The re-domiciliation of ecuadorian companies

re-domiciliation-of-ecuadorian-companies-corporate-milton-carrera

In today´s globalized economy, it is necessary for countries to provide a legal framework that allows companies to conduct their businesses in the jurisdiction that is most convenient to their interests. The re-domiciliation of a company, that is, the transfer of the registered office to a foreign country while maintaining its legal personality and therefore its assets, rights and obligations, allows it to fulfill this purpose.

In Ecuador, no legal rules have been developed that expressly regulate the process of re-domiciliation to a foreign country, so it is necessary to find alternatives that allow its implementation within the rules of the Companies Law.

The domicile of a company is not only a requirement for its constitution, but it grants it a national identity and therefore membership in a legal system. The re-domiciliation of companies is a figure currently recognized by many legislations, precisely in order to allow companies to develop their businesses with wide freedom and without affecting the rights of third parties. In order to facilitate re-domiciliation, it is necessary that the law of the country where the company intends to transfer its domicile accepts it, recognizing its pre-existence and assets acquired in the country of origin. By transferring the registered office to another country, the company adopts the nationality and legal system of the host country. Although the Companies Law does not contain specific rules that govern the re-domiciliation process, it does provide for the change of address without making a distinction whether it is carried out within or outside the country, from which it is concluded that both are allowed and are subject to similar formalities.

Once the re-domiciliation has taken place, the Superintendence of Companies, Securities and Insurance will be responsible for ordering the cancellation of its registration in the Commercial Registry without the company being liquidated, precisely because it maintains its legal personality, assets, rights and obligations, in the receiving country.

The cancellation is the registry operation that has the sole and exclusive purpose of leaving the original registration without effect and make it public.

In conclusion, we consider that under corporate law, the change of address of an Ecuadorian company to another country is valid and legal, assuming that the legislation of the receiving country allows it; therefore, the re-domiciled company will maintain its legal personality, assets, rights and obligations. However, in order to expedite this operation, the re-domiciliation process must be expressly regulated as soon as possible.

Milton Carrera
Senior Associate en CorralRosales
mcarrera@corralrosales.com

Commercial Companies of Benefit and Collective Interest

commercial-companies-corporative-milton-carrera

The Superintendence of Companies, Securities and Insurance through resolution number SCVS-INC-DNCDN-2019-0021 published in the Official Registry number 107 of December 24, 2019 issued the instructions for the operation of the Commercial Companies of Benefit and Collective Interest. Below, we summarize its most relevant aspects:

  1. Any national company under control and supervision of the Superintendence of Companies, Securities and Insurance may voluntarily adopt the status of a Benefit and Collective Interest Company, without this implying a change in the type of partnership or the creation of a new partnership.
  2. To adopt the characterof a Benefit and Collective Interest Company , and thus develop its operational activities for the benefit of the interests of its partners or shareholders and is required to create a positive material impact, in the interest of the partnership and the environment at the same time. Companies must thus approve it through the general meeting of partners or shareholders with a majority representing at least two thirds of the subscribed or paid share capital, as applicable. The corporate bylaws must be amended, incorporating specific activities into the corporate purpose, through which these companies will fulfill the obligation to generate a positive social or environmental impact. Once the amendment of the bylaws is registered in the Mercantile Registry, the Benefit and Collective Interest Company will have the obligation to send said documentation to the Superintendence of Companies, Securities and Insurance for the corresponding update in the institutional database. Additionally, if the company considers it convenient, it may formalize the corporate action to change the company name and fulfill the other requirements established in the law, adding the expression “Company of Benefit and Collective Interest”, or the acronym B.I.C. to its denomination.
  3. In the companies in which the status of Benefit and Collective Interest Company is adopted, the dissenting or non-concurrent partners or shareholders of the general meeting that made said decision will have the right to separate from it, in the terms of article 333 of the Law of Companies (reimbursement of the value of its shares in accordance with the respective prepared balance sheet)
  4. The obligation to create a positive material impact on society and the environment may cover one or more of the following areas: a) governance, b) working capital, c) community, d) customers, and e) environment. Consequently, the administrators of a Benefit and Collective Interest Company must ensure compliance with the activities set forth in the statute, in one or more of these areas, in order to achieve the specific objectives incorporated in its social purpose.
  5. The area of ​​impact on governance is related to the corporate governance of companies. For such purposes, the administrators of a Benefit and Collective Interest Company may consider, among others, the following aspects:
    • The interests of the company and its partners or shareholders;The short, medium and long term consequences of decisions related to the operational activity of the company they represent;
    • The preservation and protection of the reputation and good name of the company;
    • The need to treat, in a fair and equitable manner, all partners or shareholders; and,
    • The expansion in the diversity of the administrative and supervisory composition of the company.
  6. The area of ​​impact on working capital will allow the administrators of the Benefit and Collective Interest Companies to consider the interests of their workers, considering among others the following aspects:
    • The establishment of reasonable compensation and analysis of wage gaps to establish fair standards in the collection of compensation;
    • The establishment of grants to train and professionally develop their working capital;
    • Promote the participation of workers in society, either through the acquisition of shares or shares, or by intervening in the company’s administrative bodies;
    • Determine flexibility alternatives for workers’ working hours, teleworking, or others, without affecting their remuneration;
    • Disseminate the company’s financial statements among its workers.
  7. The community impact area will allow administrators to consider, among others, the following aspects:
    • The need to foster social relations with the company’s creditors, suppliers and customers;
    • The impact of social operations on the community;
    • The effect of the operations of the company and its subsidiaries, if any, on the local, regional, national and even international economy;
    • The incentive of volunteer activities and the creation of alliances with foundations that support social work in the interest of the community as part of its social responsibility policy;
    • The main focus on contracting  services or acquiring goods of local origin or belonging to enterprises developed by women or ethnic minorities.
  8. The area of ​​impact on customers will allow administrators to address a social or environmental problem through, among other things, the following:
    • Provision of electricity or products that provide electricity, drinking water, affordable housing and other infrastructure;
    • Products or services that allow people to focus on income-generating activities such as computer, finance, mobile technology or services that optimize / increase business activities;
    • Products or services that improve the delivery of health services, health outcomes and healthy living, such as medicines and preventive health services;
    • Products and services that have an educational focus, such as schools, textbooks, media and independent arts, or preserve local culture, in the case of artisanal trade;
  9. The area of ​​impact on the environment will allow the administrators of a Benefit and Collective Interest Company, among other aspects, to consider the following:
    • Respect for the rights of nature enshrined in the Constitution of the Republic;
    • The impact of its operations on the environment;
    • The monitoring of gas emissions that cause a greenhouse effect;
    • The promotion of recycling or waste reuse programs;
    • The increase in the use of renewable energy sources and the implementation of energy efficiency measures.
  10. Annually, the legal representative of the Benefit and Collective Interest Company must prepare a management impact report choosing the most appropriate standards. It should give an account of the activities carried out to fulfill the obligation to create a positive material impact on society and the environment, the report must have a certification issued by an independent entity specialized in the fields that apply, and it will be presented to the general meeting for the purpose of acknowledgement and approval.
  11. The status of a Benefit and Collective Interest Company can be terminated by a modification of its bylaws, undoing the changes made to acquire said status. The corresponding resolution will be adopted by the general meeting of partners or shareholders with a majority representing at least two thirds of the subscribed or paid share capital, as applicable.
  12. If in the exercise of its control and surveillance authority, the Superintendence of Companies, Securities and Insurance verifies that the Company of Benefit and Collective Interest has not fulfilled its obligation to create a positive material impact on society and the environment in accordance with the provisions of its corporate purpose, or that its administrators have failed to comply with their obligation to prepare the management impact report, or who have breached the rules of this instruction, the Superintendence of Companies will proceed to notify the company of the violations in which it has incurred, so that within six months the company can rectify these breaches or modify its bylaws undoing the changes made to acquire the quality of a Benefit and Collective Interest Company.

If after this period, the company has not taken care of the notified breaches or modified its bylaws, it may be declared dissolved.

Milton Carrera
Senior Associate at CorralRosales
mcarrera@corralrosales.com