The importance of investments for the economic growth of developing countries such as Guatemala is considerable. In this context, investment companies can play an elementary role as they allow the reduction or distribution of investors' risks by diversifying their investments. In addition, it is a flexible vehicle for the financing of companies, ventures or projects that cannot access or do not want bank financing.
Investment Companies have their specific legal regime in the Securities Market and Merchandise Law (“SMML”). In accordance with the SMML, the purpose of investment companies is the acquisition, transmission or negotiation of securities, of securities issued in series or mass, registered or not for public offering; the management and investment of resources in cash, goods, credit rights, documented or not, negotiated through contracts or stock market instruments, including their derivatives.
To carry out their purpose, these investment companies must obtain the necessary resources through the placement of shares representing their capital stock among the investing public, through public offers duly registered in the Registry of Securities and Merchandise of Guatemala.
In accordance with the SMML, investment companies are constituted as corporations and, within their characteristics that differentiate them from other mercantile companies, the following should be noted:
- Its capital is variable, so it can be increased or reduced without the need to modify its bylaws. As a general rule, the Guatemalan Commercial Code requires that changes to the share capital be made through a public deed and registered in the General Mercantile Registry (articles 16 and 17 of the Guatemalan Commercial Code). However, the LMVM allows investment companies to vary their capital without making changes to their bylaws.
- The company itself can repurchase the shares it has issued, without reducing its share capital. This characteristic differs from the Guatemalan Commercial Code, according to which the company can only acquire its own shares in cases of separation or exclusion of a partner, provided that the conditions detailed in such Code are met and provided that they are sold in a term not exceeding six months.
- The company may issue shares without voting rights, provided that the holders request the company to repurchase such shares within a maximum period of thirty days.
- The administration of the investment company can be entrusted to a administration company, whose sole purpose is to manage the funds of the investment company.
- Investment companies are not required to form legal reserve, as required by the Guatemalan Commercial Code.
It should be noted that investment companies are obliged subjects in accordance with the Law against the Laundering of Money or Other Assets (Decree 67-2001) and its reforms, and the Law to Prevent and Suppress the Financing of Terrorism (Decree 58-2005) and its reforms, so they must adopt control measures and have programs to prevent money laundering and terrorist financing in accordance with the provisions of said regulations.
The Stock Market is a barely explored segment of the Guatemalan Market. This contributes to investment companies not being used as in other jurisdictions. Guatemala, however, does have the necessary legal framework that allows the proper functioning and use of these companies to make investments in the country.
Iosif Alexander Sosa Legal assistant at Arias