Types of Legal Structures Colombia

Considering starting a company or expanding your business into Colombia? With the election of a new president who is widely seen as ‘business-friendly’ and with the promise to slash corporate tax rates, Colombia is becoming more and more attractive to foreign investors. In the following paragraphs are explained all types of legal structures in Colombia.

Before establishing commercial operations in the region, you must decide on the best type of legal entity, based on your business objectives and requirements.

Frequently overlooked, Colombia has countless attractive industries that have been buoyed by strong foreign direct investment (FDI). Colombia has a diverse agriculture industry, with products ranging from cattle to its famous coffee, that provides over a fifth of the jobs in the country.

A rapidly developing mining sector has led to Colombia’s well-known emerald industry representing over 2% of its GDP. And the recently negotiated ceasefire between the government and rebel groups has led to an explosion in tourism (the number of tourists has doubled over the last five years), leading to the New York Times naming Colombia the second best location to visit in 2018.

Colombia’s immense number of free trade agreements (FTAs), along with access to both the Pacific and Atlantic oceans, gives access to markets representing a value of USD $43 trillion.

This article will give you an overview of the most common types of legal entities used in Colombia to help you determine which is the best fit for your business model.

Types of legal entities/companies in Colombia

The most common types of companies in Colombia are:

• Simplified stock companies (SAS)
• Limited liability companies (LTDA)
• Corporations (SA)
• Branch office of a foreign company

Each will be discussed in more detail below.

Generally speaking, there is no minimum capital contribution required to incorporate a commercial company – this is set by the shareholders or partners. Following the liquidation of the company or capital reduction, foreign investments can easily be repatriated. Additionally, if certain capital requirements are met, investors are eligible to apply for a Migrant type visa. The main steps to incorporate a company in Colombia include:

• Formalization of company bylaws
• Application for a NIT (company tax ID number)
• The opening of a Colombian bank account

Simplified stock companies (‘SAS’)

The SAS is the most common type of legal entity in Colombia and is popular within the business community, for businesses large and small. Compared to other types of legal structures in Colombia, it has been praised by investors for its flexibility, specifically regarding the incorporation process and the large freedom afforded to shareholders to establish their own terms and conditions. A large advantage of a simplified stock company is the ability to make the articles of incorporation a private document. Other key characteristics that distinguish a SAS include:

• Only (1) one shareholder (either a natural or legal person) is required, with no maximum limitation.
• Liability limited which equals the amount of the company’s equity.
• The social purpose may be left undefined, allowing the company to participate in almost any business activity.
• No requirement for a board of directors.

Limited liability companies (‘LTDA’)

Under a Colombian LTDA, a partner’s liability is limited to the amount of the capital contribution (unless otherwise stipulated by the company bylaws), and partners are not liable for the payment of debt. The key considerations of an LTDA include:

• Minimum of (2) partners with no more than (25).
• Partner contributions shall be paid in full upon incorporation of the company.
• Typically must be incorporated by a public deed. However, the document can be kept private if:
  • The company has fewer than (10) employees OR
  • The company has assets below 500 times the minimum monthly wage in Colombia (approximately USD $140,000).
• The social purpose must be defined, limiting the company’s commercial activities.
• No requirement for a board of directors.

Corporations (‘SA’)

Among the types of legal structures in Colombia, a corporation is another option to consider, especially if dealing with a larger number of shareholders. Under a corporation, the shareholder’s liability is limited only to the amount of the shareholders’ equity, except if fraud is committed. The important aspects of a corporation include:

• Minimum of (5) shareholders, none of which can have more than 95% of the outstanding capital stocks.
• Just like an LTD, this company is typically incorporated by a public deed. However, the document can be kept private if:
  • The company has fewer than (10) employees OR
  • The company has assets below 500 times the minimum monthly wage in Colombia (approximately USD $140,000).
• The social purpose must be defined.
• The corporation must have a board of directors.

Branch office of a foreign company

Opening a foreign branch office could be an attractive option for a company that has its head office (‘Casa Matriz’ in Spanish) headquartered in another country. Colombian legislation recognizes foreign branch offices as an extension of the parent company, so branches and the parent company are viewed as the same legal entity. Key documentation required to establish a foreign branch office include:

• Certificate of incorporation document and legal representation of the parent company

Authorization of a representative to act on the company’s behalf by the power of attorney Bylaws of the parent company

Each of the legal entities discussed has its advantages and disadvantages. SASs are the most popular among investors due to their flexibility and ability to keep their articles of incorporation private. Limited liability companies and corporations are more traditional routes.

Are you interested in the types of legal structures in Colombia?

Choosing the right entity to set up your business in Colombia is a complex decision, and that’s why we recommend working with a local partner. Headquartered in the heart of Bogotá, our team of local experts and professionals can help answer your questions and get your business started in Colombia. Our services range from commercial representation to market entry to company formation services to accounting and taxation support.

Given the favorable conditions in the country and the region as well as the economic growth, Biz Latin Hub through its company Colombian Business Services offers the experience and support necessary for investors to have a successful market entry in Colombia. Feel free to contact us now.

Check out the video below for more information about forming a company in Colombia!