Colombia is one of the countries in the LATAM region that has shown great potential for commercial trade, whether in the domestic or international market. Perhaps you have seen a business opportunity in this country due to its strategic geographical position between the Panama Canal and the other countries of South America. If so, this article will help you explore the options you have regarding the SAS company type under Colombian laws.
To understand the fundamentals of this corporate model, we will discuss three aspects of SAS: general aspects, pros and cons, and how to incorporate a SAS company. At the end of this article, we will summarize and simplify all the information you need to start your own SAS company in Colombia or, at least, have some material for the next hallway conversation about how some corporations operate in this country.
Getting down to business, the first thing you should know about SAS companies is that they are governed in Colombia by Law 1258, issued in 2008. 'SAS' is the abbreviation for Simplified Stock Company (Sociedad de Acciones Simplificada), which is based on capital. This legal figure was created to encourage the market and individuals to start their own businesses and, especially, to formalize small family businesses, although the process is simpler than other figures. All companies must undergo an inspection by the 'Chamber of Commerce', which is the institution that tracks companies and ensures that the name is unique enough to prevent someone from taking advantage of competitors' reputations.
This legal figure does not limit the number of partners a company may have, so there is still the possibility of selling shares in a more restrictive manner. There is even the possibility that one of the partners is another company, thus allowing the participation of legal entities. In turn, each partner will be liable for the company's obligations up to the amount of their contribution; this is done to protect the rest of the partner's assets in case a third party sues the company.
Furthermore, by resorting to a specific law for SAS, it is possible to determine different types of shares for partners, such as preferred shares, preferred shares with dividends without voting rights, shares with fixed annual dividends, and even shares without remuneration. There is even the possibility of accessing the benefits of a SAS with a single partner, meaning that a family entrepreneur can organize their capital without needing to seek a second partner (Reyes, 2009).
Indeed, SAS companies have changed the rules of the game in the Colombian market. Unfortunately, a significant portion of the population does not take advantage of all the flexibility this figure offers, even though most companies created in Colombia today are SAS. This is due to a lack of knowledge of these tools, so you may want someone to guide you through the process of creating a SAS. In that sense, we would be happy to help you start your project in the most efficient way; if you are interested, contact us.
Now, the second aspect is the pros and cons of SAS companies. It is important that you are clear about how you want your corporation to function. The SAS figure offers many options and free will so that you can draft the bylaws not only as an indispensable document but as a projection of the company you are creating.
Benefits: the incorporation cost is usually economical since the only requirements are a private incorporation document and registration with the Chamber of Commerce of the city where you want the company to operate. In addition, the structure of SAS companies is quite flexible. Not having a specific corporate purpose opens the door to private autonomy of will. Furthermore, having its own law, SAS companies do not have to pay one-third or one-half of the subscribed capital as required by other legal figures in Colombia; it can be paid within two years.
Disadvantages: they cannot list shares on the stock exchange. Additionally, despite having private autonomy of will, these companies may not be trusted for contracts with the State. On the other hand, Article 13 of Law 1258 allows agreeing on a prohibition on the transfer of shares for up to ten years (renewable by unanimous consent), so it is advisable to ensure whether this restriction applies before signing the private incorporation document.
Apart from the benefit this means for the partner, SAS company partners can commit to an amount of money (subscribed capital), but they are not obliged to make the capital payment within two years. This means that even with partners, the corporation may be financially illiquid or underfunded (Betancourt et al, 2013).
Last but not least, you already know some of the possibilities offered by the SAS legal figure. So, what should you do to incorporate a company under the SAS model? You only need a private document, signed by all members of the company, specifying the will to create this company and the contributions of each partner. After having the private document done, you only need to authenticate it, with all partners able to go to the Public Notary if they wish, attesting to their will. However, it is also possible to incorporate this type of company by public deed, in which case it is not mandatory to specify each partner's contributions. Finally, you can register it with the Chamber of Commerce of your chosen city in Colombia.
Regarding the private incorporation document, we recommend being as transparent as possible about: the corporate purpose; the name of the corporation; basic and contact information of the partners; where the corporate activity will take place; whether the corporate purpose is for an indefinite period or has a specific duration; authorized capital (the economic capacity ceiling of the company agreed upon by the partners), subscribed capital (how many shares each partner buys and the universal price of each share), and paid-in capital (may be zero), and who is in charge of administration and legal representation along with their primary and contact information.
In addition to the documentary requirements, we must focus on the eligibility of the person incorporating the company. Foreigners are authorized to create companies as long as they take the necessary steps to obtain an M-type visa (partner or owner). To do so, they must process the Foreigner's ID (Cédula de Extranjería), register in the RUT, and open a savings account as a preliminary version of the Commercial Registry to legalize the income that will be obtained. All these procedures can be done on your own or by granting power of attorney to a lawyer to avoid travel and bureaucratic procedures. At the same time, it is important to know that the minimum capital to incorporate the company must be accredited by a Public Accountant for at least 100 SMMLV COP (approximately $21,789.79 USD as of October 2022).
So far, we have summarized the SAS as a legal figure that operates under a special law in Colombia that provides great flexibility, benefits, and restrictions. At this point, you have a better understanding of the general aspects of this corporate structure, its pros and cons, and how to create it with all the requirements of the Colombian jurisdiction. Remember that you can schedule a session with AZC's specialized lawyers to resolve your doubts and assist you with your legal needs.
REFERENCES:
- José Bernardo Betancourt Ramírez, Gonzalo Gómez Betancourt, María Piedad López Vergara, Francisco Pamplona Beltrán, Claudia Beltrán Ruget, «Advantages and disadvantages of the Simplified Stock Company for the family business in Colombia«, Estudios Gerenciales, Universidad Icesi, Volume 29, Issue 127 (2013), pages 213-221.
- Reyes, F. (2009). Sas. The Simplified Stock Company. Legis: Bogotá.
- Reyes, F. (2010). Liability of directors in the simplified stock company. Panóptico, 18, 208–239.
- Gómez-Betancourt, G. (2011). The reality of the simplified stock company (SAS). Gerente de Colombia, 162, 76–77.
- Resolution 6045 of 2017 (Colombia)
- Resolution 5477 of July 22, 2022 (Colombia)
ABC of SAS companies under the Colombian law
Colombia is one of the countries in the LATAM region that has shown great potential for commercial trade, whether in the internal or international market. Maybe you've seen a business opportunity in this country due to its strategic geographical position between Panama's canal and the other countries of South America. If that's the case, this article will help you explore the options you have about the SAS company type under Colombian laws.
To cover the basics of this corporation model, we'll discuss three aspects of the SAS: the first one, general aspects; the second one, pros and cons; and the last one, how to constitute my own SAS company. By the end of this article, we will summarize and simplify all the information you need to start your own SAS company in Colombia or, at least, have some material for the next hall conversation about how some corporations in this country work.
Getting into the topic, the first thing you need to know about SAS companies is that they are ruled in Colombia by Law 1258, issued in 2008. SAS is the abbreviation of Simplified Stock Company, which is based on capital. This legal figure was created to encourage the market and people to start their own business and specially to formalize the small family business, even though the process is easier than other figures; all companies must undergo an inspection by the 'Camara de Comercio' (Chamber of Commerce), which is the institution that tracks companies and makes sure the name, logo, or colors are unique enough to avoid someone taking advantage of the reputation of their competitors.
This legal figure doesn't limit how many partners a company can have, so there's still a chance to sell participation shares in a more restrictive way. There's even a chance that one of the partners is another company, so legal entities are allowed to participate. At the same time, each partner will be responsible for the company's obligations up to the amount of their contribution; this is made to protect the rest of the partner's capital in case a third party sues the corporation.
At the same time, by going with a particular law for the SAS corporation, it's possible to determine different types of shares for the partners like preferred stock, preferred dividend shares with no voting rights, shares with fixed annual dividends, and even shares without pay. There's even the possibility of accessing the benefits of a SAS with just one partner, which means a family business person can organize his capital without needing to find a second partner (Reyes, 2009).
Indeed, SAS companies have changed the game rules of the market in Colombia. Unfortunately, a significant portion of the population doesn't take advantage of all the flexibility this figure has to offer, even when most of the companies created nowadays in Colombia are SAS. This is due to lack of knowledge of these tools, so you might want someone to guide you in the process of creating a SAS, which we will gladly assist you to start your project most efficiently; if you are interested, please check the contact us section.
Now, the second aspect is the pros and cons of SAS companies. It is important that you have clarity about how you want your corporation to work; the SAS figure offers many options and free will so that you can draft the bylaws not just as a document but as a projection of the company you're creating.
Benefits: the incorporation cost is usually cheap since the only requirements are a private document (constitution affidavit) and registration at the Chamber of Commerce assigned to the city where you want the company to function. In addition to this, SAS companies' structure is pretty flexible. Not having a determinate corporate purpose opens the door for the private autonomy of will. Furthermore, by having its own law, SAS companies don't have to pay one-third or one-half of the subscribed capital, but the payment can be made within a two-year period, as other legal figures in Colombia require.
Disadvantages: they are not able to list shares on the stock market; also, by not having a specific corporate purpose, these companies might not be trusted for contracts with the State. On the other hand, article 13 of Law 1258 allows agreeing on a prohibition on the transfer of shares for up to ten years (renewable by unanimous consent), so you want to be sure if this restriction applies before signing the private document of incorporation.
Apart from the benefit that this means for the partner, the SAS company's partners can commit to an amount of money (subscribed capital), but they're not required to make the capital payment within a period of two years. This means that even having partners, the corporation might be financially illiquid or under budget. (Betancourt et al, 2013)
Last but not least, you already know some of the possibilities the SAS legal figure has to offer, so, what do you need to do to incorporate a corporation under the SAS model? You only need a private document signed by all the members of the company, where you specify the will to create this company and the contributions of each partner to it. Likewise, you need to be aware that these contributions are not needed for a 'Escritura Publica' (public deed); otherwise, the private document might not be enough. After having the private document done, you only need to authenticate it, having all the partners go to the 'Notaria Publica' and give good faith about their will. Finally, you can register it at the Chamber of Commerce of your city in Colombia.
Regarding the private incorporation document, we recommend you be as transparent as you can about: the corporate purpose; the name of the corporation; basic and contact information of the partners; where the corporate activity is going to take place; if the corporate purpose is for an indefinite period or there's a date to finish it; authorized capital (the economic capacity ceiling of the company that partners agree), subscribed capital (how many shares each partner buys and the universal price of each share), and paid-in capital (might be zero); who is in charge of administration and legal representation and their primary and contact information.
Furthermore, regarding the documentary requirements, we need to focus on who is eligible to incorporate a SAS company in Colombia. Foreigners are allowed to create companies as long as they do the diligence to obtain the type M visa (partner or owner); in order to do it, you need to manage a 'Cédula de extranjería' (foreigner's ID), register in the RUT, and open a savings bank account as a preliminary version of the commercial register to legalize the income you're going to get. All these procedures can be either done by yourself or by giving an authorization to an attorney so you skip the traveling and bureaucratic part. At the same time, it is important for you to know that the capital for the company needs to be accredited by a CPA for at least 100 minimum salaries COP (around $21,789.79 USD for October 2022).
As far as now, we've summarized the SAS as a legal figure that works under a special law in Colombia that gives a lot of flexibility, benefits, and restrictions. At this point, you know better about the general aspects of this company structure, the pros and cons of it, and the way to create it with all the requirements of the Colombian jurisdiction. Everything is settled for you to see your dream come true; remember that you can set aside a private space with AZC's specialized consultants to solve your doubts and assist you in your legal needs.
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REFERENCES:
- José Bernardo Betancourt Ramírez, Gonzalo Gómez Betancourt, María Piedad López Vergara, Francisco Pamplona Beltrán, Claudia Beltrán Ruget, «Advantages and disadvantages of the Simplified Stock Company for the family business in Colombia«, Estudios Gerenciales, Universidad Icesi, Volume 29, Issue 127 (2013), Pages 213-221.
- Reyes, F. (2009). Sas. The Simplified Joint Stock Company. Legis: Bogotá.
- Reyes, F. (2010). Liability of directors in the simplified joint stock company. Panopticon, 18, 208–239.
- Gómez-Betancourt, G. (2011). The reality of the simplified joint stock company (SAS). Colombia Manager, 162, 76–77.
- Resolution 6045 of 2017 (Colombia)
- Resolution 5477 of July 22, 2022 (Colombia)
Andrés Arias – AZC CONSULTING ATTORNEY