Limited liability companies (sociedades de responsabilidad limitada or “SRLs”) were introduced into Panamanian legislation in the 1960s. However, throughout their history, Panamanian SRLs have not enjoyed the same level of market acceptance as other bodies corporate available in Panama, namely the corporation (sociedades anónimas or “SA”). Conventional wisdom attributes this to the fact that the legislation that created the Panamanian SRL was based on a long outdated piece of jurisprudence that had certain structural weaknesses that both clients and practitioners found unattractive.
As a response to the market’s criticism of Panamian SRLs, the National Assembly of Panama, in consultation with leading law firms (including this firm) and other professionals, drafted and enacted Law No.4 of January 2009 (the “SRL laws”). This new legislation resulted in a substantial overhaul of the existing legislation, successfully addressing most (if not all) of these perceived weaknesses.
The following are among the most salient features of this new legislation:
- Name and Scope
SRLs may have any name agreed upon by its incorporators, so long as the name is followed by the words “Sociedad de Responsabilidad Limitada” or its abbreviated form “S de RL”. Given that SRLs are legal entities of a commercial nature, they are subject to the Commercial laws of Panama in addition to being subject to the SRL laws. Regarding their scope, SRLs are permitted to engage in any and all types of lawful civil and/or commercial transactions, which are not specifically reserved by Panamanian law for other types of legal entities. A SRL´s scope may also be limited at the behest of its members.
- Capital Requirements and Limited Liability
SRLs have no upper or lower limit with respect to the size of their authorized capital. However, in order for a SRL to be incorporated, the incorporation documents must clearly establish the following: (i) parameters of the authorized capital (i.e., the total number of quotas/participations1 that the authorized capital shall be divided into and the par value of each quota/participation) and (ii) demonstrate that the authorized capital has been either fully paid or partially paid. The authorized capital can be paid for by the SRL’s members in cash, in-kind and/or in services. The valuation of payments made in-kind and/or in services must be clearly established by the SRL’s members. In order for payments to be made in-kind and/or in services, said payments must have been made in full at the time the contribution is made (i.e., the totality of the services should have been rendered by the contributing member and/or the entirety of the in-kind payment should have been delivered and received by the SRL).
SRLs provide its members with limited liability. Therefore, each SRL member’s economic liability is limited to the value of their respective contribution (i.e., the value of each SRL member’s quotas/participations). In the case of partially paid for quotas/participations, such members are also liable for the unpaid portion of their respective quotas/participations.
- Members and their Respective Rights
Unlike the shareholders of a Panamanian corporation, the SRL laws require that SRL members provide at least a modicum of information regarding their identity and domicile.2 In the event that any member were to transfer her quotas/participations, said transfer must be recorded and registered, and the new member’s information must be supplied to the Public Registry.
SRL members can be either natural persons and/or bodies corporate, regardless of their nationality. However, Panamanian SRLs, unlike Panamanian corporations, are not permitted to issue bearer shares. As such, each SRL member must provide their name, address and domicile as part of the incorporation documents (i.e., post-incorporation, this information becomes publically available).
Each member is entitled to receive a certificate of participation, signed by any of the SRL’s administrators, which shall include the following information: (i) SRL’s name; (ii) its authorized capital; (iii) statement confirming that it has been registered with the Public Registry; (iv) member’s name; (v) value of said member’s quota/participation; and (vi) place and date of issuance of the certificate.
A member’s rights in a SRL (e.g., right to vote) are contingent on said member having fully paid for its quota/participation in the authorized capital of the SRL. Upon full payment, a SRL member is entitled to the following fundamental rights: (i) right to vote in the deliberations of the SRL in proportion to the value of said member’s quota/participation in the authorized capital; (ii) proportionately participate in the earnings/losses of the SRL; and (iii) proportionately subscribe to any increases in the authorized capital of the SRL.
A member may forcefully withdraw from a SRL and cause the non-withdrawing members to pay fair market value for her quotas/participations in the event the following were to occur: (i) the SRL (a) extends its duration beyond the limit established in the Charter of Incorporation, (b) changes its scope, (c) increases/decreases its authorized capital, (d) transforms into a different type of body corporate, and/or (e) mergers with another body corporate; and (ii) said member voted against the adoption of any of the corporate actions enumerated in point (i). The withdrawing member must provide notice of withdrawal to the non-withdrawing members within thirty (30) calendar days of the corporate action in question being registered with the Public Registry.
Alternatively, a member may voluntarily withdraw from a SRL by providing three (3) months written notice (or such other timeframe provided for in the Charter of Incorporation) to the non-withdrawing members. The non-withdrawing members shall have the option of acquiring said member’s quotas/participations within sixty (60) working days of receiving the withdrawing member’s written notice.
The day-to-day operations of a SRL are carried out by the Administrators. The initial Administrators are appointed in the Charter of Incorporation, with subsequent Administrators being elected and/or removed by the members at any time and from time to time. The removal and/or appointment of an Administrator must be recorded and registered with the Public Registry.
The Administrators govern pursuant to majority rule. While the Administrators have the requisite authority to carry out the day-to-day operations of a SRL, they require a specific and/or general power of attorney from the Members’ Assembly to engage in any of the following: (i) carry out operations that fall outside the ordinary course of business; (ii) dispose SRL assets and/or transfer such assets into trust; and/or (iii) encumber SRL assets.
A Members’ Assembly may be held following a call (i.e., written notification provided to each member with at least ten (10) workings days’ worth of notice) from the administration and/or from the members representing at least five percent (5%) of the SRL’s authorized capital. Any agreement adopted at a Members’ Assembly shall be set forth in a minute or certificate signed by the president or secretary of the meeting. Members may choose to waive their right to receive notice at the Members’ Assembly.
Other advantages to consider include: (i) SRLs can be dissolved comparatively easily (when compared to other bodies corporate); (ii) they can be converted or transformed into other types of bodies corporate; (iii) their domicile can be transferred and they "continue" to exist as corporations incorporated under the laws of the new jurisdiction; and (iv) they can be merged with other national or foreign bodies corporate.