LANGUAGE USED

English is widely used throughout Panama, although the official language is Spanish. Bilingual secretaries are readily available. English-language newspapers are published. Ninety-two percent of the population is literate.

COMPANY FORMATION

Most widely used Panamanian business entity and the one best suited to foreign investor's needs is the public company (Sociedad Anonima or S.A.), governed by the General Corporation Law of 1927, which is patterned after Delaware's corporation law. The S.A. can be used for either offshore exempt purposes or as a local company that is active in Panama's free trade zones. It may also operate in Panama's financial, tourist or heavy industries, though the company must arrange for the requisite license and will pay tax on income arising from such domestic concerns. Some articles of the Commercial Code deal with stockholders' powers, while laws enacted in 1956 and 1962 and amended in 1997 control capitalization.

Code of Commerce

Decree Law No. 5 of July 2, 1997 broadly amended the Code of Commerce by revising, deleting or adding a number of pertinent articles covering evidence of organization, competent authority, exchange of information, continuity, transfer of registration, franchises, accounting procedures and records, fungible securities, stockbrokers' meetings, directors' resolutions and many more adjustments to the Code. Among the most significant changes is the permission granted corporate shareholders and directors, as well as individuals or corporations. Special general powers of attorney must be granted by public deed or by private documents authenticated by a Notary of Public. These documents do not have to be recorded in the Public Registry Office, a decision that may be made at the option of interested persons.

Except for a bank or insurance company, there is no minimum capital requirement and both cash and in-kind contributions are permitted. Non-cash contributions are assessed by the Board of Directors and listed in the incorporation documents as shares with no nominal value. Capital, which can be designated in any currency need not be fully subscribed to or paid within a certain time. Registered shares do not have to be paid in; bearer shares must be fully paid in unless special instructions are issued. Two adults are required to organize a corporation and each customarily subscribes to a least one share. After incorporation, the number of shareholders can be reduced to one. Shareholders elect a Board of Directors of three to 11 members who need to own shares in the company. There are no requirements as to Panamanian citizenship or residence for corporate ownership and directors but there must be a statutory resident agent, who usually is the incorporating attorney. Directors or officers of a Panamanian corporation may be of any nationality and country of residence and can be nominees. Stockholders' and directors' meetings, management of the company, maintenance of its accounts and storage of the share register can be anywhere in the world. Proxy voting is allowed. Incorporating costs, including legal and accounting fees, range from $500 to $1,002.

An initial act of the International Lawyers Association, created in 1994 by the 17 most internally active law firms in Panama, was to support Executive Decree No. 468. Uncovering illegal financial activities is the main goal of this decree, which requires registered agents of exempt firms to know the full nature of their clients and maintain in their files the kind of data that law authorities need in order to identify and apprehend drug dealers or other money launderers.

Incorporation Procedure

Panamanian attorneys draw up a public deed and then usually complete the incorporation process, after which they assign their rights to their clients. Getting official approval can sometimes be accomplished in as short a span as three working days but the usual period is from ten days to two weeks. Articles of Incorporation (pacto social) submitted to the Mercantile Division of the Public Registry should include: the name and addresses of the corporation, its resident agent 8either a Panamanian lawyer or law firm), officers and at least three directors with their signature powers; the corporation's main objectives or a statement that it may pursue any legal activities; amount of capital and types of shares; and lifespan of the corporation, which can be limited but is usually stated as perpetual. By-laws can either be inserted in the Articles or registered separately.

The name of the corporation, which may be expressed in any language, must include a word or abbreviation such as "Sociedad Anonima," "S.A.," "Corporation," "Corp.," "Incorporated," or "Inc." to denote clearly that it is in fact a corporation. Because the name must be cleared with the Public Registry, to avoid conflict with existing companies it is advisable to submit one or two alternate names along with the preferred name. A name can be reserved for 30 days with the Public Registry. Instead of waiting to clear the name and comply with other incorporation formalities, investors can also acquire a shelf company at a somewhat higher cost.

An S.A.'s Capital

The application for incorporation must include the number of shares into which the capital is to be divided. If the capital is represented by a stated number of no-par value shares, the Mercantile Registry will assign a fixed value of $20 each for registration tax assessment purposes but no specific amount of capital need be stated. The shares may be nominative or bearer. Panamanian law permits Preferred; Class "A," Class "B," voting, nonvoting and other capital share arrangements. A popular procedure is to issue 500 no-par shares totaling $10,000 capital since this entails a minimum registration fee of $24. Articles of Incorporation normally provide for $10,000 of authorized capital consisting of 100 par value shares of $100 each. One bearer share is entitled to one vote if the certificate is exhibited at the shareholders' meeting or other evidence of ownership is provided.

A President, a Secretary and a Treasurer are required. Although an individual may hold more than one office, the President is not allowed to serve as the Secretary of the same corporation. Names and addresses of officers and directors must be supplied, but shareholders can remain anonymous.

Dividends are paid to shareholders out of net profits or from the excess of assets minus liabilities. Corporations may declare and pay dividends upon the basis of the amounts actually paid for shares that have been partially or fully paid. Dividends also may be paid in shares of the corporation is the shares are issued for this reason and, if the shares previously have not been issued, the amount must at least equal the value of the shares issued and is transferred from the surplus account to the capital account.

The Board of Directors must consist of at least three directors, who may be of any nationality or domicile. If the Articles of Incorporation or the bylaws do not otherwise provide, the Board may approve two or more members to constitute a committee having all the powers to administer or manage the business of the corporation. The Board of Directors may authorize the sale, lease or exchange of all or part of the assets provided it is authorized to do so by resolution of the majority of shareholders.

A company can use any currency to record its transactions in the obligatory balance sheet and inventory book. An audit of annual financial statements must be performed by independent Panamanian certified public accountants for: (1) companies listed with the National Securities Commission, insurance and reinsurance companies, banks and savings institutions; and (2) any company with capital or annual sales volume or gross income exceeding 100,000 balboas ($100,000). Companies that invite the public to buy securities must submit audited financial statements to all registered shareholders and to the National Securities Commission. There are no statutory audit requirements other than for the companies mentioned above and in general no need to file financial returns. Books of account must be stored in Panama if they record transactions conducted within the country.

Amendments to Panama's General Exposition Law of July 1997 permit redomiciliation of Panamanian companies to other foreign jurisdictions and of foreign companies into Panama. Corporate directors are allowed for the first time. Other changes in the law include: (1) elimination of the requirement for share registers and for minute books to be legally stamped and bound; (2) granting permission for meetings of shareholders, directors and liquidators to be held by telephone, fax, E-mail or other electronic media; (3) removal of the need for powers of attorney to be publicly registered but permitting specific powers of attorney to be registered if desired; and (4) assets located outside Panama can be pledged to creditors by an offshore corporation through a public deed or a notarized private document without undergoing formalities of execution and registration in Panama.

If the Articles of Incorporation provide, two or more corporations may merge into a single corporation but the merger agreement must be approved by the shareholders of each one of the merging corporations at separate meetings especially convened for this purpose. Although distributions may be in cash, promissory notes or bonds, the amount of capital issued by the new corporation may not exceed its assets after the distribution. The merger agreement must be filed at the Mercantile Registry. After the merger agreement has been executed and filed, the debts of the terminating corporation must correspond to the newly-consolidated corporation and compliance and payment thereof may be required as if it had been previously contracted.

Government Fees

There is a 1% company license fee charged annually based on the invested capital, with a maximum of 20,000 balboas ($20,000). It is in the form of an annual business operating license. The minimum tax on registered capital is paid only at the outset of incorporation with the schedule of rates 50 balboas ($50) on the first 10,000 balboas, 0.075% between 10,000 balboas and 100,000 balboas, 0.05% between 100,000 balboas and 1,000,000 balboas, and 0.01% over 1,000,000 balboas of capital, or 537.50 balboas, graduating to 1,537.50 balboas on 10,000,000 balboas. 20% surtax is applied on these rates. Companies with no-par value share pay the minimum capital registration tax of 20 balboas plus a 20% surtax or a total of 24 balboas on the first 10,000 balboas. No-par shares are subject to a maximum fee of $1,000. There is a registration duty of 537.50 balboas on the company's capital in order to file the deed plus 0.0001% when capital is over 1,000,000 balboas plus 0.0001% on the excess. The annual franchise tax for the Public Registry is 150 balboas. Non-Government owned insurance companies pay a franchise tax of 10,000 balboas on assets up to 5,000,000 balboas, 20,000 balboas between 5,000,000 balboas and 10,000,000 balboas and 25,000 balboas over 10,000,000 balboas. New insurance premiums are subject to a 2% tax plus a 5% surcharge (7% for fire risk). There also is a 1% license or patent tax on net worth of firms. An annual registration fee for corporations of $150 is payable. A $150 fee is charged for the registered agent.

Other Business Entities

In addition to the corporation, which is the most common form of business entity employed by foreign investors, the commercial code recognizes: (1) the general partnership (sociedad colectiva), (2) the simple limited partnership (sociedad en commandita simple), (3) the stock-issuing partnership (sociedad cooperativa). It is also possible to form a limited liability company (governed by Law 24 of 1966), joint venture, capitalization company, sole proprietorship and branch. More documents must be registered for a branch than for a corporation so that forming a branch may be more costly and time-consuming. All documents must be stamped by a notary public and authenticated by a Panamanian Consul in the country of origin. The parent company must obtain a commercial or industrial license and must appoint a resident agent, who is authorized to act in all legal matters and appoints a manager having adequate power of attorney to carry on business and make decisions, which are not always in line with the parent company's whishes or intentions. The agent may be a company employee or director but any legal representative is acceptable. Specialists in company, bank and trust organizations will act as agents.

1 2 3 4 5 6 7 8 9    back|next