All posts by Alberto Pulido

About Alberto Pulido

Email: [email protected]
Tel: +562 2364 3781
Alberto Pulido is a lawyer at Philippi Prietocarrizosa Ferrero DU & Uria in the Santiago Office. He joined the firm in 1992 and was made partner in 2002.
His legal practice focuses on Banking, Finance and Capital Markets, Corporate / M&A and Telecommunications. Alberto is one of the partners in charge of one of the groups of Corporate and M&A of PPU in chile. With over 20 years of experience, his main areas of practice are corporate law, mergers and acquisitions and financing. He is mainly engaged in corporate matters, the drafting and review of documents and contracts and ongoing advice to clients, both domestic and foreign. He has also participated in numerous transactions advising foreign clients in acquisitions and financing fro the respective projects as well as in the drafting and shareholder agreements deemed relevant.
He has a Law Degree from Pontificia Universidad Catolica de Chile (1993) and a Master in Law (LLM) from the New York University (1996). He is profesor of Commercial Law in the Faculty of Economy and Administration at Universidad de Chile (2002 - 2005) and also Member of the Chilean Bar Association and the International Pacific Bar Association (IPBA), (2002 - 2003)

Incorporation of Chilean Companies

The most common way to materialize an investment by a foreign company in Chile, is through a local subsidiary (legal entity) created especially for such purpose. Hereby, we will summarize which are the type of entities most frequently used as an investment vehicle in Chile, the procedure for their incorporation, the differences among each other, and other matters that should be considered at the moment of deciding to incorporate a legal entity Chile.

The legal entities most commonly used as an investment vehicle in Chile are: (i) Limited Liability Partnerships (hereinafter “LLC”); (ii) Stock Corporations (hereinafter “SC”) and (iii) Companies per Shares (hereinafter “SpA”). This last kind of entity was created as a simplify form of SC, it is regulated in the Commerce Code, and it gives to its shareholders broad faculties to set their by-laws (management system, dividend distribution, etc), however, all matters not otherwise regulated in the provisions applicable to the SpA, or in their by-laws, will be subject to the regulations applicable to the SC.

As a general note, the basic differences and similarities between the entities above mentioned, are the following:

(i)    Management: the SC is managed by a board of directors. The LLC and SpA have a very flexible management structure (a board of directors is not required as in case of the SC), they can be administrated for example by a managing partner/shareholder;

(ii)    Number of partners or shareholders: the LLC and SC must have at least two partners or shareholders (both of them may be foreigners), the SpA can have just one shareholder who may also be a foreigner;

(iii)    Amendment of the by-laws: the by-laws of the LLC can be amended through a public deed executed by all its partners. The amendment to the by-laws of the SC and SpA has to be approved by an extraordinary shareholders meeting, in case of the SC, such shareholders meeting shall be always held in the presence of a notary public. It is important to note that in the SpA or SC the majority rule is applicable, on the other hand in the LLC the unanimously of the partners is required. The amendment of the by-laws of the SpA can also be approved by the execution of a public deed by its partners;

(iv)    Capital for incorporation: no minimum capital is required for the incorporation of either of these types of entities. Moreover, in the SpA and SC, the capital is divided into shares, and the owners of the shares are “shareholders”. In the LLC, the capital is divided into equity rights and the owners of the equity rights are “partners”. This difference is due to the fact that the SpA and SC are capital based entities, while the LLC is based in the personal confidence between the partners. Thus, in case of the LLC, the identity of the partners is material and, as a result, the formalities for the transfer of equity rights will differ from the once required in the SpA or the SC; and

(v)    Transfer of shares and equity rights: the transfer of equity rights in the LLC implies an amendment of the by-laws of the Company, as it has to be approved by all the partners considering the identity of these is one of the principal elements of the LLC. Regarding the SC, in order that the transfer of shares be valid, it has to comply with one of the following formalities: (i) to be signed before a notary public; or (ii) that each party signs before two witnesses (who have to be duly singularized by their ID number). These witnesses can be the same if the assignor and assignee of the shares sign the relevant document in the same act. The transfer of shares in the SC does not require the approval of the other shareholders, neither an amendment of the by-laws. The transfer of shares of the SpA, will be subject to the same provisions applicable to the SC, unless something different has been specially provided in the SpA by-laws.

In connection to the incorporation process, there are not many differences in the establishment procedure between the entities mentioned above. LLC, SC and SpA are incorporated by a public deed granted by the initial partners or shareholder(s). Such public deed shall contain the by-laws of the legal entity. A summary of this public deed must be duly authorized by a Notary Public, registered in the Registry of Commerce and published in the Official Gazette, within 60 days from the date of the public deed in case of the LLC and SC, and within 30 days in case of the SpA. In any case, in practical terms, the registration and publication may usually take 10 business days from the granting of the relevant public deed. Amendment of by-laws of each of these entities shall follow the same proceeding than for its incorporation.

Furthermore, it is important to bear in mind that, in order to incorporate a legal entity in Chile, the partners or shareholders must obtain a tax identification number or Rol Único Tributario (“Tax ID number”) granted by the Chilean Internal Revenue Service or Servicio de Impuestos Internos (“SII” or “Chilean IRS”). Pursuant to the regulation that entered into force on January 2015, the filing with the SII has to be completed with some additional information and documentation than before. In connection to the foregoing, the foreign entity shall appoint and maintain as representative in Chile, a person domiciled or with residence in Chile, with faculties to submit any relevant declaration and/or documentation before de SII and specially, to be served by the latter on its behalf. Likewise, this representative shall submit to the SII the information and documents before mentioned, which should contain the following information regarding the foreign entity: (a) name of the foreign entity; (b) Commercial name (in case this is different from the name indicated in letter (a)); (c) specify which kind of entity it is; (d) country, address and date of incorporation; (e) country of tax residence; and (f) indicate its tax identification number (and submit a copy of it). It will also be necessary to submit a good standing certificate of the foreign entity and to identify its partners or shareholders (name, date of birth, address, country, tax residence and ID number). This last information, regarding its partners or shareholders, will be required unless it is a public stock corporation, or is under one of the other situations that Chilean regulation exempts from submitting this information (pension funds, foreign governmental entities, etc). All the documents have to be submitted in original, duly translated to Spanish (if they were granted in a different language) and duly legalized. This Tax ID number is obtained immediately once all the relevant documentation is duly submitted to the Chilean IRS.

Finally, in order for a Chilean entity be able to start its business activities, it must obtain a Tax ID number and give notice to the Chilean IRS that will start its business in Chile. The Tax ID number is obtained immediately once the relevant documentation is submitted to the Chilean IRS. Moreover, this number is usually required by third parties, and in case of banks it will be absolutely necessary before moving forward with the opening of a bank account. Furthermore, all Chilean companies must necessarily appoint and register, at the Chilean IRS, a duly authorized representative for service of process purposes, who must be Chilean or a foreigner with permanent residence in Chile. This representation implies to bear the responsibility over the accounting records of the Company in Chile for IRS and Tax compliance.

As you may see from our brief explanation above, the procedure to incorporate a Chilean company is a very straightforward process, and is practically the same proceeding to incorporate a LLC, a SC or a SpA. Today, we consider that the most difficult point, in the incorporation of a Chilean entity, could be to obtain a tax payer number for the foreign entity that will hold participation in the Chilean entity. The foregoing, due to the regulation that entered into force in 2015, which required new information, for example regarding its shareholders or partners, if those are not under one of the situations that Chilean regulation exempts from this information, it will be necessary to submit details regarding all its partners or shareholders, even though if the company have hundreds of them, which could complicate the process. Notwithstanding this last point, in general terms, the incorporation of a Chilean entity is a simple and strait forward proceeding which can be done in a short period of time.