1901/2018, the so-called “Benefit and Collective Interest Companies” (“BIC”) was created. This invention intended to identify those companies meeting certain standards comprised of the inclusion of three fundamental aspects in the corporate purpose: environment, community and workers. It is worth noting that this name does not entail the creation of a new type of company or the amendment to any of the existing ones and tax benefits have not been established. The name “BIC Company” represents for each company a “seal of quality” regarding good social and environmental practices.
b. Branches
Branches are on-going entities opened in Colombia by a foreign company for the development of its corporate purpose. This is the reason why they do not have a legal personality different from that of its main office, which is equivalent to saying that the branch and the main office are the same legal entity and, therefore, the branch does not have any legal capacity superior to, or different from, that of its main office, which is liable for all obligations acquired through its branch in the country.
The Commercial Code establishes that for a foreign company to undertake permanent activities in Colombia, it must establish a branch with domicile in the national territory. The permanent activity concept which is different from the notion of permanent establishment for tax purposes, includes the activities which have been listed in a non-exhaustive manner.
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