Business Advisory

The simplified stock corporation works well in most cases because of the freedom it allows in the bylaws and because shareholders are not liable with their own assets for the company's obligations, save in the situations the law allows. It is not an automatic answer, though: regulated activities, foreign investment structures, businesses that will raise outside capital and family arrangements all justify looking at the other types in the Commercial Code, or even at a branch, before deciding. The question is answered with the business in view, not from a general preference.

The bylaws are public and govern the company towards everyone; the shareholders agreement governs the relationship between the people who are shareholders today and allows commitments that would sit awkwardly, or too visibly, in the bylaws. That is where voting undertakings on certain matters, drag-along and tag-along rules, the valuation formula, deadlock mechanics and exit conditions belong. What matters is that the two documents say the same thing: when they contradict each other, the argument starts on the very day a decision was needed.

We first look at what the bylaws and the shareholders agreement, if there is one, actually say, because sometimes there is an exit route the parties have forgotten. If there is not, the job is to build one now: deadlock-breaking mechanisms, widening or narrowing the matters that need unanimity, a board with an independent third member, or a reciprocal buy-out formula with a determinable price. Where the disagreement is already preventing the company from operating, or decisions are being taken without the required majorities, the matter stops being structural and moves to our litigation and arbitration practices.

The filing itself is quick: once the corporate type is settled and the incorporation document signed, registration is made with the Chamber of Commerce of the company's domicile, followed by tax registration, opening a bank account and the corporate books. What takes time is everything before that: agreeing the capital and how it is paid in, the corporate purpose, the powers of the legal representative, the majorities and the rules for shareholders coming in and going out. We prefer to spend that time before incorporation, because amending bylaws afterwards requires a meeting, the right majorities and a further filing.

Warranties are for claiming afterwards; due diligence is for knowing what you are buying now and for negotiating with that information in hand. On top of that, you cannot ask for specific protection against risks you do not know about, and a general indemnity rarely covers what was already visible. In practice the findings translate into concrete items: a specific representation from the seller, a condition to be met before closing, a holdback of part of the price or, in some cases, the decision not to proceed.

Buying shares means buying the whole company along with its history: its contracts and permits stay with the same legal entity, but so do its liabilities and contingencies, known and unknown. Buying assets or a going concern lets you choose what comes with you, but it requires assigning contracts, obtaining consents and working through the rules on the transfer of a going concern and their effect on creditors. The decision is taken looking at the corporate, employment and tax angles together, which is why we run it alongside our tax practice.

They can. Law 222 of 1995 imposes duties of care and loyalty on directors and officers and provides for liability for loss caused to the company, the shareholders or third parties where they act with intent or negligence, alongside a specific regime for conflicts of interest and the decisions that involve them. That is why it matters how decisions are documented: what information the board had, what was discussed, who declared a conflict and what went into the minutes. Much of our corporate governance work consists of building that record before anyone demands it.

It depends on how separate you want the local operation to be. A branch is not a legal entity distinct from its head office, which simplifies some things and exposes the parent in others; a subsidiary is a Colombian company with its own capital and governing bodies, and it allows local partners to come in. There are also activities and public contracts where the form is constrained. We look at the activity to be carried out, the applicable exchange control and foreign investment rules and the tax effect, and on that basis recommend the vehicle and prepare the incorporation or branch establishment documents.