Legal Presence

Market Access

There are different ways to access the Chilean market.

In Chile all foreign entities entering the country to carry out any type of “trade activities” or “investment activities” are considered “foreign investors”.

In practice, many times “trade” is followed by “investment”. In this case, in general, investment is made through business related to “trade activity”.

The election of a legal form of organization or a determined type of company will depend on the strategy and objectives of the business which the investor intends to set up.

A foreign investor may set up business in Chile through representatives, agencies, subsidiaries and companies.

The incorporation of a company in Chile is one of the most common mechanisms to set up a company in Chile.

1. Which alternative mechanisms are available to do business in Chile?

Business may be carried out in Chile by:

• Appointing a representative;
• Establishing some type of legal presence in Chile.

2. How to appoint a representative in Chile?

An investor, either an individual or legal entity, with no domicile or residency in Chile may act through a representative. The representative may be a legal entity or an individual with residency in Chile.

The representative shall act on behalf and at foreign investor’s own risk, pursuant to an agency contractor by “power of attorney” duly signed by both parties.

3. What alternatives are available to have a legal presence in Chile?

In general, a foreign enterprise may set up in Chile its legal presence by using the following mechanisms:

• Establishing an agency or a subsidiary of the foreign company (the “Agency”)
• Setting up a company.

3.1. What is an Agency of a Foreign Company?

Under Chilean Law, an agency is the legal extension of a foreign company.

3.1.1. Which are the advantages and disadvantages of an Agency?

Among its advantages, we may highlight that it may be used to explore the market, due to the fact that it has a simpler operational structure.

The following are the disadvantages of setting up an Agency:

• It cannot carry out economic activities or business as such, but only explore market conditions.
• It is not a legal entity separated from the parent company and is considered to be only an extension of the holding company. Consequently, the parent company is liable for any responsibilities generated through actions from the Agency, even with goods which are not physically in Chile. Nevertheless, the Chilean creditors shall have preference on the goods in Chile for payment in the event of bankruptcy or insolvency.

Furthermore, the procedures to set up an Agency are rather complex, since it includes the translation of the original documents of the parent company and other procedures which normally are not applicable to a normal company.

3.1.2. What documents are required to establish an Agency or Subsidiary?

To form and set up an agency or subsidiary it is necessary to appoint an agent and to register the agent with a Public Notary in Chile.

The foreign company shall grant the agent a general power of attorney to perform business activities in Chile on their behalf.

The agent shall legalize and file with a Public Notary all legal information relating to the foreign company, such as the certificate of incorporation of the company, the by-laws of the company, the general power of attorney granted to the agent, and a statement from the foreign company regarding the assets assigned to cover eventual liabilities in Chile, the capital assigned to the Chilean subsidiary and under which conditions the foreign company shall enter it to Chile, and furthermore the domicile of the main agency in the country, among any other information that might be required.

Finally, an extract of the notarized documentation shall be filed with the Trade Registrar of the Real Estate Property Registry within 60 days starting as of the date, which shall also be published in the Official Gazette within the same period.

3.1. What types of Companies exist in Chile

The most widely used business structure in Chile is the company.

The company forms a legal entity, different to the individually considered partners.

Different forms of companies are set up, basically divided into partnerships and corporations (structured by capital). The most commonly used are detailed as follows:

3.2.1. Limited Liability Company(LLC)

3.2.1.a. What is a limited liability company “LLC”?

The LLC are partnerships whereas their partners limit their responsibilities to the amount of their contributions or to a larger amount defined by them, as long as this is registered in the company’s deed of incorporation.

Limited liability company’s setup is governed and ruled by Law Decree 3.918 of1923.

3.2.1.b. Who is entitled to become a partner of a LLC?

The partners may be Chilean or foreigners, individuals or legal entities; the limitation is the number, not less than two, but shall not exceed more than fifty.

3.2.1.c. Is there a minimum capital required?

No minimum capital is required, although normally the Internal Revenue Service (IRS) will demand sufficient capital to set up the company in Chile as guarantee for the creditors.

3.2.1.d. How to contribute with capital to a LLC

The capital shall be in Chilean Pesos. Nevertheless, with authorization from the IRS, contributions may be established in foreign currency (regularly in US dollars).

The capital may be contributed in money, in other type of goods, inclusively work, which should be duly valued in the company deed.

3.2.1.e. How to define the aim or purpose of a LLC

The aim or purpose of a LLC can be wide and general.

There is no obligation to detail objects or purposes or “business activity” of the company regarding specific products or special services from the company.

Neither does a relation exist between the “object” of a company and its “registered capital” nor a relation between the “object” of the company and the licenses required for this purpose.

3.2.1.f. Licenses required for a LLC

In general a company in Chile does not need licenses to operate, but only for certain very special business areas, such as for banking and insurance activities, for private social securities, for generating and transmission and electrical distribution, and in general all “public utilities”, etc.

From an operational point of view, it is necessary to obtain a “local commercial license”, which really is a type of tax charged on economic development activities within the territory of a municipality.

3.2.1.g. How to administrate a LLC

The administration of the company can be freely defined by the partners.

The administration of the company may be carried out either by the partners individually or jointly or through a representative, even a ”board” may be created.

3.2.1.h. How to choose a name for the LLC

The name of the LLC may be selected from two different options.

• The name of one or more partners
• A reference to the company object

In both cases “Limited” should be added at the end, otherwise without mentioning Limited it may be understood that the partners will respond unlimited, joint and severally to company liabilities.

3.2.1.i. What documents are required to establish an LLC?

To set up a LLC the following stages are to be completed:

• Public Deed granted by a Public Notary
• Inscription of an extract of the deed at the Trade Registrar of the Real Estate Property Registry
• Publication of the extract in the Official Gazette.

The registration and publication of the extract shall be made within 60 days as of the date the incorporation deed has been signed.

3.2.1.j. Which are the advantages and disadvantages of a LLC?

The LLC is one of the most used company structures in Chile.

Among the advantages the following may be mentioned:

• Its setting up presents no major difficulties.
• It is a simple manner to operate a business in which the parties and partners trust each other
• The responsibility of the partners is “limited” up to the amount of the agreed contributions
• The administration is simple and flexible, and there is no documented administration which may turn this process complex
• Changes to the by-laws require unanimity from the partners.

The disadvantages are the following:

• Its administration system is too simple for a more complex business. The parties will need to regulate in detail a more complete system of administration to solve this disadvantage;
• The structure and the important decision making process supposes a high level of “consistent opinions” among the partners, as well as a high level of “confidence among the partners”, as unanimous agreement is required to make relevant changes in the by- laws.
  It is not an efficient structure as base for additional capital raise. Specially in the event of raising capital funds during different investment rounds, as normally happens in projects of “private equity” and “venture capital”.

3.2.2. Corporation (Sociedad Anónima –S.A.)

3.2.2.a. What is a Corporation?

Corporations are legal entities formed by a common fund pooled by shareholders, with their responsibility limited to their contribution, and administrated by an essentially revocable board of directors. The shareholders are only liable for payment of their shares and are not compelled to reimburse the company the benefits they might have received.

The Corporation is governed by Law Decree 18.046 dated 1981.

3.2.2.b. Is the Corporation limited in relation to its object or other aspects

In order to answer this question, it is relevant to point out that there are three types of Joint Stock Companies:

• Open Public Corporations (S.A.) are those which voluntarily or under legal obligation register their shares in the Registry of Values of the Superintendence of Securities and Insurance (SVS), those with 500 or more shareholders, or those where at least 10% of their subscribed capital belongs to a minimum of 100 shareholders;
• Special Corporations: are, among others the banks, insurance and underwriter companies, stock companies which administrate mutual funds, stock exchange and other companies which are subject to procedures clearly set out by the law, which are formed, exist and are approved by public deed, by obtaining a resolution from the Superintendence authorizing their existence and registration and publication of the special certificate granted by said Superintendence;
• Closely held Corporations: those which do not qualify either as open nor as special corporations.

Open and special corporations are subject to the supervision from the Superintendence of Securities and Insurance (SVS). Closely held corporations are not. Nevertheless, the shareholders of a closed corporation may agree to change it into an open one, and therefore be subject to the ruling and control from the SVS.

Due to the fact that the company is subject to the audit from the SVS and which implies major complexities and major expenses, in general in Chile closed corporations are preferred.

3.2.2.c. Documents required to set up a Corporation

To set up a corporation, either open or closed, the following is required:

• Public deed signed before a Public Notary;
• Registration of an extract of the above at the Trade Registry of the domicile;
• Publication of the extract in the Official Gazette.

Both procedures shall be carried out within sixty days as of the signing of the company deed.

3.2.2.d. Administration of a Corporation

Board of Directors

The administration of the company is delivered to a joint entity named Board of Directors, which is essentially revocable.

The Board of directors has administrative powers of attorney and provisions established by the Corporation Act or the by-laws of the company that are not exclusive of the Shareholders Meeting Board.

The Directors of a Corporation represent the company legal and non-legally, and during their accounting period they are compelled to comply with certain duties (loyalty, efficiency, and good faith), which mainly implies to perform their responsibilities in good faith, in the company’s interest over their personal interest, freely and independently.

3.2.2.e. Who is entitled to become Director?

There are no major restrictions regarding who might be appointed a Director. A person might even be appointed Director if he lives abroad, since currently board meetings might be held by videoconference.

3.2.2.f. Is there a minimum number of Directors required in Chilean company structures?

In closely held corporations a minimum of three directors is required, and for open corporations, a minimum of five. For companies having stock exchange equity over 1.500.000 UF (Unidades de Fomento: inflation indexed value) 7 directors are required.

3.2.2.g. Is there a legal period established for the Director?

At the end of its term, which shall not exceed three years, the Board of Directs shall be completely renewed; nevertheless, they may be reelected indefinitely. If it is not mentioned in the by-laws, but as a general rule the Board of Directors shall be renewed each year. The President shall be appointed during the first shareholders Meeting (Board).

3.2.2.h. How do shareholders participate in a Corporation?

Shareholders meeting

The Shareholder’s Meeting Board (Junta) is the most important entity of the company, in which the shareholders participate.

The shareholders shall appoint the members of the Board of Directors, and may at the same time remove all members of the Board of Directors at any given time.

They also must approve the general balance sheets; determine dividends distribution policies, change by-laws, among others.

3.2.2.i. Contribution of capital to a Corporation (S.A.)

The capital is the fund provided by the shareholders. The capital is represented by means of negotiable share certificates so called share titles.

3.2.2.j. Does a Corporation require minimum capital or are there any relevant restrictions?

The Corporation Act stipulates that at least one third of the initial capital of the company has to be subscribed and paid for at the moment of subscribing the deed of incorporation. Furthermore, the total initial capital shall be subscribed and paid for within a period not exceeding three years. Said period shall start as of the date of incorporation of the company. Should the capital not be subscribed within this term, it shall be understood that the capital of the company only corresponds to the capital actually subscribed and paid for.

3.2.2.k. Are there any restrictions regarding distribution of profits

The Law provides that the Open Corporations shall distribute at least 30% of the net profits each year, unless otherwise agreed upon by the shareholders meeting board (Junta) with the unanimous vote of all the shares issued. In Closed Corporations the shareholders may agree in the by-laws on distribution policies of benefits.

La distribution of dividends may be approved by the Board of Directors, provided that there are no accrued losses. Should this be the case, each Director shall be personally responsible if the company ends up with losses or profits lower than the distributed benefits.

3.2.2.l. Advantages and disadvantages of the Corporation(S.A.)

Among the advantages of the Corporation the following can be mentioned:

• The free transferability of the company rights or shares. Its transfer shall not be hindered by the ruling from the company which has issued them neither by the market;
• The limitation of liability is up the value of the share;
• The faculty to revoke the Board of Directors, since the most important body of the company is the Shareholders Meeting Board (Junta);
• No limitations exist in relation to naming the company, except that it shall end with the words “sociedad anónima” or the abbreviation S.A.;
• The possibility to relevantly influence the decision making of the company is in as much determined by quorums reached during voting process.

Among its disadvantages, the incorporation and management implies more procedures and consequently more expenses, especially if an open Corporation is chosen, since additional requirements related to the auditing form the SVS shall be complied with.

This company model is used for foreign investment involving the present and future participation of different shareholders since it normally adapts to the interests of said business.

3.2.3. Stock Company (SpA for its acronym in Spanish)

3.2.3.a. What is a SpA

A Stock Company is a legal entity created by one or more persons by means of an act of incorporation improved in accordance to the provisions governed by law, the participation of which in the capital is represented by shares. The SpA is always mercantile, and as in the Stock Company and LLC the shareholders have limited responsibility up to the amount of their contributions.

Firstly the SpA is governed by its by-law, by the provisions of the Trade Law (Articles 424 to 446 of the Trade Code), and in a supplementary manner, by the provisions which govern Closely held Corporations in everything not opposed to the legal nature of the SpA.

3.2.3.b. Documentation required for incorporating a SpA

The following is required for incorporating a SpA:

• Public Instrument/Deed signed before Public Notary or Private Instrument also authorized before a Public Notary.
• Registration of Extract in the Corresponding Trade Registry
• Publication of said Extract in the Official Gazette

The registration and publication of the Extract shall be carried out within 30 days following as of the date of the signing of the company deed.

3.2.3.c. Main characteristics of a SpA

The SpA may have a single shareholder, either during incorporation of the company or later on, and continue to exist in this manner.

Shareholders might be individuals or legal entities, there are no restrictions regarding this matter, and the possibility is open to incorporate more shareholders in the future. The maximum number of shareholders would be the amount which would force to change the company and register its shares in the Registry of Values and thus change to an open Corporation.

The ownership is represented by “shares”, but it is not a requirement to issue share certificates or titles. The ownership is opposable to the company and third parties if it is registered in the Shareholders Registry.

For taxation purposes, the SpA is considered as a Closely held Corporation.

3.2.3.d. Advantages and disadvantages of a SpA

Advantages are as follows:

• Gives relevant flexibility in different aspects, as for example in the administration system, management system, operations and competence of the Shareholders Meeting Board, the recording in the Shareholders Registry, the audit system, capital structure, negotiable and transferable participation of each partner, expedite exit of the shareholder, company accounts and distribution, dissolution grounds, settlement system.
  The feature of the SpA is that most of its provisions can be laid down in the company by-laws, with few restrictions in this sense.

3.3. Which is the cost of incorporation of a legal entity in Chile, including the administration costs, service charges and any other related cost?

To form a legal entity in Chile is relatively easy end expeditious and does not involve very high costs. Nevertheless, the incorporation costs will also depend on the amount of capital of the company.

In relation to lawyers’ fee, these may range between USD 3.000 and USD 5.000, subject to the complexity of the documents (such as administration structures and powers of attorney) and the different concerns and additional necessities the foreign investor may have.

3.4. How long does it take to complete the procedure of incorporating a company

In general, it takes 3 to 4 weeks as of the moment all documents and the general power of attorney has been received.