Incorporating a company in Ecuador can come with a few challenges, but they can be easily overcome by working with local partners who have experience doing business in Ecuador.
Compared to some other countries in the region, corporate law in Ecuador is relatively simple. With due diligence and proper strategic thinking, companies in many different commercial sectors can succeed.
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With that in mind, we have prepared a legal summary of everything you need to know when incorporating a company in Ecuador. Crucially, all the information is provided in English. Before detailing the key steps of company formation in Ecuador, we will provide some characteristics that explain why this is a good place to do business. Ecuador’s economy has performed well in recent years, and continued to attract significant levels of foreign investment.
Ecuador ranks as the eighth largest economy among Latin American countries, boasting a gross domestic product (GDP) valued at $109.167 million in 2022 (all figures denominated in USD).
Notably, it is also a leading destination for foreign direct investment (FDI) in the region, having received inflows totaling over $811 million in 2022. This amount marks a significant increase compared to 2021.
Business Formation: Decide on the entity type in Ecuador
After deciding to start the company formation in the Ecuador process, the first step involves selecting the best type of legal entity to suit your business needs and goals. The most common types of legal entities are outlined below:
- Simplified Stock Company (Sociedad por Acciones Simplificadas SAS): This type of company facilitates the incorporation of a company by simplifying procedures, costs and allowing for a flexible corporate structure. The SAS are companies where the ownership can be relied on by a sole person, it requires a legal representative to be appointed within the company bylaws, a fiscal address, and no minimum capital.
- Limited Liability Company (Sociedad de Responsabilidad Limitada LLC): Suitable for small and medium-sized businesses. The purpose of a LLC is to protect the personal assets of its members. Therefore, the members of the company are only liable for the company’s obligations up to the amount of their contributions. This type of company is usually created for a specific purpose of commercial or civil economic activity, with no banking, insurance, capitalization, or savings operations allowed. It can be incorporated with a minimum of 2 and a maximum of 15 shareholders and requires a minimum capital of USD 400.00
- Branch (Sucursal): In Ecuador, a foreign entity may be domiciled in the country as a secondary establishment or branch. In this case, it will continue to be dependent on the parent entity, but will have legal presence in the country, including a tax domicile and an attorney-in-fact who will act as representative of the foreign branch. A minimum capital of USD 2,000 is required.
What are the minimum requirements to incorporate a SAS in Ecuador?
The minimum requirements to incorporate an SRL in Ecuador are:
- Minimum of (1) shareholder, which can be either natural (i.e. persons) or legal persons (i.e. entities.)
- The Sociedad por Acciones Simplificadas allows 100% foreign ownership.
- No minimum capital is required to establish an S.A.S. However, in our experience, we strongly recommend a minimum capital of USD 400 (United States dollars).
- Appoint a Legal Representative within the company bylaws, who must be a local national or a foreigner with a residency visa.
- Register a Fiscal Address which must be within the country and used for official correspondence.
- Please note, that when the shareholder is a foreign individual or foreign entity, a local legal representative for such shareholder must be appointment.
What documents do you need to set up a company in Ecuador?
To begin incorporating your new subsidiary company in Ecuador, you will need to provide the following:
- A name for your legal entity.
- Shareholders’ identification documents.
- Confirm the business activities, corporate purpose, and primary operations.
- Minimum initial capital contribution.
- Appointment of General Proxy for foreign shareholders, who must be a local national.
Once you have the legal documentation, you can start the process of company incorporation.
Read on for an overview of the company formation process in Ecuador broken down into key steps.
How to Set Up a Company in Ecuador: Key Details
Company Formation Process
Investors seeking to set up a company in Ecuador can choose to establish both limited liability and unlimited liability companies. This can be done online or by following the normal “manual” process. We recommend using the online process because it is a lot easier and faster, and transfers a significant amount of the workload to the authorities.
The 4 Steps to Follow to Set Up Your Business in Ecuador
The 4 key steps that you need to complete in order to form your company in Ecuador:
- The first step towards company incorporation is ensuring that the shareholders grant power of attorney to their legal representative, permitting them to set up the company in Ecuador on their behalf.
- The second step is that the legal representative, will then start the setup process before the Superintendency of Companies, Securities, and Inssurance. If completing the process online, the legal representative will reserve the company name, and fill out documentation with all the required information about the company: fiscal/legal address, president, general manager, name of the shareholders, and how much each shareholder holds in the company.
- The fourth step, once the company has been successfully set up, the tax authority will grant it a tax identification number (Registro Único de Contribuyentes, RUC).
- The third step, once the application is ready, it must be submitted with all the enabling documents to the Superintendency of Companies, Securities and Insurance for approval. For certain types of companies, once the company formation is approved, it is also necessary to register with the Mercantile Registry to complete the process.
4 Additional Obligations to Set Up a Company in Ecuador
At this point, the company is legally incorporated in Ecuador. However, before you begin commercial activities, you must meet these obligations:
- Step 1: Open a corporate bank account and deposit the company’s minimum capital.
- Step 2: Create an account with the ‘Superintendencia de Compañías’.
- Step 3: Register the company with the Social Security Agency (IESS).
- Step 4: Pay the municipal patent and get the license for economic activities.
Common Questions When Forming a Company in Ecuador
Answers to some of the most common questions we get asked by our clients.
Can a foreigner own a business in Ecuador?
Yes, a business can be 100% foreign-owned by either legal persons (“legal entities”) or natural persons (“individuals”).
How long does it take to register a company in Ecuador?
Registering a company in Ecuador takes 6 weeks.
What does a S.A.S company name mean in Ecuador?
S.A.S means “Sociedad por acciones Simplificada”, which translates to “Joint Stock Company.” This is a type of commercial company with legal personality and assets independent from those of its owners. Shareholders are liable only up to the amount of their respective contributions corresponding to the integration of the shares they subscribe to or acquire. Shareholders are not liable for labor, tax, or any other type of obligations incurred by the company beyond its contribution, except if the legal personality of the company is declared unenforceable.
What does an SRL company name mean in Ecuador?
SRL in Ecuador stands for “Sociedad de Responsabilidad Limitada,” which translates to Limited Liability Company in English. This legal entity operates independently from its shareholders, offering them limited liability. SRL companies are prevalent due to their simplified requirements, making them a popular choice for business structures.
What entity types offer Limited Liability in Ecuador?
In Ecuador the “S.R.L” (Sociedad de Responsabilidad Limitada) is a limited liability entity type.
Main differences between S.A.S and S.R.L in Ecuador?
- Number of shareholders: A SAS can have from one to an unlimited number of shareholders, while an S.R.L must have at least two partners and a limit of fifteen.
- Shareholders’ General Meeting: A SAS may freely choose the organizational structure of the company; however, the General Assembly of Shareholders is usually the most used management body, and its resolutions are adopted with the favorable vote of half plus one of the shareholders present at the meeting. While in a S.R.L. the General Meeting of Partners is the mandatory supreme body of the company, and its resolutions are adopted by an absolute majority of the attendees.
- Board of directors: In a SAS, it is not mandatory to establish a board of directors, but if created, it can be made up of one or more administrators according to the company’s bylaws. On the other hand, in a S.R.L. the board of directors is mandatory and can be made up of two or more administrators.
- Legal representative: In a SAS the shareholders can remove or replace the legal representative of the company without the need to invoke any statutory or legal causes. While in a S.R.L. the legal representatives must comply with certain legal obligations, under penalty of being removed or revoked from their positions.
- Duration: Both SAS and R.L can have an unlimited duration.
- Responsibility of the shareholders: In both legal vehicles, the shareholders are jointly and severally liable for the debts of the company up to the amount of their contributions. However, in a S.A.S. shareholders can establish in the company’s bylaws the unlimited liability of its members.
- Social capital: SAS has no minimum capital requirement for its incorporation, while an RL requires a minimum capital.
- Regulation: An SAS is subject to easier regulation than an S.R.L. since it has fewer formalization and disclosure requirements.
Do You Want to Form a Company in Ecuador?
If you have any questions or inquiries about how to set up a company in Ecuador, our local Ecuadorian business experts have created a company formation presentation.
If you have any more questions about how to incorporate your company in Ecuador, please do not hesitate to contact us now. Our Biz Latin Hub team in Ecuador includes local and expat professionals who have the knowledge and expertise to support you throughout the process.