Chile was voted the 33rd best country to conduct business in, in the 2017-2018 Global Competitiveness Index Report, making it the most stable and business-friendly economy in Latin America.
When you want to start your business in Chile, local authorities provide you with a wide variety of options on how to establish your business. In general, companies have the freedom to decide which legal entity they want to form. The exception to this are banks, insurance companies and pension companies.
In this article, we will have a look at the most common forms of legal entities and try to create a brief overview of what advantages and disadvantages each of the options has to offer.
Types of Legal Entities in Chile
The following four options represent the best and most recommended corporate structures used to start any new business in Chile:
- Corporation (Sociedad Anónima- ‘S.A‘)
- Simplified Corporation (Sociedad por Acciones- ‘S.p.A‘)
- Limited Liability Company (Sociedad de Responsabilidad Limitada- ‘S.R.L‘)
- Branch Office of a Foreign Company
Legal Entity Type 1 – Corporation (S.A)
A corporation is a legal entity where the capital is divided into shares which can be either publicly-traded or closely-held. Publicly-traded corporations must fulfil one of the following conditions: a) the shares are publicly traded, b) have at least 500 shareholders or c) 100% of the shares belong to at least 100 shareholders. Nearly all remaining corporations utilise a ‘closely-held’ system.
See below the general characteristic for a corporation in Chile.
- There must be a minimum of two shareholders (who can be either individuals or legal entities).
- The shareholders must execute a public deed by providing all necessary information to a notary public.
- It is obligatory to publish an extract of the public deed on the website of the Official Gazette.
- The shareholders must register the corporation in a Company Registry Office.
- There are no minimum capital requirements to form a corporation.
- The shareholders are liable only up to their subscribed capital.
- The publicly-traded corporations must publish their financial statements on an annual basis.
- They are also subject to the supervision of the Comision para el Mercado Financiero (CMF).
Legal Entity Type 2 – Simplified Corporation (S.p.A)
In 2007 local authorities in Chile passed a new law introducing a new form of legal company structure called a Simplified Corporation. As suggested by to name, the simplified corporation has a less complicated structure which aims to encourage private entrepreneurship and attract new investments. Like the corporation, its capital is divided into shares. The biggest difference is that one sole shareholder (i.e one individual or one company) can establish a simplified corporation. All other legal entities require at least two individuals or legal entities as the shareholders/owners.
See below some characteristics of the simplified corporation.
- There is no legislation prescribing the amount of minimum capital.
- The shareholders are liable only up to the amount of their subscribed shares.
- The individuals have two options on how to incorporate a simplified corporation: a) through a public deed or b) they present a private document before the Chilean notary.
- Opposite to the corporation, the simplified corporation does not have to publish its financial statements.
Legal Entity Type 3 – Limited Liability Company (S.R.L)
The following attributes are typical to a limited liability company:
- A minimum of two partners can establish a limited liability company.
- The number of partners cannot exceed 50.
- Partners have to execute a public deed and register the company in the Registry if Commence.
- Partners must publish the public deed in the Official Gazette.
- There is no minimum capital requirement to incorporate.
- Partners are liable up to their contributions.
- There is no requirement to publish the financial statements for a limited liability company, nor is it a subject of supervision of CMF.
Legal Entity Type 4 – Branch Office of a Foreign Company
This type of legal entity is not autonomous, but rather an agency of its parent company. A parent company must appoint a local agent in order to establish a branch of a foreign entity. The agent has to present all the necessary documentation to the local notary and act on behalf of the company. The local agent is also responsible for publishing the financial statement annually. Similarly to other types of legal entities, there is no minimum requirement in regard to the capital amount.
The following steps are necessary in order to create a foreign branch office in Chile:
- A local agent must execute a public deed containing a statement of establishment for the branch.
- An agent must present consul-certified and legalized copies of selected documents (e.g. articles of incorporation, by-laws of the foreign entity, certificate of good standing and a power of attorney.
- The languages of the documents must be Spanish. If the original language is not Spanish, the Ministry of Foreign Affairs in Chile must translate them.
- A local agent must publish a summary of the public deed in the Official Gazette website.
Are you interested in finding out more about doing business in Chile?
Chilean authorities are aware of the importance of domestic and foreign investments for the growth of its economy. For this reason, they try to enhance legislation supporting business-friendly practices. One of them is providing a wide variety of legal forms to enter the market. Choosing the right form of entering the market is extremely important and provides the fundamental building blocks for further business expansion. For this reason, we highly recommend cooperating with a local partner when entering the Chilean market. Get in contact with Biz Latin Hub and our team of local experts and professionals will provide you with tailored services and will support you in establishing your business in Chile.
In case you are interested in learning more about the legal entity types in Chile, please do not hesitate to contact our bi-lingual Country Manager, Allan here.
Unsure of your tax and accounting requirements in Chile? Check out the short presentation in the link below: