A Guide to Legal Entity Types in Colombia

Choosing the right legal entity is a critical first step when incorporating a company in Colombia. The country offers a range of legal structures tailored for both local entrepreneurs and foreign investors, from the highly flexible Simplified Stock Company (SAS) to more traditional structures like SRL and SA, as well as branch offices for multinationals. This guide compares the highly flexible SAS model against traditional structures to help you choose the best vehicle for market entry.

Overview of Legal Structures for Companies in Colombia

The most common types of companies in Colombia are:

1. Simplified stock company (SAS).
2. Limited liability company (LTDA).
3. Corporation (SA).

Each will be discussed in more detail below.

Generally speaking, there is no minimum capital contribution required to incorporate a commercial company in Colombia – this is set by the shareholders or partners. Following the liquidation of the company or capital reduction, foreign investments can easily be repatriated. Additionally, if certain capital requirements are met, investors are eligible to apply for a Migrant type of visa.

The main steps to incorporate a company in Colombia include:

• Formalization of company bylaws.
• Application for a NIT (company tax ID number).
• The opening of a Colombian bank account.

Key Types of Legal Entities in Colombia

Entity Type — Best For — Shareholders — Liability — Legal Personality — Tax Status

SAS (Simplified Stock Co.) — Most common; ideal for investors/startups — 1+ — Limited to capital — Yes — Subject to corporate tax

SRL (Ltd Liability Co.) — Smaller local companies or partnerships — 2–25 — Limited to capital — Yes — Subject to corporate tax

SA (Corporation) — Public companies or raising capital — 5+ — Limited to capital — Yes — Subject to corporate tax

Branch — Multinationals expanding into Colombia — 1 (foreign HQ) — Parent company liable — Yes — Taxed as a local entity

1. Simplified Stock Company (S.A.S)

Who should choose this: Entrepreneurs, startups, and foreign-owned companies that need flexibility and want to incorporate with just one shareholder. SAS is the most commonly used structure for foreign investors due to its ease of formation, operational flexibility, and limited liability.

The S.A.S is the most common type of legal entity in Colombia and is popular within the business community for businesses large and small. Compared to other types of legal structures in Colombia, it has been praised by investors for its flexibility, specifically regarding the incorporation process and the large freedom afforded to shareholders to establish their own terms and conditions.

A large advantage of a simplified stock company is the ability to make the articles of incorporation a private document. Other key characteristics that distinguish a SAS include:

• Only (1) one shareholder (either a natural or legal person) is required, with no maximum limitation.
• Liability limited which equals the amount of the company’s equity.
• The social purpose may be left undefined, allowing the company to participate in almost any business activity.
• No requirement for a board of directors.

2. Limited Liability Company (SRL)

Who should choose this: Small partnerships or family-run businesses where control is kept among a limited group of partners. SRLs offer legal protections but restrict the transfer of ownership, making them less flexible than SAS.

Under a Colombian SRL, a partner’s liability is limited to the amount of the capital contribution (unless otherwise stipulated by the company bylaws), and partners are not liable for the payment of debt. The key considerations of an SRL include:

• Minimum of two partners with no more than 25.
• Partner contributions shall be paid in full upon incorporation of the company.
• Typically must be incorporated by a public deed. However, the document can be kept private if: The company has fewer than ten employees OR The company has assets below 500 times the minimum monthly wage in Colombia (approximately USD$140,000).
• The social purpose must be defined, limiting the company’s commercial activities.
• No requirement for a board of directors.

3. Corporation (S.A.)

Who should choose this: Larger or publicly traded companies that need to issue shares, raise capital from external investors, or meet higher corporate governance standards. SA is more regulated and formal than SAS or SRL.

Among the types of legal structures in Colombia, a corporation is another option to consider, especially if dealing with a larger number of shareholders. Under a corporation, the shareholder’s liability is limited only to the amount of the shareholders’ equity, except if fraud is committed. The important aspects of a corporation include:

• Minimum of five shareholders, none of which can have more than 95% of the outstanding capital stocks.
• Just like an LTD, this company is typically incorporated by a public deed. However, the document can be kept private if: The company has fewer than ten employees OR The company has assets below 500 times the minimum monthly wage in Colombia (approximately USD$140,000).
• The social purpose must be defined.
• The corporation must have a board of directors.

Our recommendation: Simplified Stock Company (SAS) offers a streamlined and efficient incorporation process, making it attractive for foreign businesses seeking to establish a presence in Colombia. In addition, SAS entities are subject to simplified corporate governance requirements compared to other legal entity types, making them a practical choice for foreign investors.

Branch of a Foreign Company

Who should choose this: International companies that wish to conduct business in Colombia without creating a new legal entity. This structure allows centralized control but places full legal and financial liability on the parent company.

Opening a foreign branch office could be an attractive option for a company that has its head office (Casa Matriz in Spanish) headquartered in another country. Colombian legislation recognizes foreign branch offices as an extension of the parent company, so branches and the parent company are viewed as the same legal entity. Key documentation required to establish a foreign branch office include:

• Certificate of incorporation document and legal representation of the parent company

Authorization of a representative to act on the company’s behalf by the power of attorney Bylaws of the parent company

Each of the legal entities discussed has its advantages and disadvantages. SASs are the most popular among investors due to their flexibility and ability to keep their articles of incorporation private. Limited liability companies and corporations are more traditional routes.

Expert Tip: Branch vs. Subsidiary (SAS)

From our experience, foreign companies often ask about opening a “Branch” (Sucursal) believing it is simpler. In Colombia, a Branch is legally an extension of the parent, meaning the parent company is fully liable for the Branch’s debts.

Furthermore, opening a Branch is actually more bureaucratic (requiring government approval of the resolution) than forming a SAS subsidiary. We almost always recommend the SAS subsidiary structure to ring-fence liability and speed up the incorporation process.

Key Considerations When Choosing an Entity Type in Colombia

The key considerations when deciding on which is the best entity type in Colombia are the following:

Ownership Structure Determine whether the chosen entity allows full foreign ownership or requires local partners, as this varies by sector in Colombia. Sectors such as defense, agriculture, or mining often have specific restrictions or quotas favoring local involvement. Understanding these limitations will help you align your business structure with local regulations and ensure long-term operational stability.

Tax Efficiency Analyze the effects of Colombia’s corporate tax rate, set at 35%, and the VAT, which stands at 19%, on your profitability and cash flow. Explore opportunities to lower tax burdens by qualifying for incentives like free trade zone benefits, which may include reduced tax rates or customs advantages. Proper tax planning is essential to optimize costs while remaining compliant with local regulations.

Profit Distribution Consider the impact of Colombia’s taxation framework on profit distribution. Corporate tax at 35% applies to company profits, while dividend taxes, which range between 0% and 20% depending on thresholds, further reduce shareholder returns. Plan repatriation strategies carefully, as double taxation treaties with certain countries may offer tax relief. Clear strategies ensure that funds are transferred efficiently while minimizing tax burdens.

Transfer Pricing Comply with Colombia’s strict transfer pricing regulations for cross-border transactions to avoid financial penalties or increased audit risks. Transfer pricing rules require companies to document and justify transactions between related parties, ensuring that they reflect market values. This is especially critical for businesses engaging in import/export activities, intellectual property licensing, or intercompany loans. Prepare transfer pricing documentation and reports annually to demonstrate compliance.

Compliance Prepare to meet Colombia’s rigorous compliance requirements. Large companies must adopt International Financial Reporting Standards (IFRS) for financial statements. Annual tax filings are mandatory, and statutory audits are required for entities surpassing revenue or asset thresholds. These obligations may increase administrative efforts and costs but are crucial to maintaining legal standing in the country.

Flexibility Select a business structure that provides adaptability for future needs. For example, a simplified stock company (SAS) offers flexibility for ownership changes, capital injections, and operational restructuring. This is critical in Colombia’s dynamic regulatory and economic environment, where rapid changes may necessitate adjustments in your business model or operations.

Note: Our recommendation based on experience would in most cases to incorporate a Sociedad por Acciones Simplificada (S.A.S) company in Colombia, which is similar to a US Limited Liability Company (LLC).

Steps to Incorporate a Company in Colombia

Compliance Tip: All legal entities in Colombia must register with the DIAN (National Tax Authority), obtain a NIT (Tax ID), and register employees with the social security system, including pension funds (AFP), healthcare providers (EPS), and workplace risk insurers (ARL).

These are the 7 steps that describe the process of incorporating a company in Colombia:

• Step 1: Establish the foundations of the company.
• Step 2: Understand the available legal structures.
• Step 3: Register your company at public institutions to incorporate a company in Colombia.
• Step 4: Open a corporate bank account.
• Step 5: Create an entity incorporation document.
• Step 6: Hire a legal representative to incorporate a company in Colombia.
• Step 7: Comply with the laws regarding hiring employees.

Common Pitfalls When Choosing a Legal Entity in Colombia

Common Mistakes to Avoid:

• Choosing an SRL when ownership transfers may be needed in future (SRLs restrict share sales)
• Establishing a branch without understanding that the foreign HQ assumes full liability
• Assuming all entities require multiple shareholders (SAS only needs one)
• Failing to appoint a local legal representative or registered address (mandatory for all entities)
• Overlooking industry-specific regulations (e.g., financial services, mining, or nonprofit requirements)

Are you Interested in the Types of Legal Structures in Colombia?

Whichever of the types of legal structures in Colombia you choose, setting up a business can be a challenge. That-s why its best done with an expert. Ideally, work with a local partner who knows both the county and the region.

Get in contact with Biz Latin Hub – our team of local experts and professionals can support you and your business venture in Colombia with our services ranging from legal and commercial representation to market entry. Feel free to contact us now for personalized information.

FAQs on Types of Legal Structures in Colombia

Why Invest in Colombia?

Colombia presents a wealth of attractive industries, strengthened by significant foreign direct investment (FDI) across diverse sectors. These opportunities are accessible through various legal structures available in the country.

A rapidly expanding mining sector has played a key role in supporting Colombia’s renowned emerald industry, which contributes over 2% to the nation’s GDP and attracts investors from around the world.

In addition, Colombia’s expansive network of free trade agreements (FTAs) and its strategic location with access to both the Pacific and Atlantic oceans open the door to international markets valued at USD $43 trillion.

Understanding the most common legal structures in Colombia is essential for navigating this dynamic business environment and selecting the one that aligns best with your business model. This guide provides a detailed overview to support your decision-making process.