Dissolution of Congress

In application of the powers conferred by Article 148 of the Constitution, the President of the Republic issued Decree No. 741 (the “Decree”) whereby the President dissolves Congress and ordered the National Electoral Council to call for legislative and presidential elections to complete the current respective terms.

The aforementioned powers allow the President to dissolve Congress when, in his opinion, there is a “serious political crisis and internal commotion”. It does not require the prior determination of the Constitutional Court and may be exercised only once during the first three years of office.

The National Electoral Council, within a maximum term of 7 days after the publication of the Decree, will call for legislative and presidential elections for the remainder of the current term, which ends in May 2025.

To sum up,  i) the President has made use of a constitutional power expressly contemplated in Article 148 of the Constitution; and, ii) in approximately 6 months a new President and Vice President of the Republic and members of Congress will take office, for a term to end in May 2025. In the meantime, the President remains in office and may issue economic decree laws, with the approval of the Constitutional Court.

Xavier-Rosales-abogados-ecuador

Leader of the Competition, Corporate and M&A areas
Xavier Rosales, partner at CorralRosales
xrosales@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

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Ecuador China Free Trade Agreement

On May 10 and 11, 2023 – due to the time difference – Ecuador and China signed a Free Trade Agreement focused on the commercial exchange of goods and e-commerce.

During 2022 Ecuador exported to China around US$5,823 million in products such as shrimp, lead and copper concentrate, other mining products, bananas, balsa, wood, cocoa, among others. China exported to Ecuador approximately US$6,353 million in products including metal products, vehicles, automobiles, cell phones, computers, among others.

Once the treaty enters into force, Ecuador’s products will have access to a market of 1.4 billion consumers and will be subject – for the most part – to immediate tariff relief. Ecuador’s tariff relief for Chinese products is subject to percentages and deadlines depending on the goods. With this, Ecuador will compete with countries such as Peru and Central America that already have a treaty with the Asian country.

The treaty will become effective once it complies with the respective legal process, which includes the pronouncement of the Constitutional Court, approval by the National Assembly, and publication in the Official Gazette.

In the following link you can review the complete text in Spanish:
https://www.produccion.gob.ec/wp-content/uploads/2023/05/FTA-ECUADOR-CHINA-SPANISH.pdf

New definition of strategic medicines

Boletín general de CorralRosales - Foto edificio con cristalera

The Regulation STFP-009-725-2023 of March 15, 2023 (the “Regulation”), issued by the Board for Fixing and Reviewing the Prices of Medicines for Human Use and Consumption (the “Board”) approved the new definition of strategic medicines, effective as of March 30, 2023.   

According to the Regulation, strategic medicines will be those subject to any of the following criteria:

a.    Medicines included in the National List of Basic Medicines (“CNMB”), except those included in the “List of OTC Medicines” published by the National Agency of Regulation, Control and Sanitary Surveillance (“ARCSA”)
b.    CNMB medicines, except those in which the number of competitors allows the release of its price.  
c.    Medicines that the Ministry of Public Health considers necessary for managing health strategies, programs, plans, and projects, including treating chronic, rare, catastrophic, and orphan diseases.
d.    Medicines not appearing in the CNMB and whose acquisition has been authorized under Ministerial Agreement No. 18 published in the Official Gazette Supplement 573 of November 9, 2021 (or the norm that replaces it). 
e.    Medicines that the Superintendence of Control of Market Power qualifies as monopolistic or have relevant restrictions to competition.  
f.    Medicines containing active ingredients that have not been marketed in Ecuador. 

Additionally, the Regulation establishes that:

i.    As of March 30, 2023, medicines included in ARCSA’s “List of OTC Medicines” will belong to the price-released regime. 
ii.    Until April 21, 2023, holders of valid sanitary registrations shall report to the Technical Secretariat of the Council (the “Secretariat”) the units sold and the retail price marked on the packaging to determine the medicines that will be under the constant criterion in paragraph b.
iii.    Until June 30, 2023, the Secretariat must generate the methodology to determine the medicines to be covered by the criteria in paragraph b and send it to the Council for approval. After approval, the Secretariat will have one month to submit to the Council the technical reports for issuing the list of medicines that will meet the indicated criterion.
iv.    Until June 30, 2023, the Secretariat must submit to the Council the technical reports for issuing the list of medicines that will be subject to the price-regulated regime based on this new definition.
 

Mario Fernández - Boletín CorralRosales - Derecho Corporativo - Contratación Pública - Sector Eléctrico - Ecuador

Specialist in Corporate and Public Contracting Law
Mario Fernández, associate at CorralRosales
mfernandez@corralrosales.com
+593 2 2544144

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Important Amendments to The Law on Companies No.2

Boletín societario de CorralRosales - Foto edificio con cristalera
In our corporate bulletin of the 22nd of this month we summarized the amendment of the Law on Companies for the Optimization and Promotion of Business and Corporate Governance. Below, we include other important amendments: 


a) Acquisition of treasury stock: The acquisition of treasury stock by a corporation has long been authorized by the Law on Companies. This amendment adds the following: (i) funds from net profits, statutory reserves or contribution of money or assets of the company may be used for the acquisition (previously only net profits could be used); (ii) the economic and political rights of the shares acquired by the company are suspended until the shares return to circulation, in which case the transferee is entitled to exercise them; and (iii) the shares must be disposed of within a maximum period of five years from their acquisition, otherwise they will be redeemed through the corresponding share capital reduction. 

b) Action for oppression of minority shareholders: A new action is created that may be brought by minority shareholders (understood as those who do not have control over the company) against majority shareholders for conducts that violate their rights under the law.
c) Agreements between directors/shareholders and the company: The transfer or encumbrance of assets in favor of the director or a shareholder, the acquisition of personal property of the director or a shareholder, and any other act or contract entered into between the company and the director, require the prior approval of at least 75% of the capital attending the respective shareholders’ meeting. The directors or shareholders involved may not vote.    

d) Transformation into a S.A.S.: Any legal entity of any nature (including non-commercial organizations), and contractual partnerships, may transform into a simplified stock corporation (S.A.S.).

e) Corporate acts that require prior approval: In corporate acts that require prior approval by the Superintendence of Companies (capital decrease, merger, spin-off, among others), the review will be formal, only referring to the legality of the acts, without the need for a prior inspection for their approval or registration, unless there is a request from a shareholder. The minutes of the shareholders’ meeting must include a statement from the shareholders and the legal representative of the veracity and authenticity of the information provided. The Superintendence of Companies may carry out an inspection process within seven years after the approval of the corporate act.

f) Expedited cancellation: The expedited cancellation process is created, by means of which, when the company demonstrates that it has no outstanding obligations with the Superintendence of Companies, it may request the Superintendent to declare the company dissolved and cancel its registration in the Commercial Registry or the Superintendence’s Companies Registry, as the case may be, by means of a resolution. For this purpose, the Superintendent will not require the filing of corporate or accounting records, but instead, a statement of the veracity and authenticity of the information provided and that the final balance sheet is supported by the respective corporate and accounting records must be included in the minutes of the meeting. Although the Superintendence of Companies may not require the filing of compliance certificates with other governmental entities in order to issue an expedited cancellation resolution, they may verify, on their own means, the compliance of obligations with such entities. 

g) Corporate groups: With respect to corporate groups, the following are particularly noteworthy:


a. In the case of a corporate group with subsidiaries, both the managers of the subsidiaries and those of the parent company must submit a special report to the annual general shareholders’ meeting, in which the intensity of the economic relations existing between the parent company and the subsidiaries shall be detailed, that is, a detail of the most important transactions between the parent company and its subsidiaries or carried out in the interest of the parent company and/or the subsidiaries.

b. When the bankruptcy of a subsidiary company is caused by the actions of the parent company or its controlling companies, the parent company, its controlling companies or any of its subsidiaries or related companies shall be liable, on a subsidiary basis, for the unpaid claims of the bankrupt company.

c. The arbitration agreement entered into by one or more companies of the corporate group shall be binding for the other companies of the group, when, due to their role in the signature, performance or termination of the agreements which contain such arbitration clauses, the non-signatory companies are considered parties to the arbitration agreement.

d. If the parent company owns all the shares or units issued by a subsidiary company, the members or shareholders of the parent company may authorize, at a general shareholders’ meeting, the transfer or encumbrance of the corporate assets of the subsidiary.

h) Consultations to the Superintendence of Companies: Companies may submit consultations to the Superintendence of Companies on matters related to their area of competence. The answer to a consultation shall contain general opinions on matters legally supervised by the Superintendence of Companies. Consequently, the criteria derived from a general pronouncement may not be related to a particular company or situation.

i) Corporate acts approved by the shareholders’ meeting: The corporate acts of all companies must be instrumented in the same fiscal year in which the shareholders’ meeting resolved them. Otherwise, a new resolution of the shareholders’ meeting ratifying such decision will be required.

Foto cuadrada de Milton Carrera, socio junior de CorralRosales

Specialist in Corporate
Milton Carrera, junior partner at CorralRosales
mcarrera@corralrosales.com
+593 2 2544144

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Amendments to the law on companies

Boletín societario de CorralRosales - Foto edificio con cristalera
In the supplement to the Official Gazette No. 269 of March 15, 2023, the amendments to the Law on Companies for the Optimization and Promotion of Business and for the Promotion of Corporate Governance were published, the most relevant aspects are as follows:

a) Sole shareholder/member:  Corporations and the limited liability companies may be incorporated by unilateral act by a single shareholder/member. 

b) Transfer of units: Units issued by limited liability companies are freely transferable, provided the transfer is between members of the company, and may be carried out by means of a private document. 

c) Pledge over units: Units issued by limited liability companies may be pledged with the unanimous consent of the members.  

d) Suspension of dividend distribution: Foreign members/shareholders who do not disclose their chain of ownership until the corresponding beneficial owner is identified, in addition to the prohibition to attend, intervene and vote in the ordinary shareholders’ meetings, may not receive the corresponding dividends declared by the company until such information is provided.

e) Right of accretion: The bylaws of a corporation may recognize the right of accretion, i.e., a shareholder will have the possibility of subscribing the shares resulting from a capital increase that are not assumed by another shareholder, with priority to third parties. If there are several shareholders interested in assuming the shares offered, these will be allotted in proportion to the participation of each one of them in the capital of the company. In the event of silence in the bylaws, the general shareholders’ meeting, at the time of establishing the basis for the capital increase, may grant the shareholders the aforementioned right of accretion.
f) Enforceability of shareholders’ agreements vis-à-vis third parties: As a general rule, shareholders’ agreements concerning any lawful matter shall be binding among the shareholders, but not enforceable against third parties. However, the agreement will become enforceable against a third party when it is proven that such third party knew of its existence and provisions. The breach of a shareholders’ agreement will give rise to the aggrieved counterparty’s right to request, at its discretion, the performance or termination of the agreement, and in both cases, compensation for damages.

g) Financial solvency report for capital reduction processes: When the general shareholders’ meeting resolves to reduce capital, it must simultaneously approve a solvency report of the company, prepared, and signed by its legal representative. This report must demonstrate, based on the company’s projected financial indicators, that after the capital reduction the company will continue to be able to meet its obligations and finance its operational activities. The legal representative who prepares a solvency report that is unfounded or does not accurately reflect the company’s financial situation shall be jointly and severally liable for the company’s obligations.

h) Suspension of the effects of the resolutions adopted by the general shareholders’ meeting: If upon a request of any shareholder, the Superintendence of Companies, Securities and Insurance establishes that: (i) the general shareholders’ meeting or any other body of the company approved one or more resolutions in contravention of the Law on Companies, its implementing regulations or the bylaws of the company; or that (ii)  in their approval, the shareholders or managers incurred in abuse of their majority, minority or parity voting rights, the Superintendent shall issue a reasoned resolution in which he/she shall order the suspension of all the effects of the respective resolution. The suspension does not proceed if the resolution has been implemented when the petition was received. 

i) Addition of items to the agenda: Shareholders who individually hold at least 5% of the capital stock are entitled to have an additional item included on the agenda of a duly called shareholders’ meeting. However, no more than five additional items may be included in addition to those included in the call to the meeting. If there are several requests, they will be dealt with in the order of their submission. 

j) Shareholders’ non-compete obligation: The bylaws of a corporation may prohibit its shareholders from participating in acts or operations that imply competition with the company, or from taking business opportunities that correspond to the company, unless expressly authorized by the shareholders’ meeting. This non-compete obligation may also be included in a shareholder’s agreement. 

k) Limits on the provision of services by external auditors: The external auditor may not provide any other service or collaboration to the audited company, through individuals or entities, directly or indirectly related, as long as it continues to be hired as external auditor. An individual or entity who has rendered services other than external auditing services to the audited company in the immediately preceding year may not be an external auditor of a company. Likewise, the external auditor may not, within the year following the termination of its agreement, render any other service to the audited company. No person or auditing firm may perform external audits for more than five consecutive years for the same company. 

l) Effects of the merger and subrogation of operating permits: In cases of merger, the absorbing company shall automatically subrogate the contractual and non-contractual rights and obligations of the absorbed companies in the exercise of their business activity. It will also be subrogated over any operating licenses, permits, property titles, or other authorizations that may have been granted to the absorbed company in the exercise of its operational activity, provided that the absorbing company has all the necessary powers or capacity to exercise rights with respect to such operating licenses, permits, property titles, authorizations, etc.

m) Effects of the change of domicile of a foreign company to Ecuador with respect to its branch: If a foreign company decides to transfer its corporate domicile to Ecuador and it already has a branch in the country, the Superintendence of Companies, Securities and Insurance will provide, at the time of approving the change of domicile, the revocation of the operating permit granted to the foreign company, without liquidation, and the cancellation of the documents related to the branch in the country. The company domiciled in Ecuador will be responsible for the obligations previously acquired by its branch.

n) Corporate acts by private instrument: Limited liability companies and corporations may be incorporated either by public deed or by means of a private document, which shall not be subject to any notarial process. Likewise, any corporate act subsequent to the incorporation of the aforementioned companies may be executed in a private document, without being subject to any notarial process. The public deed or the private document must be registered in the corresponding registries. When the assets contributed include assets whose transfer requires a public deed, the incorporation of the aforementioned companies and the amendments to the by-laws must observe said formality. The companies that carry out activities related to financial, stock market and insurance operations must be incorporated and their bylaws must be amended by public deed.

o) Elimination of grounds for dissolution due to losses: The grounds for dissolution due to losses are eliminated as well as the grounds for revocation of the operating permit of branches of foreign companies due to losses.

p) Term for the issuance of the taxpayer number: The Internal Revenue Service, upon request of a party, shall issue the taxpayer number (RUC) within a non-extendable term of 24 hours from the registration of a simplified stock corporation in the Superintendence of Company’s Company Registry, and of any other type of company in the Commercial Registry.

q) Joint and several liability of the legal representative: The company’s legal representatives will not be liable for labor obligations or of any other nature incurred by the company. However, Article 36 of the Labor Code establishes that the employer and its representatives will be jointly and severally liable in their relations with the employee.

r) Sole shareholders and wholly-owned companies: In corporations in which a an individual or an entity is the sole shareholder, it will not be mandatory to hold shareholders’ meetings. In these cases, the shareholder will record the resolutions approved in minutes signed by him. 


In the case of a merger, if the absorbing company is the holder of all the shares or equity interests issued by the absorbed company or companies, or when the absorbed and absorbing companies are owned, directly or indirectly, by the same partner or shareholder, the operation may be carried out by a resolution adopted by the legal representatives or by the boards of directors of the absorbing company and without the approval of the merger by the shareholders’ meeting of the absorbed company or companies.

Foto cuadrada de Milton Carrera, socio junior de CorralRosales

Specialist in Corporate
Milton Carrera, junior partner at CorralRosales
mcarrera@corralrosales.com
+593 2 2544144

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Extension of deadlines for the filing of tax obligations

Boletín tributario de CorralRosales - Foto edificio con cristalera

By Regulation NAC-DGERCGC23-00000008 issued on March 13, 2023, the General Director of the Internal Revenue Service extended the deadlines for the filing of the following obligations, without generating fines and interest.

Individuals, undivided estates, and entities subject to the general income tax regime may file and pay their income tax return until the following dates:



 Taxpayers obliged to file the tax return for the contribution for financing integral cancer care on March 13 and 14 will be able to file the return and make the payment until March 28, 2023.

Taxpayers subject to the RIMPE regime, whose ninth digit of the RUC is 1, 2, 5, 8 and 9, may file and pay Income Tax according to the following schedule:

 

Andrea Moya - CorralRosales - Lawyer Ecuador

Specialist in Tax
Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

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Defense and guarantee of employees´ individual and collective rights

Boletín laboral de CorralRosales - Foto edificio con cristalera

By  Official Supplement  Gazette No. 252 of February 1, 2023, it was published the Organic Reformatory Law to several Laws for the Defense and Guarantee of the Individual and Collective Rights of Employees  which amends some articles of the Labor Code, in the following terms:

1.    Numeral 25 of Article 42 of the Code was amended as follows:
In the case of replacements, when the replacing employee returns to his job, he shall return with the same remuneration he received and to the same occupation he performed. This return to the initial working conditions, shall not be considered a reduction in remuneration nor a change of occupation without consent.

2.    Article 57 of the Code was amended as follows:
By agreement of the parties the ordinary working day must be split in two parts. The resting time in-between workdays should be of minimum thirty (30) minutes and maximum of two (2) hours.

3.    Article 58 of the Code incorporates the power of the judicial authority to determine the legality of trust functions without the need of a petition by the employee. This implies that in a lawsuit in which the former employee claims the payment of not paid supplementary hours, the judge will have to decide whether or not said employee held trust functions and the corresponding consequences.

Edmundo Ramos

Specialist in Labor Law
Edmundo Ramos, partner at CorralRosales
eramos@corralrosales.com
+593 2 2544144

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Law to promote the violet economy

Boletín laboral de CorralRosales - Foto edificio con cristalera

Below, a summary of the most important matters regulated in the Law to Promote the Violet Economy enacted by the Official Gazette Supplement 234 dated January 20, 2023.

1.    LABOR Aspects:

–    The working week for women may be freely distributed in 5 days, without exceeding 40 hours a week or more than 10 hours a day.

–    Companies with 25 or more employees must promote plans and working conditions that prevent sexual harassment in the workplace.

–    Companies with 50 or more employees must prepare and implement a plan for equal treatment, equal opportunities, and non-discrimination in the workplace. This equality plan must be registered with the Ministry of Labor. Equality plans must be submitted to the Ministry of Labor after 1 year, i.e., January 20, 2024.

–    The Ministry of Labor will award a badge to the companies that demonstrate:

i.    Balance in all jobs between women and men.
ii.    Adoption of the equality plan.
iii.    Issuance of non-sexist advertising of the company’s products or services.
iv.    Other measures aimed at achieving gender equality.

–    The breastfeeding period was modified and will last 12 months from the delivery date.

–    The working day of the nursing mother will last 6 hours according to the worker’s needs.

–    The 12 weeks paid maternity leave may be used exclusively by the mother, or shared with the father, up to 75% of the period. The modality will be determined by mutual agreement between the father and the mother, must be notified to the employer prior to the beginning of the leave and cannot be modified.

–    The percentage of insertion of interns will include students in dual training. If female individuals are included in this modality, the percentage of inclusion of interns may be increased by an additional 0.5 percentage points.

2.    TAX Aspects:

As a tax benefit, the taxpayers will be able to deduct up to an additional 140% of the remunerations and social benefits paid for the creation of new jobs for female workers, according to their time of permanence:


If the employment relationship is terminated, the benefit may continue to apply if the job vacancy is filled by another female worker under the same salary and contractual conditions.

The benefit may be applied up to 3 fiscal years if the number of new job openings for women exceeds the following percentages:

The benefit may not be accumulated with other additional deductions granted for the increase of employment contemplated in article 10 numeral 9 of the Internal Tax Regime Law.
3.    CORPORATE Aspects:

It is established that all entities subject to the Companies Law must integrate to their boards at least one woman for every three members of such corporate bodies.

Edmundo Ramos

Specialist in Labor Law
Edmundo Ramos, partner at CorralRosales
eramos@corralrosales.com
+593 2 2544144

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Suspension of working day on Monday, February 06, 2023

Edificio de cristal con el logo de CorralRosales

On January 27, 2023, by means of Executive Decree No. 655 (hereinafter the “Decree”), the President of the Republic, Guillermo Lasso, accepted the request of the National Electoral Council (CNE) to suspend the working day on Monday, February 6, alluding to the 2023 sectional elections, in the following terms:

•    The President of the Republic, Guillermo Lasso, suspended the regular working day on Monday, February 06, 2023, for the public and private sector. The decision responds to the request sent by the National Electoral Council (CNE).
•    According to the presidential disposition, the suspended working day will be recovered, in the public sector through an additional hour during the following eight working days. While in the private sector, the recovery will be established by mutual agreement between employers and workers.
•    Likewise, for Monday, February 6, the provision of basic public health services, firefighters, airports, air, land, maritime and river terminals, and banking services must be guaranteed. Therefore, the competent authorities must have the minimum personnel available to serve the public.

Edmundo Ramos

Specialist in Labor Law
Edmundo Ramos, partner at CorralRosales
eramos@corralrosales.com
+593 2 2544144

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Organic Law for the Development, Regulation and Control of financial technology services, also known as the fintech law

Imagen para boletín legal de CorralRosales, firma de abogados de Ecuador. Aparece una imagen oscura con destellos más claros

The Organic Law for the Development, Regulation, and Control of Financial Technology Services, also known as the Fintech Law (the Law), came into effect on December 22, 2022 through its publication in the second supplement of the Official Register No. 215. Its main objective is to provide legal security to financial technology companies operating in the country, promote foreign investment, and provide users with secure access to services that protect their data. The Law also includes new members to the payment system, the private financial system, the securities market, and the private insurance system. Additionally:

  1. It establishes that regulatory and control bodies must identify and prevent risks of each service;
  2. It grants wide powers to regulatory and control bodies so that they can fulfill their responsibilities adequately;
  3. It includes regulatory Sandboxes (“Test Environments”) that allow continuous monitoring of a technology project, which will allow for greater precision when regulating certain activities in the sector.

Further, the Law reforms the Monetary and Financial Organic Code, the Organic Law of Enterprises and Innovation, the General Insurance Law, and the Securities Market Law.
 
The Law regulates activities related to the development, provision, use, or offering of payment means based on technology, financial technology services, specialized companies in electronic deposits and payments, technological services in the securities market, and insurance. Accordingly, financial technology companies must meet the following requirements:

  1. Authorization from the Superintendency of Banks, Popular and Solidarity Economy, or the Central Bank, as appropriate;
  2. Specific and exclusive object for Fintech activities;
  3. Registration as ecuadorian companies or branches of foreign companies;
  4. Be subject to a territorial application of the Law, i.e., when they operate anywhere in Ecuador;
  5. Respect the prohibition on investment by private financial entities, since these cannot participate in the capital of Fintech companies.

Furthermore, Fintech companies will be regulated in their operations by the Monetary Policy and Regulation Board and Financial Policy and Regulation Board, according to their competencies, and will be supervised and controlled in the corporate area by the Central Bank of Ecuador, the Superintendency of Companies, Securities, and Insurance, the Superintendency of Banks, or the Superintendency of Popular and Solidarity Economy, according to their competencies. Further, the determination of which financial activities based on technology represent a high risk will correspond to the Financial Policy and Regulation Board.

Consequently, the Law establishes responsibilities and sanctions for Fintech companies, as well as protection measures for the users of their services. It also provides a system for the registration and supervision of Fintech activities, and for the creation of a Fintech Association for the regulation and promotion of the sector.
 
Finally, the Law provides for the possibility of obtaining resources through various mechanisms, (venture capital, angel, seed), ratifies the validity of credit titles issued in electronic support and establishes the obligation of the State to maintain citizen data stored in Ecuadorian territory.

Rafael Serrano, asociado de CorralRosales, con traje y corbata. En el fondo, una parte de Guayaquil (Ecuador)

Specialist in Data Protection and Technology
Rafael Serrano, associate at CorralRosales
rserrano@corralrosales.com
+593 2 2544144

Specialist in Data Protection and Technology
Edgar Bustamante, associate at CorralRosales
ebustamante@corralrosales.com
+593 2 2544144

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