Person using a keyboard to research due diligence in Panama

Manage Your Business Risks with Due Diligence in Panama

Managing your business risk with due diligence in Panama while doing business is a key aspect for having an operational company. 

Foreign executives face various challenges when entering in a new country. Language barriers, different legal frameworks and cultural expectations can be difficult to understand. Therefore, business owners choose to buy operational companies to start doing business immediately. 

Due diligence in Panama as in other countries offers certainty about operational aspects of the company you’re managing, buying or merging. Undertaking due diligence activities will certify the health of the company and if is convenient for starting a business

The main objective of carrying out due diligence in Panama is to reduce risks by analyzing the operations of the company and validating they comply with local legislation and institutional authorities. Executives need to consider that a sanction from an institutional authority affects the economic growth of the company and even bankrupt it.

Why is due diligence important in Panama?

Someone using a laptop to arrange a review for due diligence in Panama.
Panama is an attractive country
for foreign business due to its
diversity, strategic location, and
business opportunities.

Panama is an attractive country for foreign business due to its diversity, strategic location, and business opportunities. According to the General Comptroller (Contraloría General de la República) in 2019 there were 26,000 registered companies, which represents a 4.6% increase in relation to 2018. Furthermore, there were 299 company merges. 

Buying an operational company is a common practice in Panama to initiate business without struggling with company registration or opening a bank account. By doing this, business owner can start operations immediately.

Another common practice in Panama is the merging of companies. Business owners often merge companies to reduce tax obligations. But without a proper due diligence in Panama business owners can really tell if the merge will be beneficial. 

In summary, carrying out due diligence in Panama helps business executives understand if the company they’re buying had been complying with local authorities. Finally, it’s important to do this kind of health checks if you’re managing a business to avoid problems with public authorities. 

The due diligence in Panama will help investors maintain its business running and operational.

Common challenges for foreign businesses in Panama

Some risks for businesses operating in Panama include:

  • Money laundering
  • Working with clients without completing KYC (know your client) correspondence
  • Reputational risks
  • Economic risk when buying or merging companies
  • Financial sanctions

Business owners can overcome these challenges by doing regular entity health checks and verifying the entities they plan to acquire or merge.

There are various types of due dilligence in Panama:

  • Economic, technical and organizational
  • Background checks of managers and employees
  • Financial, legal and tax audits
  • Operational due diligence (ODD) for the assessment of risks and potential for appreciation of the target object)
  • Market due diligence to examine the current and future market situation of the targeted company

What is the process to carry out these methods of due diligence in Panama?

Due diligence in Panama is predominantly about collecting, reviewing and evaluating information to understand any potential risks or blind spots for a company in its operations.

1. Collect information

Typically, due diligence in Panama will start with the collection of information of the person or company that is going to be reviewed. The requested documentation will depend on the type of due diligence you require. One example can be for financial, legal, and tax audits. With this type of due diligence, the organization in charge of reviewing the company typically requests the following information:

  1. Financial statements
  2. Bank statements
  3. Annual and monthly declarations for the last 5 years
  4. Information about the structure of the company and its employees
  5. Shareholders and final beneficiaries’ information
  6. Information about its regular commercial activities
  7. Official documents or contracts can also be requested

With this information, auditors can understand the financial situation of a company – either one already owned or one for potential acquisition – so executives can make better decisions about their next moves.

2. Reviewing documentation and checking possible sanctions

A man that is pointing to you.
Background checks are especially
important for senior executives,
staff dealing with commercially confidential information,
or who require specific qualifications
in order to carry out their job.

In this step, the company or third party undertaking the due diligence activities must review the provided documents and confirm if the organization have any potential risk of getting a sanction for a local authority. 

When buying an already operational business, it is important to verify that the company won’t have any legal complications with local authorities after obtaining the company for old operations. Businesses can choose to undertake due diligence with clients too. This is primarily to verify the activities of the customer and avoid building a commercial relationship with someone whose activities may cause legal issues for your company. 

When considering hiring new employees, background checks are also recommended. These are especially important for senior executives, staff dealing with commercially confidential information, or who require specific qualifications in order to carry out their job.

3. Risk evaluation outcome

After collecting the client/company information, the group conducting the due diligence in Panama must then provide evaluations, including risk assessments. The interested party can then decide on how to proceed with their relationship with the person or organizations reviewed.

This complete due diligence will ensure that developing business relationships are safer for the parties involved. This activity also significantly reduces the risk profile for the company and allows its executives to make informed decisions.

Get support at Biz Latin Hub to manage business risks with due diligence in Panama

Protect your company from non-compliance and other potential commercial risks by seeking out due diligence services from a trusted team. Work with a local multilingual and multidisciplinary group so you can receive accurate information and make informed decisions about your business venture.

At Biz Latin Hub, our team of bilingual professionals have the knowledge and experience to undertake comprehensive due diligence reviews to ensure your company is protected while it makes new relationships in Panama. We support new market entrants and existing companies looking to acquire new businesses or hire new staff.

Get in touch with us at now to manage your business risks in Panama. 

Learn more about our team and expert authors.

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The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.
Legal Team Panama
Legal Team Panama

Legal Team Panama is the Biz Latin Hub leading experts on doing business in Panama The Team writes on the news, doing business, law, and changing regulations. The team are experts in corporate law, Administrative law, Employment law, Immigration law and legal advisory services. Read more about them here. You can contact Legal Team Panama via our "contact us page".

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