In order to set up a business, it is important to understand the types of legal entities in Guatemala. Central America has become a place for foreign multinationals interested in doing business across North and South America.
Central American countries have a lot to offer to foreign and local companies, such as tax benefits, special economic zones, and access to the Atlantic and Pacific Oceans. Guatemala maintains a number of free trade agreements for businesses to obtain certain benefits for the sale of products within the region.
Expand into Guatemala by establishing a company with the right legal entity for your business. We give a general summary of the types of companies or legal entities in Guatemala that you can choose from to do business, and most essential elements of these.
Types of Legal Entities in Guatemala
There are several different types of legal entities in Guatemala to incorporate your company. Each legal entity offers different conditions and governance structures to suit varying business needs.
The legal entity you choose will influence the amount of capital to invest, economic activities to be carried out, how many shareholders you will have, and other factors.
The most common types of legal entities that are usually used to establish a company are included below.
Limited Liability Company (Sociedad de Responsabilidad Limitada)
The Limited Liability Company (LLC), or Sociedad de Responsabilidad Limitada in Guatemala can be made up of several partners who are only required to pay their own capital contributions, and whose personal assets are not liable for company debt. Only the company assets are liable for the social obligations, and where appropriate, sums that total more than the contributions agreed on the social deed.
The Limited Liability Company in Guatemala possesses additional characteristics, including:
- It is a mercantile society: a legal entity created for commerce and having commercial activities as its objective
- Participation is not represented in shares, but contributions from each partner
- Only a maximum of 20 partners are allowed
- The company will operate under a denomination or company name. The name will be freely formed but will always refer to the main social activity. The company name will be formed with the full name of one of the partners or the last name of two or more of them. In both cases, it is mandatory to add the following words ‘Limited Company,’ which may be abbreviated: Ltda. or/and Cía. Ltda, respectively.
Corporation (Sociedad Anónima)
A Corporation (Sociedad Anónima) is the legal entity with capital divided and represented by shareholders. The responsibility of each shareholder is limited to the payment of the shares that they have subscribed to.
The Corporation legal entity has elements similar to those of the Limited Liability Company. Both are mercantile companies created for commerce and their objectives are aimed at such. However, there are some differences in the characteristics of these legal entities in Guatemala which businesses must take into account. The following factors highlight the differences in these characteristics :
- Capital is represented by registered shares
- The shares have freedom of transmission, although the form of transmission of the shares will depend on how the form is regulated in the articles of incorporation
- The contributions for capital formation can be in cash
- The name of the company can be freely formed, but it must carry the word Corporation, which can also be abbreviated S.A.
Foreign Company Branch
A Foreign Company Branch is for companies legally constituted abroad who wish to operate in the country by establishing one or more branches or agencies. They are subject to the provisions of the Commercial Code and other laws of the Republic of Guatemala.
The form of constitution and requirements for this legal entity in Guatemala are very similar to those in other Central American countries. The essential elements of a Foreign Company Branch in Guatemala include:
- The company must permanently have a legal representative in the country who will have broad powers to carry out all the legal acts and businesses of their business.
- Contract a bond in favor of third parties for an amount no less than the equivalent in Quetzales of approximately US$50,000. The amount of the deposit is set by the Mercantile Registry (Registro Mercantíl)
- The approximate time to set up a branch is 30-45 days after receiving the corresponding legal documentation.
Choose the right legal entity in Guatemala with the help of trusted experts
The Guatemalan government authorities are open to national and foreign businesses looking to expand to Guatemala since it will stimulate the growth of their economy. For this reason, the facilities for establishing a company and various commercial, tax incentives are offered for people interested in establishing a legal entity for commercial purposes.
Choosing the right type of legal entity to enter the Guatemalan market is of utmost importance as it lays the foundation for your future expansion around the Central American region. For this reason, we recommend working with a local partner who knows the legal and accounting regulations of Guatemala. Contact Biz Latin Hub and our team of local experts will provide tailor-made services to help you establish your business in Guatemala.
If you are interested in obtaining more information about the types of legal entities in Guatemala, do not hesitate to contact us through [email protected].
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