Compliance: Business operating in Chile are bound to the provisions of Law No. 20 393 regarding the criminal liability of corporations for money laundering, terrorist financing, domestic and foreign bribery, embezzlement, fraudulent management, bribery among private people and willful receiving of stolen goods offences.

This particular piece of legislation was adopted on the initiative of the Executive branch on 16 March 2009 by virtue of a series of conventions signed by the State of Chile and recommendations of international organizations, especially the OECD. The scope of this law applies to both private and state-owned companies.

Compliance – When is a company criminally liable?

Whenever the controlling owners, officers, principal executives, representatives or administrators or related legal persons have committed the crimes specified in the law and this would have brought a direct or indirect benefit to the company. Additionally, this situation must have occurred due to a lack of direction or supervision by the company.

The Argentinian regulation has a broader definition of criminal liability, including those acts performed by a third party without power of attorney, but ratified in some way by the company, even implicitly.

Offences covered by the provisions of the law

The offences covered are as follows:

• Money laundering – also covered by Law No. 19 913, Section 27.
• Terrorism financing, as referred to in Law No. 18 314, Section 8.
• Incompatible negotiations, as per the Chilean Criminal Code (CP), Section 240.
• Fishing Act-related offences.
• Bribery of a national or foreign public officer – as per CP Sections 250 and 251bis, respectively. In this case, it is also considered an offence when relatives are involved in order to commit it.
• Bribery between private individuals, i.e. an employee obtaining a financial gain by having a company awarded a contract, according to the provisions of CP Sections 287bis and 287ter.
• Willful receiving of stolen goods offences – as per CP Section 456bis A.
• Embezzlement, as in CP Section 470 No. 1.
• Fraudulent management of third party’s assets (CP Section 470 No. 11)
• Forcing an employee to go to work during quarantine (Art. 318 bis Criminal Code).
•  Fraudulent granting of subsidies (Art. 14 L. 21.227) The employer is liable for failing to fulfill its duty of instruction and supervision in regard to the employee.

Compliance – Sanctions for the company

Sanctions contemplated include fines, prohibitions, loss of tax benefits, dissolution or cancellation of the company or the legal entity involved.

• As for the dissolution or cancelation, it does not apply to state-owned companies or to those private-owned that provide services of public utility that could cause serious social harm.
• Banning sanctions: temporary or lifetime prohibition to contract with state agencies, from 2 to 5 years.
• Loss of benefits: perpetual and total loss of tax benefits, as well as temporary. This includes the prohibition of being a supplier for the State, the loss of licenses, subsidies or any other benefit received from the State, including contracting with companies where the State is a majority shareholder.
• Fines to fiscal benefit between 400 and 300,000 UTM.
• Confiscation, not only of the proceeds of crime but also of money and goods that compensate for illegally obtained profits. If the crime comprised an investment, the legal entity is obligated to pay the State the same amount.

If the legal representative is charged for these offences, the company will be forced to appoint a new one and if it does not do so, the Court shall appoint one.

In addition to the sanctions indicated, an excerpt of the conviction will be ordered to be published at the expense of the company and the confiscation of property related to the crime. In crimes involving the investment of resources in excess of the income generated by the legal person, the payment of the investment made will be imposed as an accessory penalty.

Jurisprudence has established that the duties of supervision and direction are considered to have been fulfilled if before the commission of the offence, the company adopted and implemented a model of organization, administration or supervision to prevent these offences – a corporate compliance program. Among the most famous cases is the case of Universidad del Mar case, which through of a bribe it obtained accreditation to get access to educational-related credits.

Determination of penalty

The rules for determining the penalty take into account the amounts involved in the commission of the offence, the size and nature of the legal entity, its economic capacity, the degree to which it is subject to legal regulations, the extent of the harm caused, and the seriousness of the social consequences in the case of State enterprises.

Aspects of the Court procedure

Courts with jurisdiction on criminal matters are competent to rule. The investigation is carried out through the legal representative of the company, who will cease if it is charged by the commission of the act that gives rise to corporate criminal liability.

The applicable procedure will relate to the penalties requested by the prosecutor, and it may be a simplified or abbreviated procedure if needed. The principle of timeliness (the power of prosecutors not to initiate the investigation) does not apply.

There is autonomous legal liability even when individual criminal liability is past its statute of limitations, in accordance with CP Section 93, paragraphs 1 and 6. On the other hand, if the company is transformed, merged, absorbed, divided or dissolved, the responsibility will also be transferred to the resulting legal person.

Ways to avoid liability being applied to the company.

All companies, no matter their size, must take measures to prevent the occurrence of these offences. How can the company be shielded from these risks? The company must exercise its managerial and supervisory duties.

These will be considered fulfilled when the legal person has adopted and implemented models of organization, administration and supervision to prevent this type of offences through a prevention officer, who must be autonomous from the administration of the company – an obligation from which legal persons whose annual income is less than 100,000 UF are exempt, in such a situation said officer may be the controlling partner or shareholder. The model being promoted by the government is ISO 19600, which implies the implementation of a compliance program.

Companies will be able to obtain certificates accrediting the adoption and implementation of their criminal prevention models through external auditing companies. The CMF (the Chilean banking overseeing agency) has a list of companies that can grant certificates:https://tinyurl.com/y28fw4k8

The minimum contents of a compliance system

Although it is not mandatory to have a management system implemented according to ISO 19600, in a company’s crime prevention system one would expect to see at least the following contents:

• To have a risk matrix. The activities or processes where the commission of the crimes could take place must be recognizable.
• To appoint a compliance officer. This compliance officer may serve for up to 3 years and be re-elected. The company’s Board of Directors must appoint him.
• Have a compliance policy and corporate compliance culture.
• To train workers on the matter.
• To prepare documents for external collaborators to sign, in which they are obliged to take measures to prevent these crimes within their organizations.
• To create protocols for gifts, donations, etc.
• To create a complaint channel.
• To deliver the resources needed to implement the system
• To create sanctions for those involved in the commission of crimes.
• To audit the system.
• To evaluate the degree of effectiveness of the system and to improve the system according to the findings that are made.

La entrada Corporate compliance regulation in Chile se publicó primero en Brokering Abogados.

Agent: To start the process, of revoking and naming a new agent, it is necessary to request a certified copy of the bylaws of the main company, a certified copy of the registry on which the company was registered, and a certificate of Good Standing of the company. All of these documents must be translated to Spanish by an official translator.

2 Drafting of a public deed where the representatives of the foreign company revoke the previous agent and name a new one

Before proceeding with the replacement of the agent in Chile, the proxies of the company must draft a public deed which must explicitly revoke the previously designated agent and name a new one, with broad powers. It is recommended to draft this public deed in both English and Spanish, on two columns, as if it is drafted in English an official translation will be required. Do not forget, that like in a Chilean company an Agency in Chile needs also a Chilean or a foreigner with a valid residence in Chile as agent.

The public deed must then be apostilled for Chile and sent in original to our offices, with the documents listed in number 1.

3 Protocolization of the public deed before Notary Public

The public deed must then be protocolized before the Notary Public on which the Agency was originally created. This protocolization must also include the certified copy of the bylaws, the certified copy of the registry and the certificate of good standing.

4 Drafting of a new public deed

At the same date and before the same Notary Public, the new Agent must draft a new public deed, which must include the following statements:

a.-That the naming of the previous Agent is hereby revoked, and that a new one was named, referencing the deed on which this is stated

b.-That the entity is aware of Chilean regulations by which they will be regulated on the country

c-That the company’s assets are regulated by Chilean law, specially regarding the compliance of local regulations

d.-That the entity will keep easily liquidated assets in Chile to respond to local obligations

e.-The name, social object, domicile and, equity of the Agency

f.-The name of the new agent

5 Drafting of an excerpt of the Agent public deed

After the public deed is drafted, the same Notary Public must create a certified excerpt of the public deed, which must include the date and number of both the prior protocolization and the new public deed, the name of the foreign company, the name with which the Agency will operate in Chile, it’s domicile, equity and the name of the Agent.

6 Registration of the excerpt in the Commerce Registry

The drafted excerpt must be registered on the Commerce Registry of the Real State Register corresponding to the domicile of the company, within 60 days of the date of the new public deed.

7 Publication of the excerpt on the Official Gazette

The certified excerpt must be published once on the Official Gazette within 60 days of the date of the new public deed.

La entrada Steps for revoking and naming a new agent for agencies of foreign companies formed in Chile se publicó primero en Brokering Abogados.

Regarding this topic, the regulations regarding Directors in Chile are contained in the Corporations Law, its Ordinance, and other complementary regulations. Among them, we identified the following topics regarding liability:

I. A general rule of liability: Civil Liability

The Corporations Law establishes a general rule for liability, that refers to any action committed willfully or with gross negligence by a Director carrying out his duties, breaking the law, other regulations or the articles of incorporation. This is civil liability, which results in pecuniary payments in compensation for the damage caused.

The general degree of care that the Director must take carrying out his duties is established by law, and they must avoid breaking the law, other regulations or the articles of association. If an action committed willfully or with gross negligence produces harm to third parties or the company, the company or the harmed third party can legally seek compensation.

The following are examples of actions that can cause liability for Directors:

1) Blocking minority shareholders from exerting their legal rights

2) Harms caused by the mismanagement of the company, such as losses or excessive withdrawals for themselves or third parties

3) Not controlling the management of the company, preventing the company from having professional management

4) Not rendering an account when it is necessary or so requested

II. Criminal Liability

Outside of civil liability, in certain cases, criminal liability can apply to Directors. Specifically, for Closed-Stock and Joint-Stock corporations, there is a general rule for liability: Directors are criminally liable when they commit a crime through the company.

The statute of limitations for crimes committed by Directors through the company depends on the kind of crime committed. The most common cases of criminal liability are related to fraud that harms the company or its shareholders and the counterfeiting of documents. Both crimes have a statute of limitations of five years, counted from the moment the crime was committed.

III. Specific prohibitions and presumptions of liability

In addition to the general rule of civil and criminal liability that was described previously, the Corporations Law establishes a series of specific prohibitions for Directors:

1) To propose the amendment of the articles of association and/or agree to issue bonds or adopts policies or decisions outside of the social interest.

2) To block or hinder investigations destined to determine their own liability or that of the managers, administrators or chief executives of the company.

3) To persuade the managers, administrators or chief executives of the company or their dependents, the internal or external auditors and risk rating companies to render irregular accounts, present falsified information or hide essential facts.

4) To submit irregular accounts, falsified information or hide essential information from the shareholders.

5) To borrow the company’s funds or goods or use the goods, services or loans of the company for their own benefit or the benefit of their families, proxies or companies on which they participate, without prior legally issued authorization of the Board.

6) To benefit themselves or related third parties from commercial opportunities acquired because of their position, harming the company.

7) Generally, to commit actions that are illegal or that go against the articles of association or the social interest or use their position to obtain undue advantages for themselves or related third parties harming the social interest.

Executing any of the listed actions create liability for the offending Director, who must indemnify the harms caused.

Furthermore, article 45 of the Corporations Law (Ley de Sociedades Anónimas, in Spanish) assumes the liability of the Director on the following cases:

a) If the company does not keep their books or records updated.

b) If provisional dividends are distributed when accumulated losses exist. This presumption applies to the Directors that signed the respective agreement.

c) If the company hides its assets, recognizes supposed debts or simulates the sale of assets.

d) If one or more Directors benefit improperly, directly or through other persons or companies, from the company’s business that generates harm to the company.

If any of the aforementioned occurs, the Directors must indemnify the company jointly for the harm produced to the company, its shareholders or third parties.

IV Acts or contracts in which a Director has interest

On the ordinary operation of a Closed-Stock or Joint-Stock corporation (when the latter has a Board of Directors), there’s a likely possibility of needing to sign contracts on which one or more Directors has interest. In this case, there are a series of special rules established by law for the purpose of authorizing the operation.

If it is necessary to negotiate or sign a contract that involves a Director’s interest, the company must call a Board of Directors with the specific intent of deciding about the operation, excluding the affected Director. The minutes of the Meeting must expressly include the deliberations to approve the terms and conditions of the acts or contracts which involve the Director, and the Board must inform the shareholders about the operations on their next meeting, and this subject must be included in the summons.

First, for this authorization to be necessary, the amount involved in the operation must exceed 2,000 UF (about USD 88,495) and the 1% of the assets of the company. It is always necessary if the operation exceeds 20,000 UF.

Then, one or more Directors must have an interest in the operation. It is understood that a Director has an interest when:

a) The Director must intervene personally in the operation, or their spouse or relatives up to the second degree of consanguinity or affinity

b) Companies on which the Director holds a chair on the Board of Directors or is an owner, be it directly or through other persons or companies, of 10% or more of the social capital, are involved in the operation.

c) Companies on which the spouse or relatives up to the second degree of consanguinity or affinity of a Director are members of the Board or are owners of 10% or more of their social capital.

d) The controller of the company or related individuals must act if the Director wouldn’t have been elected as such without their vote.

These regulations are considered relevant if the company is the controller of several companies that share the same shareholders and/or controllers, in case it’s necessary to negotiate or sign contracts on which this interest exists.

V Safekeeping of the company books and availability to the public of the articles of incorporation and the shareholders’ registry

According to article 7 of the Corporations Law, the Board must conduct safekeeping of the company’s books and other registers (such as the minutes of the Board’s meetings, of the Shareholder’s meetings, the shareholders registry, among others), and oversee that they are kept with the regularity required by the law. However, this function can be delegated, in which case this delegation must be discussed and approved on a Board of Directors’ Meeting and registered on its minute.

The Board must also keep the updated articles of association, signed by the manager, and an authorized record of the shareholders, which must include their domicile and number of shares, on the main offices of the company. If this duty is not fulfilled, the Directors are jointly liable for the harm caused to the shareholders and third parties because of the unfaithfulness or outdatedness of the documents.

VI Consent for other forms of payment for capital stock

Generally, the shares of Closed-Stock or Joint-Stock corporations can be paid in cash money or with other goods. However, capital stock, which are shares issued to increase the capital of the company, which can be acquired by the shareholders or third parties, must be paid in cash, unless the articles of association include a different stipulation.

If a Director accepts a form of payment that is different from cash, he becomes jointly liable for the placement value of stocks paid this way.

VII Law of corporate governance and supervision of the securities and insurance superintendence

Law 20.382, published in October of 2009, modified both the Corporations Law and the Stock Market Law, aiming to increase the standards of corporate governance for private companies.

Some of the amendments introduced by this regulation apply to Closed-Stock and Joint-Stock corporations and were included above. The most important changes, which only apply to corporations whose shares are traded on the stock market, are the following:

a) Election of independent Directors, if the legal requirements apply

b) Designation of a Directors’ Committee

c) Rules about handling and disclosure of information

d) Use of confidential information

e) Regulations regarding public share offerings

It is also important to mention that Closed-Stock and Joint-Stock corporations are not supervised by the Finance Market Commission (CMF), the successor of the Securities and Insurance Superintendence (SVS), instituted on January 15, 2018. This means that administrative liability generally does not apply to them, and as such, the Finance Market Commission cannot apply sanctions (such as fines) to the directors of Closed-Stock and Joint-Stock corporations, as they are not in its jurisdiction.

VIII. Analysis of Key cases regarding the Director’s liability

The following is an analysis of certain key cases that involve Directors’ liability on stock corporations:

a) La Polar

This is one of the biggest-profile cases in Chile that involved a company’s Directors. The company offered a credit card to their customers and automatically renegotiated their debt when it got overdue, and over time this became common practice within the company. This regularization of debt started at the call center of the company, and then an automated process was created to apply it in bulk. The immense number of renegotiations started to impact the financial status of the company, as the default rate of the financial unit of the company was lowered to almost zero. When these actions became public knowledge, the individuals submitted to renegotiation stopped paying their loans, considerably lowering the payment rate, and thus the company started monitoring the situation, finally creating a collection committee.

The impact of unilateral renegotiations on La Polar’s business was included in reports prepared by the management of the company and contained more detailed information about them. However, it was only when the growing number of complaints with the customer protection agency and an eventual collective negotiation hit the company that it took action, and the Board of Directors and the Directors’ Committee started to analyze the situation. They were informed of the situation of the company with regular presentations, on which, according to the then SVS, included sessions where renegotiations were discussed. The Board of Directors and the Directors’ Committee only required the analysis of the impact of the renegotiations on the company. Only years later both entities became aware of the unilateral renegotiations and their real effect over the company’s assets and its financial situation.

Because of the aforementioned, the SVS filed charges against the Directors of La Polar, based on their lack of diligence for not adopting improvements for the internal checks of the company, for not having exerted their right as Directors to inform themselves about the financial situation of the company and for the infringement of the code of conduct established for those who hold that position. After hearing their defense, the SVS decided to apply a fine to each Director, based on the time each one had held their position and if they were members of the Directors’ Committee.

In this case, the sanctions applied against the Directors were administrative and were applied by the SVS as the overseer of a stock corporation traded in the stock market, based on the duties of the Directors and the general liability rules established on the Corporations Law. This kind of sanctions could not be applied to Closed-Stock and Joint-Stock corporations, as they are not supervised by the CMF. Liability would have to be pursued by the shareholders or the company itself at a Civil Court, in the form of a payment for the harm to the company, its shareholders or third-parties caused by their actions or negligence, and not through a fine. This process would undoubtedly take longer than the administrative process of the CMF.

b) FASA

Also known as the drugstores’ collusion, sanctions were applied mostly for limiting free competition. However, there were also direct sanctions for the executives and directors of the pharmaceutical chain Farmacias Ahumada.

The investigation started in the year 2008, and the irregularities started shortly before, in 2007. Before this date, the pharmaceutical companies were immersed in an intense price war, which noticeably lowered the earnings of the three biggest chains (Farmacias Ahumada [FASA], Salcobrand and Cruz Verde), and thus the main executives of this companies decided to shift their strategy, stopping their competitive actions.

In the second half of 2008, the Undersecretary of Public Health of the time denounced the existence of an agreement between the major chains, through which they presumptively raised the prices of medicines simultaneously. Thus, the competition between them did not exist, as the prices were significantly higher than market rate and were raised at the same time and were not correlated with the prices charged by the laboratories, which weren’t raised above the consumer price index.

Considering the aforementioned, the Undersecretary and the National Consumer Service (SERNAC) started a joint investigation to justify the claim and present it before the Chilean Competition Tribunal. The investigation, based on a Historical Price Ranking, uncovered that more than 200 medications had risen in price at the same time on the three chains. With this information, the National Economic Prosecutor’s office initiated a requirement against the three chains. It was detected that the causes and motivations for collusion were the price war, which impacted the companies’ profit margins, and the integration of executives of FASA and Cruz Verde to the governance body of Salcobrand, which produced strong bonds among the main executives of the three companies.

When the Chilean Competition Tribunal was about to finalize the requirement, Farmacias Ahumada decided to confess before the National Economic Prosecutor’s office, admitting guilt and confirming that there was effectively a price adjustment agreement between them, Cruz Verde and Salcobrand. This confession had the effect of significantly reducing the fine that was applied for breaking the laws of free competition.

Taking into consideration the result and the agreement met, the then SVS decided to apply fines, in addition to the sanctions applied by the Chilean Competition Tribunal, to the main executives of FASA, based not on the convenience of the business decision to arrive to deal with the National Economic Prosecutor’s office, but because of the procedure that must be followed on a company to arrive to this kind of decisions. The fines were applied to the following executives:

a) To the executive vice-president of FASA, for not reporting to the Board the investigation of the National Economic Prosecutor’s office.
b) To the President of the general committee, for not reporting to the Board of the deal reached with the National Economic Prosecutor’s office in an accurate and timely manner.
c) To the Directors, for not exerting their legal right to be informed, as they should have done considering the existing information they had access to.

Again, these sanctions are administrative fines, applied by the SVS as the regulatory agency of stock corporations traded in the stock market.

However, the liability caused by violating the free competition rules is separate from those of regulatory agencies, and as such, if the Directors of a Closed-Stock or Joint-Stock corporation decide to commit acts against free competition, the company could be sanctioned directly by the Chilean Competition Court.

IX. Conclusions

Considering the aforementioned, we can conclude the following:

a) The general rule for liability for Directors consists of civil and criminal liability. As such, Directors can also be responsible for their actions that violate the existing regulations or the bylaws of the company and must pay for the harms caused. The statute of limitations to prosecute this liability is four years, starting from the moment where the infraction was committed, or for crimes committed through the company, commonly fraud and counterfeiting.

b) The Directors have a series of specific prohibitions established by law, which seek to avoid that the Directors put their own interest before the ones of the company. Furthermore, the law assumes the liability of the Directors in certain cases (such as not keeping the company’s books)

c) In general, Directors must avoid negotiating and signing contracts on which they have a personal interest. They can be authorized to do so by the Board (excluding the involved Director) when the amount involved is considerable, and this must be reported to the shareholders. What is considered personal interest and considerable amounts was explained above.

d) The Boards must keep and safeguard the company’s records, and also keep the updated bylaws, signed by the manager, on the social domicile. If it fails to do so, the Directors are liable.

e) Generally, Closed-Stock and Joint-Stock Companies are not regulated by Law 20.382, about corporate governance, and are not supervised by the Financial Market Commission, as they do not trade stock on the stock market.

f) The analysis of the key cases that involved the Board and other elements of corporate governance of corporations, such as La Polar and FASA, makes us conclude that majority of the sanctioned imposed were administrative fines from the CMF. In any case, the liability that emanates from other areas, such as free competition, can also apply.

La entrada Liability of the Board Members of Joint-Stock Corporations and Closed-Stock Companies se publicó primero en Brokering Abogados.

It is also often said that private equity is also the gender that comprises different forms of financing, including seed capital and angel investors – when it comes to more limited amounts. In both cases, the investor always has in mind its return through the exit – when the company is finally sold or initiates its IPO, whether it is in Chile or abroad, depending on market or tax considerations.

The venture capital and private equity industry is one of the fastest expanding industries in Chile, driven by the latest regulatory changes in this area, which have allowed it to have a better regulatory framework and a highly regulated and sophisticated ecosystem.

Who invests and the amounts invested

The following investor profiles are distinguished in the industry:

FFF: Family, Friends, and Fools. Many successful ventures begin, due to credit constraints, raising capital through family or friends.

Angel investor: the well-informed, interested ones in innovation and technology on early-stage companies.
Venture capital companies: these are dedicated funds in permanent, professional search of new investments. This particular category of investor in Chile is currently experiencing strong growth.

Finally, there are institutional investors: banks, insurance companies, pension funds (AFPs) – all of them with specialized teams. It is a category that is still not very commonly observed in Chile.

As for the amounts, seed capital operates in early stages, up to 50,000 dollars. Angel investors, at a more specialized level, reach amounts between 50 and 500 thousand USD. There are even search funds in more developed markets betting on many small investments. Venture capital investments range from 500 thousand USD onwards to approximately 10 million USD. Finally, in private equity itself, the 10 million mark is often exceeded. In larger amounts, there is the area of public financing: stock market opening, bond issuance, and IPOs.

Ways to invest in venture capital

The first is through the contribution of capital, which is the traditional structure that operates in Chilean law, materializing the income to the property through an amendment to the articles of association – where restrictions are also usually established by means of shareholders’ agreements that protect the different actors involved. The second way is the entry through convertible debt, whose most relevant characteristic in comparison to conventional debt is the discount rate – between 15% and 20% of the valuation set by the market – which is obtained if new actors enter society. This debt is legally materialized through a contrato de mutuo (loan agreement) and the subscription of a promissory note.

Relevant actors and structure of the Venture Capital and EP in Chile

In Chile, despite its low visibility, it is a highly regulated industry where its players are always under regulatory surveillance and scrutiny.

In the area of venture capital, there are Private Investment Fund Administrators (FIPs), closed stock companies without legal personality or object of their own, duly registered at the Financial Market Commission (CMF), formerly SVS, and to whom they report. Those who are under them and the holders of the rights at all times are the Private Investment Funds, which have a maximum of 49 contributors and through them the investment in target companies.

In the area of private equity, there is a more sophisticated structure. The place of the FIP Administrators is taken by the General Fund Administrators (AGF), special companies with the sole purpose of managing investment funds and portfolios. These companies apply to the CMF for authorization to exist, must have a minimum net worth of 10,000 UF – approximately USD 424,000 – and are subject to the regulations applicable to open stock companies and their reporting obligations.

Tax benefits for investors

Investment funds, whether public or private, are not subject to income tax in Chile.

Chile seeks to position itself as a regional platform for foreign fund investments based on national territory: if 80% of the capital is invested in foreign assets, rents and earnings from those investments does not pay taxes in Chile. If 90% is invested abroad, none of the investment is taxed in Chile.

Foreign contributors of public investment funds are taxed with a single 10% tax on dividends and capital gains, as opposed to the 35% general regime applicable to foreign investors.

The administrators, whether AGF or FIP, charge a commission which is subject to VAT. However, foreign investors benefit from an exemption proportional to the equity they own.

All things considered, along its more than thirty double taxation agreements, make Chile a major attraction in venture capital investments at a global level.

La entrada Venture capital and private Equity in Chile se publicó primero en Brokering Abogados.

WAYS TO ENTER CAPITAL

CHAPTER XIV

For investments between USD$5,000,000, and USD$10,000 the following rules established on Chapter XIV of the Compendium of International Exchange Regulations of the Central Bank of Chile are applicable. The aforementioned Chapter establishes that all loans, deposits, investments and capital contributions that exceed USD$10,000, made through the formal exchange market, must be informed to the Central Bank.

Law 20.848 Foreign Investment

This law applies to foreign investors that intend to invest more than USD$5,000,000. The commencement of the law was January 1, 2016. These investors can request InvestChile for a Certificate that endorses their status as foreign investors, which allows to remit the liquidated earnings and the invested capital, allows access to the formal exchange market for the purchase of foreign currency, gives them the right to be treated as nationals and allows the import of capital goods, complying with specific prerequisites, and exempts the payment of VAT. The request form can be downloaded here: Solicitud de Certificado de Inversionista Extranjero

Investments that equal or exceed USD$5,000,000 can opt for a fixed tax rate for 4 years, that is, until the year 2020, as it existed on the old FDI regulation, known as DL 600. For these purposes, investors can opt for an invariable tax rate of 42% for the remittance of earnings to foreign countries. Up to this date, the additional tax rate, which is imposed for the remittal of earnings to foreign countries, is 35%.

Mining investments exceeding USD$50.000.000 can opt for the regulations contained on article 11 ter of the now abolished DL600, which allows them not be affected by any new tax, including royalties, charges or other similar levies specific to mining activity; to be exempted to changes to the amount or way to calculate exploration and exploitation patents and to be unaffected by changes to the regulations regarding the Specific Tax for Mining Activities.

Regarding the way of doing business

If the investor is a natural person, he or she must request the unique Tax ID for investors. This Tax ID is used simply to apply the corresponding taxes when the earnings of the company are sent to foreign countries.

In the case of a foreign company, it must draft a power of attorney to a person in order to request the Tax ID and to sign the articles of association. The Tax ID is used for the same purpose as with natural persons. The person designated can be a Chilean or a foreigner, even without residence in Chile. The power of attorney must be duly legalized in accordance with Chilean law. It is convenient that the power of attorney is signed at the Consulate of Chile on the corresponding country. Obtaining the Tax ID only takes a couple of hours on the Chilean Internal Revenue Service.

The administrator of the company must be a Chilean or a foreigner with a work visa or temporary/permanent residency.

Company Types

• Stock corporation
• Limited Liability Corporation
• Joint-Stock Company
• Joint Venture
• Agency

There is no minimum capital in Chile for companies. Forming a company in Chile takes approximately a month.

Taxes applied to investments in Chile are the following:

Chilean companies are subject to income tax, which levies the earnings of each fiscal period with a tax rate of 24%. Furthermore, partners or shareholders of these companies will only pay taxes at the time they withdraw their earnings and will be subject to income tax for the effectively withdrawn amount if they are natural persons domiciled or residents of Chile. Foreign investors are levied with additional tax, with a tax rate of 35% over the remittance of earnings. It is important to note that the partners or shareholders of the company, be them nationals or foreigners, can apply as credit the income tax paid by the company over the amounts that were distributed to its shareholders or partners.

La entrada Foreign Investment in Chile se publicó primero en Brokering Abogados.

The main innovations brought by this amendment are the following:

1.- New conducts that are considered to adversely affect the free Competition

It is because of the aforementioned cases that the following conducts were added as actions that threaten the free competition: a) agreements between competitors intended to fix prices for sales or purchases, to limit production, to assign market zones or shares, to affect the results of a bidding process and to eliminate other competitors; and b) for one person to be simultaneously director or senior executive of two or more competing companies, to the extent that the corporate group to which they belong have annual revenues in excess of 100.000 UF.

2.- Obligation to inform certain operations – free Competition

Likewise, an obligation to inform the National Economic Prosecutor when more than 10% of a competing company is acquired by a company or corporate group that have annual revenues due to sales and services in excess of 100.000 UF.

3.- Prior control on Operations of Concentration

When companies that belong to different holdings are merged, associated or acquired by one another, notice must be given to the National Economic Prosecutor, provided that such holdings have a predominant significance. In order to determine which cases must be reported to the National Economic Prosecutor, the latter must issue a ruling that indicates the threshold of sales that require such notice. This threshold shall only consider sales made in Chile and income from the company’s line of business.

Together with such notice, the parties must make all the records available to the National Economic Prosecutor, in order to assess the risks that the operation may cause to the free competition.

On the other hand, the involved parties may offer measures, which they will undertake, to mitigate the risks that the operation may produce on the free competition.

This evaluation, by the National Economic Prosecutor, may take no more than 90 days and if it is believed that the operation may considerably reduce the competition, it may even be prohibited.

4.- Augmentation of the fines and new sanctions

The fines were increased up to 30% of the offender´s sales related to the line of products associated with the infringement or up to the double of the economic benefit yielded by the infringement. If the benefit or the sales cannot be determined, a fine up to 60.000 UTA (Annual Tax Unit) may be imposed.

In case of agreement amongst competitors, a 5-year prohibition of entering into contracts with the Government and awarding concessions sanction may be imposed.

Lastly, criminal penalties for a series of conducts contrary to the free competition were restored.

La entrada Amendments to the Free Competition Law se publicó primero en Brokering Abogados.

Joint Stock Company pros and cons

One of the Chilean joint-stock company’s main advantage comes from the fact that it can be incorporated by a single shareholder, allowing new partners to join as the business grows. It also allows having a plurality of corporate purposes, besides allowing other legal entities of persons to incorporate a SpA.

This is a kind of company suited for those who want to start a business and add new partners on any capacity on the way, or just investors.

A Chilean joint stock company can have one or more shareholders and a rather light management structure since a board of directors is not required. However, if the SpA has a board of directors, the company’s CEO is the only one entitled to prepare a certificate with the current Board members.

The main con against a sociedad de responsabilidad limitada (Spanish for limited liability company, LLC) steams from the ability of any partner to sell his/her shares to anyone who is willing to buy him/her out. Also, the main shareholder can increase the capital and leave the majority shareholders out of any decision. That is why family offices prefer LLCs instead of SpAs.

Capital and shares

The capital is divided into shares, shareholders being liable up to the amount of they promised to buy. The shares must be subscribed and paid in the term indicated in the bylaws – lacking a special provision on those, it must be done in the maximum term of 5 years from the moment of incorporation or the increase of capital.

Capital increases have to be agreed by the shareholders. On the other hand, there may be authorized capital – that is to say, capital increases that may be carried out by the manager without the need for an agreement of the shareholders’ meeting, either to finance the administration of the company or for specific purposes.

SpAs allow issuing shares that only give shareholders the right to payment of dividends for a determined business. This would make it possible to look for capitalist partners for a new business to be developed and assure them that the business will be profitable – that it will not interfere with existing businesses.

The most advisable ways to raise capital for a SpA-based business is:

• 1.- To ask a bank for a loan. Banks usually ask the partners to act as guarantors.
• 2.- To make an increase of capital, in which partners put the money or invite new partners. SpAs allow issuing shares for a specific business.
• 3.- To issue bonds, which are debt instruments that can be hold by anyone, payable by the company at the end of a certain period.

Different kinds of shares can be issued: some of them only entitled to profits and not to a vote, or to force a shareholder to sell his/her shares to other shareholders or to the company itself if they want to get out of business.

The sale of the shares can be made through a private deed signed before a Notary Public or by means of other formalities established in the company’s bylaws. After the purchase and sales agreement is signed, then a copy has to be given to the SpA’s CEO, so he can record the transfer of shares in the Shareholders’ registry. The sale of the shares among spouses is null and void in any case.

The Shareholders must hold an annual meeting to approve the balances and decide if there are profits to distribute dividends.

Incorporation of a SpA

Sociedades por acciones can be incorporated either in the traditional way – a public deed is drafted, and an extract of it is published in the official gazette and listed in the Registrar of Commerce) or via the fast-track Your company set out in a day (known in Spanish as Tu empresa en un día) electronic system.

Articles of incorporation, whether set by one or more natural or legal persons, must be set by public deed or a private document with signatures authorized before a notary public. The act of incorporation of the company has to be accompanied by its statute or bylaws, which must include, at least, the following matters:

• The name of the joint-stock company, which must be followed by the expression «SpA»
• The business purpose of the joint-stock company, which will always be considered mercantile
• The capital and the number of shares into which the capital is divided and represented;
• The management structure and how the officers and directors shall be appointed, including a mention of those who will exercise it provisionally, as the case may be, and
• The duration of the company, which may be indefinite by default. Within a period of one month from the date of incorporation, an extract thereof, authorized by a notary public, must be submitted to the Registrar of Commerce corresponding to the domicile of the company and published in the Official Gazette.

Taxation of a Joint Stock Company (SpA)

It is important to mention that SpAsare taxed as a Sociedad Anónima – a corporation. However, the advantage it has over the latter is that before the SII (the Chilean Internal Revenue Service) it is possible to choose between taxing under the integrated or semi-integrated scheme, according to the needs of the shareholders and the company.

It should also be kept in mind that the SII does not accept that a person has more than one employment contract for the companies he or she owns.

Termination of a SpA

This company, like the rest of the companies, must be terminated by the partners through a common agreement or by an arbitrator judge, and are not subject to external inspection by anybody, not being mandatory the appointment of account inspectors.

La entrada Joint Stock Company (SpA) se publicó primero en Brokering Abogados.

In Chile, there are three primary legal entities for foreign companies or individuals to consider when establishing a presence in the country: Limited Liability Company (Sociedad de Responsabilidad Limitada), Joint Stock Company (Sociedad por Acciones), and Corporation (Sociedad Anónima). In each case, shareholders enjoy limited liability, shielding their personal assets from the debts of the company.

Of these entities, the Sociedad por Acciones stands out as the most commonly preferred legal structure. It’s worth noting that in Chile, corporate tax rates vary depending on the size and classification of the company. For Small and Medium-sized Enterprises (SMEs), the corporate tax rate is set at 10%, while for other companies, it stands at 25%.

.A Limited Liability Company (Sociedad de Responsabilidad Limitada) requires a minimum of two shareholders and cannot exceed fifty. The company must appoint one or more managers upon the execution of the public deed that formalizes its establishment. Amendments to the articles of incorporation and bylaws necessitate unanimous consent from the shareholders. Similarly, changing the company’s manager and selling rights within the company also require unanimous approval. Consequently, this type of entity is often favored by family-owned businesses.

Corporations (Sociedad Anónima) divide their capital into shares and must have a minimum of two shareholders. They are governed by a Board of Directors, a General Manager, and General Shareholders’ Meetings. Decisions within a corporation are typically made by majority vote. The Board of Directors must consist of at least three members, who are not mandated to be Chilean nationals. Meetings of the Board can be conducted via video conference. Furthermore, a simple majority is sufficient to convene a Board meeting and make decisions. An annual audit of the balance sheets and bookkeeping by independent accountants or accounting firms is mandatory.

Joint Stock Companies (Sociedad por Acciones) also divide their capital into shares. A single shareholder is adequate for its formation. Resolutions are typically passed by majority vote, and there is no requirement for a Board of Directors. Instead, a General Manager and General Shareholders’ Meetings manage the affairs of the company.

General rules applicable to all types of companies

In Chile, no name reservation is needed for companies to be formed. Also, there is no restriction about the minimum amount of the company’s capital. However, it is advisable to form a company with no less than U$2,000 as capital. All the capital does not need to be paid at the time the company is formed, depending on the type of company there are different timing for paying all the company’s capital. There are also no restrictions about foreigners owning a company and no minimum number of shares have to be owned by locals. Though, the legal representative has to be a Chilean national or a foreigner with a valid working or permanent visa.

In both Sociedades por Acciones and Sociedades Anónimas, the presence of a Secretary is requisite for the proper conduct of Board and Shareholders’ meetings. However, it is permissible for the General Manager to assume the role of Secretary in the case of a Sociedad por Acciones, or for a Director to do so in the instance of a Sociedad Anónima.

All companies are obligated to maintain proper bookkeeping records and prepare financial statements. However, Small and Medium-sized Enterprises (SMEs) are granted the option to simplify their bookkeeping and financial reporting processes. Additionally, companies engaged solely in transportation or agricultural activities are exempt from the obligation to maintain formal bookkeeping records and prepare financial statements.

Steps to form a company in Chile

Rut for the foreign shareholders

If a foreigner wants to form a company in Chile, the first step will be obtaining a tax identification number (RUT) for future shareholders. It is mandatory for foreign investors of any kind to obtain the RUT. The identification tax number is to collect the taxes due when the profits are sent abroad to the foreign partner of the company.

If the shareholders are people only their passports, as well as the Tax Identification Number (TIN) abroad, are needed.

If the shareholders are companies, additional information about those companies is required. First of all, the Tax Identification Number (TIN) in the country of origin must be provided. If the shareholder is deemed to be resident in more than one country, then all the TIN must be informed. The SII will also ask to provide a certificate of good standing issued by a public authority, a tax residence certificate and a copy of bylaws and article of incorporation. All documents must be properly legalized and apostilled and an official translation into Spanish is required.

People and companies will need to grant someone a power of attorney to represent them at the Chilean IRS (SII). This person must be a Chilean or a foreigner with a residence visa.

There is no need for a person to come to Chile to form a company, as long he/she grants a person the power of attorney to act on her/his behalf to obtain his/her RUT number as well as to form a company and name its legal representative. If the power of attorney is signed abroad, it has to be duly notarized and apostilled (Chile is part of the Hague Convention).

Signing the incorporation documents

After obtaining the RUT for the shareholders, a public deed containing the Articles of Incorporation and the bylaws of the company is signed. An excerpt from the public deed is submitted to the Register of Commerce and published in the Official Gazette.

Rut for the newly formed company

The next step will be obtaining RUT for the recently formed company at the Chilean IRS. For this purpose, the company needs a valid address and therefore, a lease agreement signed at a Notary Public has to be signed.

Additionally, to the aforementioned document, the legal representative or a person with a power of attorney will need to bring to the Chilean IRS a copy of the bylaws and the excerpt dully recorded at the Register of Commerce and published in the Official Gazette.

The legal representative of the company has to be a Chilean or a foreigner with a valid working visa because the tax authorities need a person in Chile to be notified in case, they need any tax-related information or to notify a lawsuit. If the company does not comply with this requirement, the SII (Chilean IRS) will not grant a RUT number for the newly formed company. The legal representative is also personally liable for unpaid social security payments and if they are not paid by the company, he has to pay them with his own money.

After this point, the company is fully functional.

The process starting from the date signing the public deed incorporating the new company until the identification tax number is obtained should take about 10 to 15 days. However, delays may occur due to Covid-19 restrictions.

Company’s bank account

The following step is obtaining a bank account, which in Chile can be quite difficult. Usually, the bank takes the legal representative’s commercial record into account to open a bank account and he/she will be the one signing at the bank on the company’s behalf. In only some international banks it is useful showing a certificate that the holding company has an account in the same bank abroad. But in most of the international banks located in Chile, there is no flow of information with the branches in other countries.

La entrada Forming a company in Chile se publicó primero en Brokering Abogados.