The
Commercial Code 1964 governs the creation of companies,
partnerships, trusts and sole proprietorships
all of which are described below. The stock corporation
is the most commonly used corporate entity and
the sole proprietorship is an interesting concept
if only because it is so far removed from the
sole proprietorship of a common law jurisdiction.
Even
though Costa Rica is a civil law jurisdiction
trusts are permitted. The tax laws do not discriminate
between onshore and offshore operators and as
such the concept of a tax exempt company does
not exist (see Direct Corporate
Taxation and Offshore
Legal and Tax Regimes for further details).
The international regulatory authorities which
seek to curtail the activities of offshore centers
consider a non discriminatory taxation system
as one of the factors that defines a reputable
and well regulated tax haven.
Article
227 of the Commercial Code makes provision for
the migration of a foreign company to Costa Rica
and for the re-domiciliation of a Costa Rica company
to a foreign country upon the presentation of
a shareholders' resolution. Migration does not
entail the dissolution of the corporation in its
country of origin or the incorporation of a new
company in Costa Rica. The law of the foreign
corporation must permit its re-domiciliation.
Note
that all corporate filings must be in Spanish.
Costa Rica Limited Liability Corporation
The limited liability company (sociedad limitada)
limits the liability of the members to the value
of the unpaid capital. It is governed by section
104(a) of the Commercial Code. Although at incorporation
the company must have 2 subscribers a sole shareholder
is subsequently permitted. Corporate shareholders
are not permitted.
The
principal difference between a limited liability
company and a stock corporation lies in the level
of administration. Instead of being run by the
directors the limited liability corporation can
be managed by a manager with broad powers of attorney
and so in this respect resembles a common law
partnership. By contrast the administration of
a stock corporation is subject to very detailed
rules (see below).
Limited liability companies are however not very
popular.
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Costa Rica Stock Corporation
The stock corporation (sociedad anonima) is the
most popular form of business organization and
has the following characteristics:
-
It must have 2 subscribers at the time of incorporation;
thereafter a single shareholder is permitted;
corporate shareholders are permitted;
-
Shareholder meetings must be held annually and
can be held anywhere in the world provided that
provision is made for this in the articles;
-
There is no minimum share capital requirement,
however at least 25% of the issued capital must
be paid up on incorporation;
-
Shares of no par value and bearer shares are
not permitted; preference and deference shares
are permitted;
-
The stock corporation must have a registered
office, a fiscal agent, a resident agent (who
is a local lawyer) and a minimum of 3 directors
(resident or non-resident) one of whom (the
President) has power to manage the company;
directors' meetings can take place anywhere
if the articles pemit it.
The President is assisted by a secretary and a
treasurer and unlike a common law jurisdiction
his authority to act on behalf of the company
comes through the issue by the shareholders of
a power of attorney in his favor which defines
what he can and what he cannot do. The fiscal
agent is basically an accountant and his duties
are to keep an eye on the board of directors and
to report directly to the shareholders. The fiscal
agent and his immediate relatives cannot be the
directors.
These
requirements are burdensome by the standards of
offshore common law jurisdictions and have the
effect of pushing up the administrative costs
of a stock corporation. Three sets of minute books
and accountancy records must be maintained. One
set is for the use of the directors, one is for
the shareholders and the third must be kept in
the registered office.
Reporting requirements are minimal. The company
must file a tax return irrespective of whether
it is liable to pay tax on its income.
Incorporation
is relatively quick for a civil law jurisdiction,
taking some 4 weeks in all. Since stamp duty is
payable on issued share capital the practice is
to keep the value of issued share capital low
thereby keeping the costs of incorporation to
a minimum.
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Costa
Rica Public Limited Liability Company
A
Public Limited Liability Company is a stock corporation
whose shares can (unlike private companies) be
openly and freely traded on the stock exchange.
Law 7201 of 1990 was passed to allow for the creation
of these corporate entities.
The
minimum share capital of a Public Limited Liability
Company is (at the time of writing) 50 million
colons and it must have at least 10 shareholders.
A Public Limited Liability Company remains under
the permanent supervision of the Central Bank
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Costa
Rica Collective Corporation
The
shareholders of a collective corporation have
unlimited liability. Consequently this type of
corporate entity is for all intents and purposes
no longer used. It is comparable to the general
partnership of the common law countries without
some of the advantages.
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Costa
Rica Foreign Corporation
Foreign corporations can operate in Costa Rica
either through a branch or a subsidiary. A branch
must register under article 226 of the Commercial
Code by presentation to the companies registry
of a shareholders' resolution whose authenticity
has been verified by the Costa Rican consul in
the foreign corporation's domicile.
No
such procedure applies when a foreign parent wishes
to incorporate a subsidiary (ie as a stock corporation,
see above). Subsidiaries receive more favorable
tax treatment than branches, which suffer withholding
tax on all remittances to their parent.
If
a foreign company uses the re-domiciliation procedure
rather than creating a new local subsidiary, it
will remain subject to the laws of its original
domicile as regards its articles, although Costa
Rican law will apply in various respects, including
of course taxation.
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Costa
Rica Sole Proprietorship
In Costa Rica the sole proprietorship ("empresa
individual de responsabilidad limitada") is a
far cry from the sole proprietorship of a common
law jurisdiction. It could be said to have the
characteristics of both a limited liability company
and a limited partnership and the English translation
of its name would seem to suggest that it is a
limited liability company.
The
concept originated in Liechtenstein but has been
adopted by very few countries.
Under
the Commercial Code of Costa Rican law a sole
proprietorship is an enterprise with one owner
whose liability is limited to the value of his
share capital in the business. By way of exception
where the sole proprietorship has been involved
in fraud the personal assets of the owner can
be seized to satisfy any judgment entered against
the business where the assets of the latter are
not sufficient to meet the creditors' claim.
The
profits of a sole proprietorship can only be distributed
by way of dividend where a trading profit has
been made in that year. A sole proprietorship
is run by a manager who has been granted broad
powers of attorney and so is much simpler and
cheaper than the running of a company. The owner
of a sole proprietorship must be an individual
and cannot be a legal entity such as a limited
company.
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Costa Rica
Limited Partnership
A limited partnership (sociedad comandita) has
a minimum of one general partner whose liability
for the debts of the partnership is unlimited
and a minimum of one limited partner whose liability
for the debts of the limited partnership is limited
to the amount of his unpaid capital. Where there
is more than one general partner all are jointly
and severally liable for the debts of the limited
partnership. By way of exception if a limited
partner actively participates in the management
of the limited partnership he will have unlimited
liability for the debts of the limited partnership.
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Costa Rica General Partnership
In a general partnership all the partners have
unlimited liability and are jointly and severally
liable for the debts of the partnership. Profits
are distributed according to the percentage of
equity held.
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Costa
Rica Trusts
Although a civil law jurisdiction, trusts can
be created under Costa Rican law. Trusts are covered
by articles 633-662 of the Commercial Code which
deals with the proper law governing the trust,
the jurisdiction and the situs of its administration.
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