Limited liability corporations
Limited liability Corporation is the most common form of creating a business in Ecuador.
A minimum of two shareholders is required, which may be corporations, companies or individuals. Corporations may continue with only one shareholder after being organized.
There are no restrictions for foreign shareholders by law must be converted into a public deed, approved by the Superintendent of Companies and registered at the Mercantile Registry.
The minimum subscribed capital is US $400, and 50% must be paid in at the moment the corporation is organized. The remaining 50% must be paid within the following two years at the most. Funds in local and foreign currency for the initial contribution should be deposited in a local bank. The capital contribution may be in cash or in kind, but must be related to the corporation’s activity.
The main characteristics are:
- Limited liability – The Corporation is an organization where capital stock is divided, into negotiable shares, arising from the shareholders contributions, and the shareholders’ liability is only limited to the par value of the shares they hold. In this organization are members are responsible only shares.
- Centralized management – Shareholders Meeting is the supreme body of the company and is responsible for decision-making in matters related to functions, activities and business operations. A Chief Executive Officer, appointed by the Shareholders’ Meeting, may manage the company.
- Continuity – The death, illness, bankruptcy, retirement or resignation of any shareholder does not cause the dissolution of the entity.
- Corporations should allocate 5% or 10% of their distributable net profits, after employees’ profit sharing and income tax, up to a limit equivalent to 20% of the paid-in capital in order to create a Legal Reserve for limited liability Corporation and other Corporation respectively. Shareholders must distribute at least 50% of the year net profit unless they unanimously agree to distribute 100% or reinvest it entirely.
A partnership corporation may be organized by a minimum three and a maximum of fifteen partners. These partners can be either individuals or corporations, banks, insurance and capitalization companies, are not allowed to incorporate limited liability companies. The procedures to incorporate partnerships are the same as those for limited liability corporations.
The minimum paid-in capital is US $800. At the moment of incorporation, the whole capital must be subscribed and at least 50% paid in; the remaining capital must be paid within the next twelve months from the date of incorporation.
Branch of a foreign corporation
Foreign companies may operate in Ecuador through a domiciled branch in Ecuador. For the establishment of a branch it is required to:
- Prove the good standing of the company in the country of origin.
- Prove the company’s capability to establish a branch in a foreign country.
- Appoint a permanent legal representative in Ecuadorian territory legally authorized to conduct business, and to undertake obligations. If the legal representative is a foreign individual, he/she must be a resident in Ecuador.
- Assign a minimum capital to start operations is US$2,000, which have to register in Banco Central del Ecuador BCE.
Latest version updated 11th April 2019