On December 10, 2020, the Law of Modernization to the Law of Companies was published in the third supplement of Official Gazette 347, of which the most relevant aspects are the following:

a) Permitted activities outside the corporate purpose: Companies are allowed to occasionally or in an isolated manner enter into acts or contracts for investment, research or experimentation purposes, or as reasonable contributions of a civic or social nature.

b) Elimination of the opposition process: The process of opposition by third parties to the reduction of capital, change of name, early dissolution and change of domicile is hereby eliminated.

c) Single shareholder: The stock company and the limited liability company may subsist with a single shareholder. For its incorporation, at least two contracting parties must participate. Consequently, the cause for dissolution is hereby eliminated if a second shareholder is not incorporated within six months.

d) Corporate acts that do not require approval:  The voluntary and anticipated dissolution does not require previous authorization of the Superintendence of Companies, Securities and Insurance. Therefore, the direct inscription of the corporate act in the Mercantile Registry is allowed for the beginning of the liquidation, which will be supervised by the control entity.

Neither does the change of name, change of domicile and modification of the corporate term require prior authorization.

e) Indefinite term: Stock and limited liability companies can be set up for an indefinite term.

f) President of the board of directors and legal representative: In the companies in which the bylaws provide for the existence of a board of directors, the legal representative of the company may not be the president or representative of that body.

g) Share premium: When non-shareholders participate in a capital increase, it may be decided the new shares to be issued with a value greater than the nominal value (share premium) to be paid by the new shareholders. The issue premium will be part of the voluntary reserves and will be freely agreed upon by the investor and the company.

h) Voluntary control: Stock companies may or may not have commissaries as a control body.

i) Loss absorbency: When a company registers operational losses and has reserves, these will be automatically called to be wiped out.

j) Cause of dissolution for losses: A company will incur in a cause of dissolution for losses when these represent 60% or more of the assets and this situation is maintained for more than 5 continuous years.

k) Transfer of the registered office abroad: The transfer of the registered office of an Ecuadorian company abroad is allowed if the receiving country allows the maintenance of the legal status of the company.

l) Global assignment of assets and liabilities to liquidate a company: A company may transfer in block all its assets to third parties, shareholders or other parties in exchange for a consideration. The global transfer of assets and liabilities must be approved unanimously by the general meeting of shareholders, granted by public deed and will not require the approval of the Superintendence of Companies, Securities and Insurance.  The global assignment of assets and liabilities will have the effects of the transfer of companies as economic units as provided in the Code of Commerce.  The assigning company will cancel its registration in the Commercial Registry without any additional procedure once the total value received from the global assignment of assets and liabilities has been distributed among its shareholders.  The joint and several obligations that under the Commercial Code are attributable to the person transferring the company will be assumed by the shareholders of the extinct company in proportion to their participation in the share capital.

m) Association or Joint Purse Agreements: The regulations regarding this figure, with some modifications, are excluded from the Law of Companies and are incorporated as reforms to the Code of Commerce.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.