The emerging economy of El Salvador has converted itself into an attractive commercial jurisdiction for the investors who are looking to start a new business or expand their business activities into the country. There are ample business opportunities in the region, however, first, the company must choose which type of company establish.
For the establishment of a Company in El Salvador, there are different types of legal entities to choose from. For example, you can choose to incorporate a new local company or you may choose to establish a foreign branch office. Both options offer advantages and disadvantages; you must look for the one better suits your business model and objectives in the region.
In this article, you will learn more about the differences between a foreign branch office company and a local company in El Salvador.
Legal Differences: Branch Office vs Local Company.
There a variety of different types of local companies, including the Limited Liability Company and the Public Limited Company. The latter is the most commonly used by foreign investors. Foreign branch office companies in El Salvador are considered a legal entity that is not entirely separate from the parent company, called the ‘Casa Matriz´ in Latin America.
In this article we identify the principal characteristics of each of these legal entity structures:
- Local Company: Most names can be the chosen as long as they are not already taken by another company; the name of the company will follow by the words “Sociedad Anomina” (S.A.) if you choose a Public Limited Company, or “Responsabilidad Limitada” (LTDA.) if is a Limited Liability.
- Foreign Branch Office Company: The name is always the same as the head office, and followed by the words “Sucursal El Salvador”.
- Local Company: The company can be made up by a board of directors or an individual legal representative, selected by the shareholders.
- Foreign Branch Office Company: The appointing of the company legal representative must be made through a Power of Attorney (POA) or ‘Poder’, selected by the board of directors of the head office.
- Local Company: At the moment of the incorporation, you must draft the company bylaws that are going to determine the management of the company. These bylaws must be approved by the Public Registry of Commerce.
- Foreign Branch Office Company: Has the same bylaws as the head office/parent company.
- Local Company: The only aspect of the company incorporation process is with the Public Registry of Commerce. Once this has been completed, the company is free to begin commercial activities.
- Foreign Branch Office Company: Before its incorporation in the Registry of Commerce, the company is required to comply with a number of further requirements such as with the Ministry of Economy for the registration of the social capital.
Advantages and Disadvantages
As you can see, the local companies and branch offices in El Salvador have differences that you must take in mind before the business registration process. Find below some advantages and disadvantages of the between the two:
- Local Company: Can start with a minimum social capital of USD$2,000, with only 5% needed to be paid at the moment of the incorporation. The rest of the capital can be paid in the following 12 months. The means that you are able to register your business with a social capital of only USD$100.
- Foreign Branch Office Company: It is required by Salvadorian Law that “all foreign companies who want to establish a Branch Office in El Salvador must meet the minimum required for initial capital of USD$12,000”. This capital must be paid all at once, and the company must register this capital with the Ministry of Economy.
Company Incorporation Time
- Local Company: The entire local company incorporation process will take between 4 and 6 weeks.
- Foreign Branch Office Company: The incorporation of a Foreign Branch Office Company is approximately 8 to 10 weeks.
Incorporation of a Company with the Different Institutions
- Local Company: The first stage of the incorporation must be completed with the Public Registry of Commerce. After this, you should incorporate your company in additional national institutions; the will depend on the type of commercial activity that you will undertake.
- Foreign Branch Office Company: Once the incorporation process once is finished, you will have your company registered in all relevant local and national institutions such as the Registry of Commerce, Ministry of Economy, Ministry of Finances.
Corporate Bank Account Opening
Both Local Companies and Foreign Branch Office Companies have the same requirements to open a corporate bank account. The only differences between the two are in regards to international bank transfers.
- Local Company: Once you have opened a corporate bank account, you must wait between 3 and 6 months (depending on the financial institution) to start making international transfers.
- Foreign Branch Office Company: Branch offices are exempt from the banking regulation that requires companies to wait between 3 to 6 months to make international bank transfers. They can start making international transfers once the branch office is duly incorporated.
Unsure of the Best Type of Company for your Business Activities?
As you can see, both local companies and branch offices in El Salvador have their differences in regards to the incorporation process. It is vital that you have a comprehensive understanding of both types of legal entities before beginning commercial operations in El Salvador.
At Biz Latin Hub, we have a local team of experts in corporate law with ample experience in company incorporations and other tailored back-office services. Reach out to Diego at [email protected] for personalised information.
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