Leonidas Villagran

A new type of corporation has been introduced in the Ecuador law which seeks to provide reduction of incorporation time and facilitate agreements between shareholders. It is likely that many companies would decide to switch to this new system.

With the enactment of the Entrepreneurship and Innovation Act by publication in the Official Register of 28 February 2020 Ecuador has introduced a new category of companies, known as SAS, Simplified Corporations. These type of companies inspired initially by French law provide several interesting distinctions in comparison with traditional companies in Ecuador.

Some of the characteristics of the SAS companies are as follows:

  • Articles of Incorporation and bylaws are to be agreed by a private document.
  • Other types of companies (as S.A. and C. LTDA) are required to execute said documents in a public deed before a Notary Public.
  • SAS can be incorporated by one sole shareholder. Other types of companies require at least two shareholders.
  • SAS are able to be incorporated with the purpose of one or multiple activities.
  • Other type of companies are restricted and need to have a detailed activity, no multiple activities allowed.
  • Minimum capital in SAS corporations is 1 dollar.
  • Other type of companies have higher minimum capital but not more than 800 dollars.
  • The approval and registration of directors is to be executed only with the Superintendency of Companies. Other types of companies are required to have the approval of the Superintendency and once obtained it there is a need to hand these papers to the Commercial Register which is as a double process that provides no value.
  • General meetings of shareholders can be called by a letter to the shareholders and even by email. In the other types of companies a publication in a newspaper is required unless bylaws state other ways to call these meetings.
  • General meetings of shareholders can be executed by electronic means as videoconference as stated in the Corporations law. The other type of companies are able to use videoconference but this provision does not come from an Act but from a regulation only.
  • General meetings of shareholders can be held in its city of domicile or any other place. This general principle in the other companies is that meetings are to be held in the main place of domicile unless the meeting is Universal, meaning all shareholders are present but meetings can only be executed in Ecuador
  • Current existing companies in other types are able to be transformed to a SAS with a simplified legal process, no deed required.
  • Two or more SAS corporations are able to fusion into one single company by a simplified legal process. In respect of other type of companies there is no simplified process.
  • SAS allow direct agreements between shareholders in regard to their capacities as example to limit the possibility to transfer the shares. Other types of corporations ban any agreement in regard to restriction for the transfer of shares by a shareholder.
  • SAS companies are not able to be registered with the stock exchange. The S.A. Companies have this possibility.
  • SAS corporations are not allowed for banking, finance, stock exchange, insurance nor any other special activity designated by law.

Things to consider in relation to foreign shareholders:

  • Foreign persons and corporations are able to appear as shareholders.
  • A local company that has one or more foreign corporations as shareholder needs to report the beneficial owners meaning the information regarding the directors and shareholders of each reported shareholder in the Ecuadorian company. This is to be reported from the incorporation moment and every year.
  • Every foreign company that owns shares in Ecuadorian companies has to appoint a representative in Ecuador with PoA and authority to appear in court. The representative needs to be an Ecuador citizen or a foreign citizen with a resident visa.
  • According to tax regulations at least one Director of the company has to be registered within the Tax Administration, such representative needs to be an Ecuador citizen or a foreign citizen with a resident visa. Moreover, the company needs to submit an address where the company will operate.
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