Argentina

4 Chapter Corporate Law

    • Kinds of Corporate Systems.

       

      Stock Corporation (sociedad anónima)

      Capital must be at least 100,000 ARS and  is represented by shares that must be registered, shareholders' liability is limited to subscribed capital. The main characteristics of stock corporations must be provided in the bylaws, this requires an approval by the IGJ, to be published in the Official Bulletin and to be included in a notarized deed.

      Limited Liability Company (sociedad de responsabilidad limitada)

      There must be at least two and no more than 50 members. Partner´s liability is limited to full payment of equity participation, a partner can be domestic or foreign individuals or a foreign company. No minimum capital is required but must be subscribed in full and 25% must be paid in at the time of incorporation (the balance must be paid within two years). The administration is in charge of an individual or management system, ruled by stock corporations’ administrators regulations.

      Stock Corporation  (Government is the majority shareholder) (sociedad anónima con participación estatal mayoritaria)

      As the name indicates the Government is the majority shareholder.

      Limited Liability Partnership (sociedad en comandita simple)

      It is formed by general partners, who respond for social obligations equal to those of a collective society. The limited capital is integrated only with the contribution of obligations to give.

      Limited Liability Partnerships by Shares (sociedad en comandita por acciones)

      The general partners are responsible for the social obligations as the partners of the collective society. The administration may be unipersonal, and shall be exercised by a general partner or third party, who shall hold office for the time set by the statute. It is normally subject to the rules of the corporation unless the law indicates otherwise.

      General Partnership (sociedad colectiva)

      It is made up of two or more partners who contract subsidiary, unlimited and joint responsibility for social obligations. The contract will regulate the administration regime.

      Partnership

      In this case, one  partner provides the capital and the other the services.

      Branch

      The branch has to be managed by a legal authorized representative and must be registered under the Registry of Companies, with an application in Spanish that has to be notarized and filed locally, By- laws from the head office and the incorporation articles with the branch resolution must be included on the application. The branch´s accounts must be separate from the  head office´s accounts and an annual financial statement has to be filled with the superintendency of corporations.

      Other Types of Companies.

      Some examples are:

      Joint venture (negocio en participación)

      Cooperating groups (agrupaciones de colaboración)

      Temporary associations of business enterprise (uniones transitorias)

      Cooperating consortium agreement (consorcios de cooperación)

    • Corporate System

       

      Stock Corporation as stated by article number 163 of the General Law of Companies (Ley General de Sociedades), is constituted by public instrument and by single act or by public subscription, requires at least two shareholders, this shareholders can be individuals and companies, there is no limit regarding the number of shareholders. They may have one shareholder (single-member stock corporation) or more than one shareholder (multiple-member stock corporation). In Buenos Aires, a shareholder can have a maximum participation of 95% of capital stock, the other remaining 5% must be owned by other shareholder.


      For registration the following is needed:

      -A copy of the by-laws and articles of incorporation.

      -Evidence of incorporation

      -Copy of the board meeting minutes (with relevant details)


      Capital must be at least 100,000 ARS and is divided in shares and they can publicly offer their shares and be listed on the stock exchange. The term of subscription, must not exceed the period of three months from the registration of the company. The subscription contract must be prepared in duplicate by the bank and must contain transcribed the program that the subscriber will declare to know and accept, and sign it. In case the subscription is not covered within the indicated term, the contracts will be fully resolved and the bank will immediately reimburse each interested party for the total delivered, without any discount.


      The company must have a record of the decisions made by its Directors and by the Members, and have the accounting records such as the corporate books of the Board of Directors, Assembly Minutes, Share Deposits, Attendance Record of Assemblies and Shareholders Registry, and the accounting books of Inventory and Balance, Daily, VAT purchases and VAT sales. The financial statements must be submitted to the RPC within 15 days after the holding of the meeting.

       

      2.1.  General Shareholders Meeting.

      The General Shareholders Meetings decisions are obligatory to all Shareholders and must be met by the Board of Directors, the Law states two types of Meetings, the Ordinary and the Extraordinary Meeting, this two types has some differences:


      Ordinary Meeting

      Extraordinary Meeting

      1-General balance, income states, profit sharing, union memos and reports, other topics established in the By-Laws.

      Capital Increase not established in the By-Laws.

      2-Assignment and revoking of members of the Board of Directors, Individual Statutory Auditor (Síndico), and the members of the Surveillance Committee.

      Capital reduction or capital refund.

      3 Capital Increases according to the By-Laws and the Law.

      Rescue, refund, and redemption of shares.

      This Meeting must take place in the 4 months following every fiscal year closure, when resolving over topics contained in points 1 and 2.

      Mergers, restructuring and dissolution of the Company; assignment, revoking and retributions of the liquidators; spin-offs; positives resolutions regarding the management of the Company's liquidation.
       

      Restrictions or suspension of the preference right to subscribe new Shares.
       

      External borrowings and their transformation into shares.
       

      Bonds issuance

      2.1.1.     Obligation and rights for shareholders.

      The Shareholders are jointly and severally liable for the corporate operations up the amounts of their corresponding shares.


      Shareholders rights:

      -To be heard at the shareholders meeting.

      The decisions to be adopted in the Shareholders Meetings are supposed to be unanimous, in accordance to the Share type, each shareholder may get the chance to be heard at the meeting.


      -Vote at the shareholders meeting.

      Each Ordinary Share Title grants the right of one vote, Law allows companies to define in their By-Laws if there will be “preference” Shares, with a maximum of five votes, or if there will be limitations regarding the transference of the Share Titles, there may even exist shares types that does not allow the right to vote.


      -Participation into the company's profits.

      In accordance to the type of share, the shareholders may take part in the profit sharing.


      -Participation into the company's assets in case of liquidation.

      After the Liquidation procedure is finished and no debt of the Company survives, if there stills an amount of capital it shall be divided between the shareholders in accordance of their preferences stated in the By-Laws.


      -Withdraw from the company (under certain circumstances).

      The decisions adopted in the Shareholders Meetings shall be obligatory to each shareholder, therefore if a Shareholder voted against certain decision, the Law allows said shareholders to withdraw from the company.


      2.1.2.     A process for having GSM.

      The general shareholders meeting can be held at the headquarters or in a place corresponding to the jurisdiction of the company. Ordinary and extraordinary meetings shall be convened by the board of directors or the auditor (as indicated in the law) or when any of them deems it necessary or when they are required by shareholders representing at least 5% of the Capital Stock. The request shall indicate the topics to be discussed and the board of directors or the auditor shall call the meeting to be held within a maximum period of forty days after receiving the request. If the board of directors or the trustee fails to do so, the summons may take place by the controlling or judicial authority. In case the Meeting is unanimous, it will no longer be necessary to make a publication.


      2.1.3.     Requirement for deciding.

      The Law allow the Companies to set greater conditions for the meetings in the By-Laws, however the Law, requires at least the following to be met:


      Ordinary Shareholders Meeting

      Extraordinary Shareholders Meeting

      If the Meeting takes place with the First Call, there will be quorum with the majority of shares types with voting rights present..

      If the Meeting takes place with the First Call, there will be quorum with the 60% of the shares types with voting right present.

      If the Meeting takes place with the Second Call, there will be quorum with any number shares types with voting right present.

      if the Meeting takes place with the Second Call, there will be quorum with the 30% of the shares types with voting rights present.

                -The call can be made in the gazette of Legal  publications for five days, with at least ten days of anticipation and no more than thirty days.

                -The second call must be made when the first call failed, the meeting shall take place within the following thirty days and the publications shall be made for three days with anticipation period of at least eight days.

                -Unanimous Meetings, when the total number of shares types with voting rights is present at the meeting, there will not be need for the Call publication.


      2.1.4.     Minutes

      The Meeting Minutes shall be recorded in a special corporate book for said purpose, commerce books formalities applies for this records. The Meeting Minutes shall be signed by the Attendees within five days, by the President of the Meeting and the Shareholders assigned for such effect.

      2.2. Board of Director

      The administration is in charge the Board of Directors that must be formed by at least three members, they can be Argentinians or foreigners, the majority of the members must reside in the Country or at least constitute an address in which the Legal Notifications regarding their responsibilities shall be fully valid. According to the law, the statutes may establish the remuneration of the board of directors and the supervisory board; failing that, it will be set at the shareholders' meeting or at the surveillance committee, depending on the case. The maximum amount of the remuneration, including salaries and other remunerations for the performance of technical-administrative functions of a permanent nature, may not exceed 25% of the profits (this maximum amount will be limited to 5% when no dividends are distributed to the shareholders, and it will increase proportionally to the distribution, until reaching that limit when the total of the profits is distributed, the reduction in the distribution of dividends will not be taken into account, resulting from deducting the remuneration of the Board of Directors and the Supervisory Board).


      2.2.1.     Requirement for director

      The following can´t  be considered as directors:

      1 - Those who cannot trade.

      2 - Those who have failed due to faulty or fraudulent bankruptcy (up to ten years after their rehabilitation), those who failed due to accidental bankruptcy (up to five years after their rehabilitation); the directors and administrators of society whose conduct is qualified as guilty or fraudulent (up to ten years after their rehabilitation).

      3 - Those convicted with an accessory to disqualify from holding public office; those convicted of theft, theft, fraud, bribery, issuing of checks without funds and crimes against the public faith; those convicted of crimes committed in the constitution, operation and liquidation of companies. (until after ten years of the sentence).

      4 - Officials of the public administration whose performance is related to the object of the company, up to two years after the cessation of their duties.


      2.2.2.     Election and Dismissal

      When there are different kinds of shares, the bylaws may provide that each of them chooses one or more directors, for which purpose it will regulate the election. The shareholders have the right to elect up to one third of the vacancies to fill in the directory by the cumulative voting system. The director can be re-elected and his appointment is revocable exclusively by the shareholders meeting. The board of directors or the auditor, on its own initiative or at the request of any shareholder, may call an ordinary meeting for the removal of a director or manager, (it must be held within forty days of making the request). Denied the removal, any shareholder, director or auditor, can request it judicially.

      The Bylaws may establish the election of substitutes for any reason. In case of vacancy, the auditors shall designate the replacement until the next  shareholders meeting, (if the statute does not provide for another form of appointment).

      In case of resignation, the board must accept it at the first meeting held after it is submitted, provided it does not affect its regular operation and is not malicious or untimely, which should be recorded in the relevant minutes. Otherwise, the person resigning must continue in office until the next meeting pronounces.


      2.3. Corporate Auditor

      Stock corporations subject to permanent supervision should have their own supervisory position within the company may by an individual statutory auditor (síndico) or by a statutory audit committee (comisión fiscalizadora).

      The other stock corporations are not required to have an individual statutory auditor, in that case, it is the shareholders who are empowered to individually exercise this control.


      2.3.1.     Number of auditor.

      The appointment is carried out by the shareholders' meeting, one or two auditors and an equal number of alternates are elected.


      2.3.2.     Obligation of auditor.

      Auditors have the right and obligation to attend all assemblies with a voice. They will only have a vote to the extent that corresponds to them as shareholders

      Companies must submit an annual financial statement and an auditor's opinion, in public companies, the financial statements must be prepared according to the IFRS.


    • Share

       

      3.1. Types of Shares.


      Ordinary shares: each share of this type has the right to vote. The bylaws may create classes that recognize up to five votes per ordinary share. The privilege in the vote is incompatible with patrimonial preferences. Privileged voting shares cannot be issued after the company has been authorized to make a public offering of its shares.

      Preferred shares: Stocks with equity preference may lack a vote, without prejudice to their right to attend shareholders meetings with voice. They will have the right to vote during the time they are in default in receiving the benefits that constitute their preference. They will also have it if they quote on the stock exchange and that quote is suspended or withdrawn for any reason, as long as this situation persists.

      By-laws can indicate restriction on shares and can regulate how it will be managed in the company, other regulations are the establishment of voting procedures for the board of directors and shareholders, special procedures for the transfer of shares to third parties, and dispute resolution methods.

      The shares are indivisible and are always of the same value, expressed in Argentine currency. The By-Laws may establish different classes with rights. The securities may represent one or more shares and be bearer or nominative; in the latter case, endorsable or not. If there is co-ownership, the condominium rules apply. The Company can demand the unification of representation to exercise rights and fulfill social obligations. The usufructuary has the right to receive the profits obtained during the usufruct. This right does not include the gains booked or capitalized, but includes those corresponding to the shares delivered by the capitalization.

      A register book of shares with the formalities of the books of commerce will be kept, free consultation by the shareholders, in which the transmissibility will be established, which is free. The bylaws may limit the transferability of registered or book-entry shares, without the prohibition of their transfer.. The limitation must appear in the title or in the inscriptions in account, their vouchers and respective states.


      3.2. Dividend.

      The distribution of dividends or the payment of interest to shareholders are lawful only if they result from realized and liquid earnings corresponding to a regularly approved balance sheet.

      It is prohibited to distribute anticipated or provisional interest or dividends or resulting from special balances, (except in stock corporations of one person). In all these cases, directors, members of the surveillance committee and the individual statutory auditor are held jointly and severally liable for such payments and distributions. The dividends received in good faith are not repeatable.


      3.3. Capital increase.

      The capital increase can be foreseen in the bylaws, and it can be up to its quintuple. The decision is carried out by the assembly without requiring new administrative compliance. The assembly can only delegate to the directory the time of issuance, form and conditions of payment. The resolution of the assembly will be published and registered.

      Corporations that are authorized to make public offers of their shares may increase their capital without any limit or need to modify the bylaws. The board of directors may make the issue by delegation of the assembly, on one or more occasions, within two years from the date of its conclusion.


      3.4. Capital decrease.

      The decision of voluntary reduction of capital must be carried out by the extraordinary meeting with a founded report of the Auditor.

      The resolution for the reduction of capital gives creditors the right to modify the bylaws in accordance with article 83 of the law of commercial companies, and must register prior to the publication of the reduction. (This provision can not be made when working under amortization of integrated shares and is made with free gains or reserves).

      For the reduction for losses first the extraordinary assembly must take the decision to be able to carry out the reduction and thus be able to restore the balance between the capital and the social patrimony. In the case of mandatory reduction, this will take place when the losses involve the reserves and 50% of the capital.


    • Dissolution.

       

      The causes for dissolution in a society are the following:

      1 - Decision of the partners.

      2 - Expiration of the term by which it was constituted.

      3 - Fulfillment of the condition to which its existence was subordinated.

      4 - Achievement of the object for which it was formed, or for the impossibility of achieving it.

      5 - Loss of social capital.

      6 - Bankruptcy declaration.

      7 - Merger.

      8 - Final sanction of cancellation of public offer or quotation of its shares.

      9 - Firm resolution to withdraw the authorization to operate if special laws were imposed because of the object.


      When the dissolution is declared judicially, the judgment will have retroactive effect to the day in which the cause of dissolution took place. The causes of dissolution may be removed through a decision of the governing body and elimination of the cause that gave rise to it, if there is economic and social viability of the subsistence of the activity of the company. The resolution must be adopted before the registration is canceled.



      Bibliography:

      Ley 19.550, de Sociedades Comerciales.

      Taxation and Investment in Argentina 2017, Deloitte.

      Doing Business in Argentina 2016, EY.

      Doing Business in Argentina 2017, PWC.

      Doing Business in Argentina 2017, BDO.