Structure and process, legal regulation and consents

Structure

How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

A typical transaction begins with the execution of a preliminary agreement, such as a letter of intent or a memorandum of understanding (MOU). This generally will include an exclusivity agreement and the terms by which due diligence will be conducted. A non-disclosure agreement (NDA) is also generally signed prior to or with the signing of this preliminary agreement.

Legal and financial due diligence, aimed at detecting any contingency affecting the target company, occurs after a preliminary agreement has been executed.

To finalise a transaction, the parties will execute an agreement, either in the form of a merger agreement, a share purchase agreement, an asset purchase agreement, or a sale of business transaction. The form depends on the requirements and goals of the parties involved. Generally, the agreement will include supplemental documents (such as escrow or trust agreements, a non-compete agreement, or other post-closing obligations).

The amount of time a transaction takes depends on the amount of information available and the experience and motivation of the parties involved. No statutory provision limiting how long offers remain open exists.

Legal regulation

Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

In general, the Commerce Code regulates corporations and limited liability companies from article 17 to article 200. Articles 201 to 219 of the Commercial Code regulate the termination and liquidation of Companies. Articles 220 to 225 regulate the basics of mergers and transformations of corporations. Articles 478 to 489 regulate the acquisition of a business.

The Law for the Promotion of Competition and the Defence of Consumers regulate aspects related to merger control in articles 16 to 16-ter, as well as its regulation in articles 38 to 62.

Share purchase agreements do not have to be governed by local law. They can provide for a foreign governing law. However, local requirements regarding proper registration and transfer of shares must be in accord with Costa Rican legislation to be valid. For example, local legislation covers the requirements for endorsing and recording the transfer of shares for corporations and limited liability companies (see question 3).

Local law formalities, such as using a notary public for asset transfers involving real estate, mortgages, intellectual property (IP), movable assets (boats, airplanes, vehicles, etc) or transfers of movable registered pledges or similar warranties apply. Similarly, the acquisition of a business is subject to specific formalities that the Commerce Code establishes. Nevertheless, an agreement governed by foreign laws can be made, although it might be limited to some extent by the local laws and provisions indicated herein.

Legal title

What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

The mechanism for transferring legal title varies depending on the nature of the asset being sold and certain other factors. For instance:

  • for the transfer of legal title of share certificates in a corporation share purchase agreement, the physical share certificates must be endorsed. Also, for corporations, the transfer entry must be recorded in the shareholder book of the corporation. For limited liability companies, the transfer of quotas entry must be made in the quota holders book, but no physical endorsement applies;
  • the transfer of real estate, intellectual property and other movable assets require certain local formalities such as using a public notary to validate the required documents for legal title to transfer. Many of these assets are subject to registration and the national registry provides a certificate of ownership once the transfer is complete; and
  • requirements for legally acquiring a business are subject to other specific formalities established in the Commerce Code.

The concepts of legal and beneficial title are recognised. Potential buyers ought to be aware of these differences when evaluating and documenting their acquisitions.

Multiple sellers

Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

Unless otherwise agreed in shareholder’s agreements, to acquire shares each shareholder must agree to sell the shares he or she owns. When there is an agreement to extend the social term, or to move the domicile to a foreign country, or to transform or merge the company in a way that there is an increase of responsibility for the shareholders, the shareholders that do not agree can withdraw from the company and request a reimbursement for their shares according to paragraph 1 of article 32-bis of the Commercial Code.

In the case of asset purchase agreements, to sell or pledge assets that represent 10 per cent or more of the total assets of the company, the board of directors or similar governing body must approve the transaction.

These are both mechanisms recently established in the law to protect minority shareholders. Action before the courts is always available for minority shareholders for whose rights are not respected.

Exclusion of assets or liabilities

Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

Tax, labour, social security, and environmental liabilities cannot be excluded through an asset purchase agreement or a sale of business. Otherwise, in an asset sale the buyer is generally able to select the assets and liabilities to be included in the transaction.

Articles 478 to 489 establish a procedure required for the transfer of an ongoing business. The transaction must be published in the official newspaper for three consecutive days and give notice to the seller’s creditors, providing them an opportunity to oppose the transaction or exercise their rights within 15 days.

Other third-party consents, such as those from banks or other commercial parties in the case of a change of control, might also be required.

Consents

Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

As a general rule, there are no restrictions on foreign ownership. However, smaller restrictions, such as prohibition of ownership of real estate in the Maritime Zone, may apply. Along similar lines, a small number of industries require the employment of a certain percentage of Costa Rican citizens.

Some approvals in certain regulated industries might be required, depending on the nature of the company’s business. Examples of such industries requiring additional approval include insurance, telecommunications, and banking. A merger control law imposes the obligation on the parties to obtain consent from the antitrust authorities whenever a transaction results in a change in control or results in the formation of a new economic agent. Approval must be obtained either prior to the closing of the transaction or within five days of the transaction’s execution. Transactions where the total sum of the productive assets of all the propositions involved and their headquarters surpasses 30,000 minimum wages, which is valued around US$15 million, or those where the total sum of revenue produced by all the actors involved within the national territory during the last fiscal year surpasses 30,000 minimum wages, require consent from the anti-trust authorities. Small and medium transactions therefore are not subject to this law. In some regulated industries like telecommunications, notification of mergers is always required regardless of the amount of the transaction.

Are any other third-party consents commonly required?

A merger with another legal entity must always be authorised by the shareholders of the Costa Rican company. In asset purchase agreements where 10 per cent or more of the total assets of the company are pledged, the board of directors or similar governing body must approve the transaction (see question 4). For other asset sales, shareholders are not required to authorise the sale unless the articles of incorporation stipulate they must. The same applies for a sale of shares and purchase of an ongoing business or company. Nevertheless, it is common practice to require a shareholder’s agreement prior to these transactions, as well as the agreement of the board of directors.

Regulatory filings

Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?

Question 6 includes details on required regulatory approvals and filings, including merger control filings. There are no filing fees required.

Law 9416 created in 2016 a centralised shareholders registry in the Central Bank of Costa Rica where final shareholders of corporations and limited liability companies must be registered. However, the implementation of this registry is still suspended because there is still no regulation to the law.