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1 COLOMBIA
Simplified Joint Stock Companies – New Corporate Structure.
By Juan Pablo Triana and Jaime Escobar – Triana, Uribe & Michelsen
The Simplified Joint Stock Companies were incorporated in our legal system by means
of Law 1258 of December 5, 2008.
Before 2008, the available corporative structures were regulated by means of the
Commerce Code. Such code was considered strict and formal, in subjects like,
minimum and maximum number of associates, mandatory governing bodies of the
company and legal procedures required for the incorporation, such as the need of
legalizing the bylaws before a notary public, a minimum amount of shareholders or
partners, among other matters. According to the commercial practice before 2008, two
were the most common corporate structures in Colombia: The Corporations and the
Limited Liability Companies.
When the Commerce Code was issued (1971), Colombia was passing through a time in
which business transactions did not required such mobility and dynamism. However
times have changed and new simplified corporate structures where necessary to fulfill
today’s needs.
Aware of this situation, the Colombian legislators designed the
Simplified Joint Stock Companies, which modified the strict and formal ways to
incorporate a company in Colombia, and therefore incorporated them as part of our
legal system. (Note: By means of the Law 1258 of 2008, none of the Commerce Code
regulations where modified, both are different regulations that coexist).
As expected, this new type of company was a breakthrough in our legal system, and
became one of the most popular corporate structures in Colombia. As reference and
according to Confecamaras (Colombian Chambers of Commerce Association), between
January 2009 and August 2010, a total of 42.207 Simplified Joint Stock Companies
were incorporated in Colombia1. The popularity of this corporate figure was intimately
1
http://www.confecamaras.org.co/index.php?option=com_content&view=article&id=89&Itemid=99 2 related to the flexibility and advantages that it offered to the small and medium business
enterprises, including without limiting, to the following:
The Simplified Joint Stock Companies redefined one of the essential components of the
corporate agreement. Traditionally, one of the essential components of the corporate
agreement was the plurality of shareholders or partners, component which was modified
by means of Law 1258 of 2008, allowing the Simplified Joint Stock Companies to be
incorporated with only one shareholder, whether natural or legal person. This change
represents an easier way to operate a company and a simplification of the corporate
structures in Colombia, given that before the Simplified Joint Stock Companies, the
minimum number of shareholders allowed was two, for the incorporation of a Limited
Liability Company or five for a Corporation.
It is important to note that when there is only one shareholder, this shareholder may be
also the legal representative of the company.
However, the most important advantage of the Simplified Joint Stock Companies, is
related to the liability regulation, which combines several subjects of the other corporate
structures in Colombia. According to Law 1258 of 2008, the shareholders of the
company are responsible up to the value of their contribution and their liability is
excluded from labor and tax obligations of the company. This liability regulation is
important because it divides the equity of the company from the equity of the
shareholder, keeping safe all of the shareholders personal assets.
In this line of thinking, which was clearly pointed to promote or encourage the business
development in Colombia, new easier incorporation procedures were created.
According to the Commerce Code, before the existence of Simplified Joint Stock
Companies, all type of corporations and/or companies required public deeds for its
incorporation in Colombia, but as to the Simplified Joint Stock Companies, (except for
some specific cases) such can be incorporated by means of a private document before a
Chamber of Commerce, which finally took us to the abolition of long procedures and
payment of high notary public`s fees and expenses.
3 Additionally, financial advantages were specifically designed for this type of corporate
structure, such as, easy payment terms for the company`s capital. This can be of any
amount and can be paid by the shareholders of the company during the two (2)
following years counted as from its incorporation. This advantage has economic and
financial positive consequences for the shareholders of the company, given that it is not
mandatory for them to pay the total amount of the capital in the moment of the
incorporation, which allows them to plan the company`s budget without the pressure of
immediate payment, in most of the cases, under pre-operation activities. On the
contrary, the investor has two (2) years to settle this capital payment obligation.
Another of the advantages is related with the term of the company, term that can be
indefinite which finally eliminates the possibility of dissolution of the company as a
result of the expiration of the term as set forth in the bylaws of the company.
Unlike other companies regulated by the Commercial Code, these companies are not
required to specify its corporate purpose. Therefore, the company may conduct any
lawful activity under Colombian laws. This advantage, has direct influence in the legal
capacity of the company given that its corporate purpose is not restricted, enabling such
company to develop a broader scope of businesses.
Such companies are not required to have some of the governing bodies that are required
for other companies, such us a Board of Directors. This regulation is an advantage
because it allows the shareholders of the company, to design and operate their company,
to their best interest based on the freedom of contract principle. However if the
shareholders, even if there is only one, choose to create this governing body in their
company, it can be composed by only one person.
Finally, these companies are not required to appoint an Auditor, unless it exceeds
certain levels of assets and gross income. This advantage, like most of the above
mentioned, represent administrative, financial and structural benefits, because it allows
4 the incorporation of simple companies with less infrastructure and bureaucracy for
operation.
Notwithstanding the above mentioned, there is one aspect of this corporate structure that
may not be beneficial for the company, which is the prohibition to negotiate securities
in the public market. As it is commonly known, the negotiation of securities in the
public market represents one of the most important financial instruments of a company,
taking into consideration that this figure of public offer and sale, enables the company
to receive third party`s investment intended to fulfill the corporate purpose.
Nevertheless such company can negotiate by means of a private offer, which can only
be addressed to ninety nine (99) undetermined persons or five hundred (500)
determined persons as always such persons are shareholders of the company.
However if the public offer is necessary, this alternative is still open for this corporate
structure, by means of a corporate conversion of the Simplified Joint Stock Company to
a Corporation regulated by the Colombian Law. It is noteworthy that this conversion
should be unanimous among the shareholders. If this unanimous decision cannot be
achieved, such disagreement will be solved by the Colombian competent authority.
We can conclude that this type of company was a necessary development in our
legislation in line with the business dynamic growth and evolution of the World.
However, as always for new developments in commercial law, some issues have to be
eliminated, others improved and some others amended. It is not the panacea, but at
least, Colombian law is in the right move.
As to our experience and expertise we recommend such type of Companies for foreign
investors as well as for Colombian citizens who want to establish a business in
Colombia throughout a legal mechanism that allows them to satisfy their commercial
needs in an efficient, cost effective and useful manner.