In El Salvador, businesses must be incorporated through a public deed (known as an incorporation deed), as required by the Commercial Code. Article 21 of this code states that companies in El Salvador must be incorporated, modified, transformed, merged, and liquidated through a public deed.
How to Incorporate a Company in El Salvador
What is a Public Deed for a Company in El Salvador?
A public deed is an official notarial document that records the legal formation of a company. The essential components of an incorporation deed are specified in Article 22 of the Commercial Code and include:
1. General Information of Shareholders
According to Salvadoran legislation, a company must have at least two shareholders, who can be either legal entities (corporations) or natural persons (individuals). There are no nationality restrictions, meaning shareholders can be foreign or local investors.
2. Company Address (Domicile)
The incorporation deed must specify the municipality and department where the company will operate. Additionally, businesses must establish a fiscal domicile.
If the company’s domicile is outside San Salvador, certain municipal requirements may apply for registration with the Commercial Registry.
3. Legal Structure: Variable Capital
Companies in El Salvador can operate under a variable capital regime, which is regulated by Article 306 and subsequent articles of the Commercial Code. This structure allows businesses to increase or decrease their capital, making it crucial to include specific conditions for capital adjustments in the incorporation deed.
4. Business Purpose
The incorporation deed must clearly define the company’s commercial activities. If the business will engage in trade, import, or export, these activities must be explicitly stated.
Some businesses must specify their activities to obtain necessary permits. For instance, companies engaged in cargo consolidation must include this in their incorporation deed to secure authorization from the General Directorate of Customs.
5. Company Name (Corporate Name)
The corporate name must be legally registered, and a name availability search should be conducted with the Commercial Registry before signing the incorporation deed to avoid registration issues.
For variable capital corporations, the name must include “de Capital Variable” or the abbreviation “de C.V.”
6. Company Duration
It is advisable to establish the company for an indefinite period since companies with a fixed term cannot be extended and must be dissolved and liquidated upon expiration.
7. Share Capital
The minimum capital requirement for a company in El Salvador is $2,000 USD. The deed must specify the contribution amount each shareholder provides to establish the company.
8. Capital Increase and Reduction
Changes in capital must be approved in an Extraordinary General Shareholders’ Meeting, which will determine the amount and terms of subscription, payment, and issuance of new shares.
In the event of a capital increase, existing shareholders have a preemptive right to subscribe to the new shares.
9. Company Administration
Companies can be managed by either a Board of Directors or a Sole Administrator:
- Sole Administrator: Composed of a Sole Proprietor Administrator and a Sole Substitute Administrator. If the Proprietor leaves office, the Substitute assumes the role of Legal Representative.
- Board of Directors: Can include a President, Vice President, and Secretary, with respective alternates.
- The administration term can range from one to seven years, depending on the shareholders’ decision.
A Board of Directors allows for multiple legal representatives, whereas a Sole Administrator has exclusive legal authority.
10. Company Dissolution and Liquidation
According to Article 59 of the Commercial Code, a company may be dissolved due to:
- Expiration of the term stated in the incorporation deed.
- Impossibility of achieving the company’s main objective or upon its fulfillment.
- Loss of two-thirds of the share capital.
- Unanimous agreement of shareholders, unless the deed states that a majority decision is sufficient.
- Court ruling ordering dissolution.
- Merger with another company.
A Liquidation Committee must be appointed to oversee the liquidation process, acting as the legal representative during dissolution.
11. Special Clauses
Shareholders can include special clauses in the deed to resolve disputes related to the interpretation, execution, or enforcement of the incorporation agreement.
Disputes may be settled through arbitration under the Mediation and Conciliation Law, except for cases involving:
- Corporate governance disputes (e.g., shareholder meetings).
- Issuance or replacement of share certificates.
- Appointment of a common representative for share certificates.
- Requests for company books and shareholder registries.
At Interbiznet, we are committed to guiding you step by step through the incorporation process, ensuring comprehensive legal support for your new company in El Salvador.
Written by: Julissa Mercedes Flores | Corporate Law Attorney in El Salvador