To establish a company in El Salvador , it must be done by means of a public deed (known as a deed of incorporation), a requirement established in our Commercial Code ; in its Article 21, companies in El Salvador are established, modified, transformed, merged, and liquidated by means of a public deed.
What is a public deed of a company in El Salvador?
It is the reproduction of a notarial instrument of the original deed, in which the notary records a legal transaction that has been perfected.
The essential parts of a company’s articles of incorporation in El Salvador are established in Article 22 of the Commercial Code, which are:
a) General shareholders:
According to El Salvadoran law, companies must be incorporated with at least two shareholders. Shareholders in companies in El Salvador can be legal entities or natural persons. Our legislation does not impose any restrictions on the nationality of shareholders; they can be foreign or national.
b) Address:
Companies must define the municipality and department to which they will be registered. Companies in El Salvador must also establish a tax domicile.
If the company’s registered office is other than the municipality of San Salvador, Department of San Salvador, please note that: for some municipalities, municipal solvency of the company will be required for its registration with the Commercial Registry .
c) Legal nature:
The legal nature of the company we are referring to is the variable capital regime, which is regulated by Article 306 et seq. of the Commercial Code. Any type of company may opt for the variable capital regime. This type of regime allows for increases in contributions, both in its variable portion and in its share capital. Therefore, it is important that the articles of incorporation contain the conditions that establish the increase or decrease in capital.
d) Purpose:
The purpose must determine the commercial activities the company will engage in in El Salvador. Whether it will market products, it must specify the types of products; whether the company will import or export, it must specify whether the types of activities should be general or specific.
In some cases, companies must specifically define their activities based on their nature in order to operate, register, or register with the relevant entities. These processes are carried out once the company is registered with the Commercial Registry. For example, companies engaged in cargo consolidation and deconsolidation must include this activity in their articles of incorporation to obtain permits from the General Directorate of Customs. If they fail to do so, they will not be able to receive authorization and must amend their articles of incorporation to comply with the requirements.
e) Company name – Business name:
The corporate name is the name by which the company will be identified and legally registered. It is important to define the company’s name; therefore, before signing the deed of incorporation, it is recommended to conduct a search for its availability at the Commercial Registry to avoid any setbacks in its registration.
For companies under the variable capital regime, the words “variable capital” or its abbreviation “CV” must be added to the company name or denomination.
f) Duration of the company::
It is recommended that the company be established for an indefinite period; since a term is established as such, it cannot be extended, and the company will have to be dissolved and liquidated.
g) Capital Amount
For corporations, the minimum capital is two thousand United States dollars. The monetary contribution made by each partner to establish the corporation must be stated.
h) Increase and Decrease of share capital:
Any capital increase or decrease must be made by prior resolution of an Extraordinary General Shareholders’ Meeting. The Extraordinary General Shareholders’ Meeting will set the amounts of the capital increases or decreases; it will also determine the form and terms of the subscription, payment, and issuance of new shares. These resolutions must be recorded in the company’s Book of Increases or Decreases.
In the case of a Capital Increase, shareholders will have preferential rights to subscribe to the shares.
i) Administration Regime:
The administration of the company may be carried out by a Board of Directors or by a Sole Administration.
When the board is sole director, it is composed of a sole director and an alternate sole director. The sole director acts as the legal representative. If the position becomes vacant, the alternate sole director will assume the legal representative’s duties through a call for appointment. This call must be made by the Ordinary General Shareholders’ Meeting and then registered with the Commercial Registry.
If the company is managed by a Board of Directors, it may include a Managing Director, a Vice President Director, and a Secretary Director, along with their alternates.
The duration of the administration, whether by this Board of Directors or by a Sole Administration, will be at the discretion of the partners and may range from one to seven years.
The advantages of establishing a Board of Directors are, if the partners decide to appoint more than one legal representative, two directors may be appointed to this position, and they may serve jointly or separately. Otherwise, if they decide to establish a sole directorship, which, as its name suggests, is the sole legal representative who acts as the sole owner-director.
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j) Dissolution and Liquidation of a company in El Salvador:
In accordance with the provisions of Article 59 of the Commercial Code, a company may be dissolved:
i) By expiration of the term specified in the articles of incorporation, the extension of which may not be tacitly stipulated;
ii) Impossibility of achieving the main purpose of the company, or its completion;
iii) Loss of two-thirds of the share capital;
iv) By unanimous agreement of the partners unless the articles of incorporation stipulate that such a decision may be taken by a majority.
Likewise, by court order, ordering dissolution and liquidation, or by merger with other companies. The Extraordinary General Shareholders’ Meeting must appoint the liquidators, who will be responsible for carrying out the liquidation of the company, serving as director and legal representative in said process.
k) Other special clauses:
En esta sección, los socios pueden incorporar cláusulas especiales para la resolución de conflictos relacionados con disputas, interpretación, ejecución y cumplimiento del pacto social. Estos conflictos se pueden resolver mediante arbitraje, tramitado conforme a lo establecido en la Ley de Mediación y Conciliación.
In this section, partners may incorporate special clauses for the resolution of conflicts related to disputes, interpretation, execution, and compliance with the articles of incorporation. These conflicts may be resolved through arbitration, processed in accordance with the provisions of the Mediation and Conciliation Law.
The matters excluded from arbitration include: those subject to ordinary jurisdiction, civil and commercial; proceedings for convening meetings of partners or shareholders and boards of directors when their convening has been denied; reinstatements; issuance or exchange of share certificates and their coupons; appointment of a common representative of a share certificate; and those in which the issuance of general meeting books, minutes of boards of directors or boards of directors, the shareholder registry book, and increases or decreases in share capital are requested or denied.
Interbiznet will be pleased to assist you as you begin your operations, providing comprehensive advice throughout the company formation process.
Written by: Julissa Mercedes Flores | Corporate Lawyer in El Salvador