Having finally arrived on the other side of rather controversial trade policies put in place by the last government, Ecuador is a nation ready to prove itself an extremely fruitful international import source and investment destination to the world once more. Why think about Company incorporation in Ecuador?
Considering that, during 2017, Ecuador supplied USD$3Billion worth of bananas to 71 nations worldwide – making it the largest producer on the planet – fresh policies that encourage more active investment with the country are always going to be more than welcome.
According to the World Bank, Between 2006 and 2014, Ecuadorian GDP growth averaged 4.3 percent, driven mostly by high oil prices and substantial external financing. During that period, poverty fell relatively sharply from 37.6 percent to 22.5 percent.
Despite falling oil prices revealing some under-the-surface cracks in the in2014, the Ecuadorian economy has since made significant economic recovery starting in 2016 and is starting to demonstrate its strength within the region again.
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Ecuador Company Incorporation – Ecuadorian Legal Entity Types
The most common choice of legal entity is an S.A. legal entity (anonymous society or “Sociedad Anónima”), which is similar to a corporation, or a Ltda. (limited company or “Compañía Limitada”), similar to an LLC, both allowing two or more shareholders (individuals or legal entities) who are liable according to the amount of capital they have invested in the company.
When forming this type of company, only one business purpose may be chosen. However, up to 5 additional economic activities can be recorded.
Company Incorporation Ecuador: Q&A
Is foreign ownership allowed?
Yes, up to 100% foreign ownership is allowed
Can the company sponsor foreign employees?
Yes, the incorporation process takes between 4-6 weeks once all of the required documentation has been submitted.
Are there capital controls?
Is there a minimum share capital?
Yes, USD$400 (Ltda.) or USD$800 (S.A.)
What is the minimum amount of shareholders?
There must be at least (2) shareholders
Is a fiscal address and legal representation required?
How long does the process take (including the opening of a corporate bank account)?
Between 4 and 6 weeks once we have received all the required documentation
General Company Incorporation Steps
- Define business purpose and economic activities
- Create and sign the company bylaws
- Register the Company
- Sign deeds and appointments in front of the notary
- Register the company with the Superintendence of Companies and Mercantile Registry
- Obtaining a local tax ID number
- Open a corporate bank account
- Deposit of the required minimum capital to activate the corporate bank account
- Obtaining a license of economic activities (LUAE) and municipal patent
As part of the company incorporation process, the company will need to conduct a legal name search. As you can imagine, it is not always possible to get your 1st company name choice. For this reason, it is best to have (3) name preferences in case your initial choice is not available.
Types of Companies in Ecuador (continued)
Ecuador, like most jurisdictions, has several ways of incorporating your company. The two main types of companies in Ecuador are the S.A. legal entity (anonymous society or “Sociedad Anónima”) and the Ltda. (Limited Company or “Compañía Limitada”). The legal liabilities of both types of companies are similar, however, the S.A has some additional corporate requirements. The main difference is that the Ltda cannot have more than 15 shareholders and it is not permitted to sell or trade shares on the public stock market. An S.A. has no shareholder limit and can sell and trade shares on the public stock market.
A shareholder is a natural or legal person (i.e an individual or a company) that owns part of a company through the purchasing of quotes or shares. Please note that in Ecuador, a Ltda. or an S.A. requires a minimum of (2) shareholders, which can be either a natural or legal person. Shareholders are liable up to their capital contribution, which is essentially the capital they have invested in the company.
Please note that if you choose to register a legal entity/s as the company shareholder/s, local banks may ask for additional documentation and information identifying who the company is owned by.
Company Share Capital
The company share capital is the amount of capital subscribed by the shareholders during the business incorporation process. The share capital is both important and relevant in a number of scenarios: When applying for loans from financial institutions, working in joint ventures or bidding on government contracts. If your company wishes to apply for a loan, it is recommended to have a higher share capital – this will increase the chances of the loan being granted.
The company’s share capital can be increased or decreased at any point, but the share capital should be a sensible number that reflects the company’s size and business operations. For example, a large scale, and international trading company should have a larger share capital a small tourism company.
If you choose to set up a Ltda. legal entity, the minimum capital must be USD$400, or USD$800 if you choose to set up a S.A.
Company Legal Representation
All companies in Ecuador are required to appoint a company legal representative. The company legal representative acts as the legal face of the company, and as such, is the signatory for all commercial activities. The individual who is appointed as the company legal representative assumes a variety of legal liabilities and hence it is a position that should be taken seriously. It is always good to get help from a local lawyer’s office when unsure how to proceed with the appointment of this individual. The company legal representative must be either an Ecuadorian national, a foreigner who legally resides in Ecuador or an Ecuadorian legal entity. In Ecuador, legal representation can be joint or individual. In the latter case, one should be principal and the other subsidiary. All Ecuadorian companies require (2) legal representatives, a President, and a General Manager.
The person who assumes the role of the Company Legal Representative must be either an Ecuadorian national, a foreigner who legally resides in Ecuador or an Ecuadorian legal entity.
Company Fiscal Address
A fiscal address in Ecuador is a minimum statutory requirement for all legal entities in Ecuador and is registered with the Ecuadorian tax authorities (SRI). This will be the official registered address of the company and will be used for all official communication.
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Ecuador, owing to its abundance is natural resources and a fresh outlook on its involvement in the international economic landscape is a country of potential without bounds going forward. Willing investors can look to Ecuador and rest assured that their investments will be made in a progressively more robust, growing economy of Latin America. Furthermore, the relatively small nation in South America’s north-western region is a good representative of the region’s overall future prosperity.
So there you have it: everything you need to know about the steps in incorporating your company in Ecuador. The team at BizLatin Hub is here to help you and your business so please get in touch with us today.
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