One of the most important aspects when setting up a company in Chile is choosing between the different types of commercial legal entities. Deciding on one or another legal structure will depend on the needs, interests and projections of the business. Among other things, the type of company will determine the regulations to be observed by the company. It will also define how it will be managed, who will make the decisions and the way in which it will pay taxes.
In this article, we will analyze the most common types of commercial companies that exist in Chile and their main characteristics. Choosing the type of company a business will have can be a difficult decision to make. Therefore, it is important to have guidance and advice from an expert lawyer in business law.
Note: Also read our article about how to set up a company in Chile as a foreigner.
Ways to start a business in Chile
In Chile, there are two ways to start a business: as a natural person or as a legal entity. The first option refers to the development of commercial activities in one’s own name, using the same Chilean Tax ID (“RUT”) as the natural person. The legal entity, on the other hand, operates independently of the individual members who are part of the company. This means that the company will have its own RUT and will have its own obligations and rights recognized by the law.
Natural Person
In Chile, you can start a business as a natural person, for such there is the figure of the Individual Entrepreneur. This type of business corresponds to the natural person who carries out commercial activities in his own name. The liability of the individual entrepreneur is unlimited. That is to say, he may have to respond with his personal assets for the obligations or debts incurred as a result of the activity exercised.
- The individual assumes all rights and obligations inherent to the activity in which the business is carried out.
- It does not constitute a separate legal entity, so it operates with the same name and RUT of the natural person.
- Develops activities whose income is classified in the first tax category.
- The entrepreneur is personally liable for all the debts and obligations of the business.
- Operates with the same RUT or passport number of the natural person.
Legal Entity
It is a legal entity independent and distinct from the individual members that form it. Thus, it has the capacity to contract rights and obligations that are recognized by the law.
- It constitutes an individuality distinct from those who are part of it.
- It gives rise to a separate equity from that of the partners or shareholders.
- The legal entity assumes rights and obligations separately from its partners or shareholders, as the case may be. In addition, the rights and obligations are recognized by the law.
- Depending on the type of commercial company chosen, it may be formed by one or more persons, both natural and moral.
- Chilean law contemplates different types of legal entities.
Nota: Also read about the process and advantages and disadvantages of setting up a company in one day versus through a notary.
Types of commercial companies in Chile
Chilean law offers different types of commercial companies. Each one is more adapted to a particular business purpose. Next we will mention their main characteristics.
1. Limited Liability Company (“Ltda.”)
It is a partnership in which the system of administration and representation can be freely established. In this type of company, the partners:
- They are liable only for the amount of capital they contribute.
- They can be nationals or foreigners, natural or juridical persons, and their number cannot be less than two or more than fifty.
- The rights of the partners are represented by a quota and not by shares.
- The decisions have to be approved by all partners.
2. Commercial Partnerships (“Sociedad Colectiva Comercial”)
These are partnerships formed for businesses qualified as acts of commerce according to the Code of Commerce.
- The administration of this company corresponds by right to each and every one of the managing partners, who can exercise it by themselves or through delegates.
- The partners may designate an administrator in the corporate deed or in a subsequent act.
- Those who are general partners present in the corporate deed are jointly and severally liable for all the obligations legally contracted by the company.
- In addition, the partners may not derogate from the joint and several liability in general partnerships.
3. Commercial Limited Partnerships (“Sociedad en Comandita Comercial”)
In this type of partnership, there are two kinds of partners.
- General Managers: They are the only ones who have the power of administration and are jointly and unlimitedly liable for the partnership’s obligations. Their names appear in the corporate name.
- Limited partners: These are the capital partners in terms of the corporate contribution, and passive partners in relation to the administration of the company. They limit their liability to the amount of their contributions, and their names may not appear in the corporate name.
Likewise, there are two types of limited partnerships:
- Simple limited partnership: This is one that is formed by the gathering of a fund provided in its entirety by one or more limited partners, or by these and the managing partners at the same time.
- Limited partnership by shares: The limited partnership by shares (“Sociedad en Comandita por Acciones”), is formed by the assembly of a capital divided into shares and supplied by partners whose name does not appear in the corporate deed.
4. Joint Stock Company (“Sociedad por Acciones” or “SpA”)
A Joint Stock Company is a capital company which has one or more shareholders who may be individuals or legal entities, which make a capital contribution. It may remain as such with a maximum of 499 shareholders or 99 with 10% of the capital.
Main characteristics of this type of commercial company:
- The capital of the corporation will be divided into shares, being the shareholders liable up to the amount of their contribution in the corporation. The shares must be subscribed and paid within the term specified in the bylaws, and if nothing is specified, such requirement must be complied with within a maximum term of five years from the time of incorporation of the company or from the increase in capital stock, as the case may be.
- Different series of shares may be created, with some giving only the right to profit and not to vote, obliging a shareholder to sell its shares to the other shareholders or to the company itself if it wishes to withdraw, among other situations.
- The sale of the shares can be made simply by means of a public deed, by means of a private instrument signed before a Notary Public, by means of a private instrument signed by two witnesses, or by means of other formalities set forth in the bylaws of the corporation.
- A joint stock company allows great flexibility in its administration and in the rights and obligations related to the holding of its shares, which allows it to adapt to each of the needs of each business.
- There must be at least one administrator who acts as legal representative, but there is no limitation that this legal representation may be exercised by two or more persons jointly or separately.
5. Corporation (“Sociedad Anónima” or “SA”)
The corporation is a legal entity, always of a mercantile nature, which is formed by a common fund consisting of contributions made by the shareholders, who are only liable up to the amount of their respective contributions.
Main characteristics of this type of commercial company:
- Decisions of an organic and corporate nature are made by the Shareholders’ Meeting, while management decisions are made by a Board of Directors composed of essentially revocable members.
- The equity of a corporation is composed of tangible and intangible assets. The capital stock is divided into shares, which are the representation of the shareholder’s right to participate in the funds. These shares are essentially transferable.
- In order for a corporation to be incorporated, a minimum capital contribution is required, which can be paid within three years from the date of incorporation. This capital is divided into shares owned by the partners.
- There are two types of Corporations.
- Open: These are corporations whose shares are traded on the Stock Exchange, being these share transactions of a public nature.
- Closed: These are closed corporations whose shares are not traded on the Stock Exchange, but in private transactions.
6. Civil Legal Entities (“Sociedad Colectiva Civil”)
Civil Partnerships
In civil partnerships, the partners are liable up to their personal assets, the insolvent partner’s share is taxable to the other partners, and resolutions are generally adopted unanimously.
Civil Limited Partnerships (“Sociedad en Comandita”)
In these partnerships, the managing partners or administrators are liable up to their personal assets, and the limited partners are liable for their contribution. Both the incorporation and dissolution of these partnerships are consensual.
7. Sole Proprietorships (“Empresa Individual de Responsabilidad Limitada” o “EIRL”)
This type of company is governed by Law 19.857 introduced in 2003. It is a legal entity with assets separate from those of the owner.
Main characteristics of this type of commercial company:
- It is formed by a single person, being only a natural person able to incorporate this type of company.
- It has its own patrimony, different from that of the owner. Thus, the owner of the sole proprietorship is liable with its own assets and only with the contributions made or that it has undertaken to incorporate. On the other hand, the company is liable with all its assets for its obligations generated in the exercise of its activity. In this way, it keeps its personal assets separate from those of the company.
- The name of the company must include the name of its founder or an invented name referring to the business. It must also include the words “Empresa Individual de Responsabilidad Limitada” or “EIRL”.
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