incorporation or operation of an SA. Nonetheless, there are some exceptions regarding determined types of businesses, where a special law requires a minimum capital for its constitution and ongoing operation, such as banks and insurance companies. The capital of a SA may be paid with cash or assets. According to the law, the initial capital must be fully subscribed and paid within three years counted as of the incorporation of the corporation. If the capital is not subscribed within this term, it will be automatically reduced to the amount effectively subscribed and paid. An SA may be publicly traded or closely held. If it is publicly traded, the shares are publicly traded at the stock market, either as a legal requirement or voluntarily. In this case, the corporation is subject to the supervision by the Commission for the Financial Market ( Comisión para el Mercado Financiero , “CMF”) and, therefore, the shares must be registered in the Securities Register of this regulatory body. Shares of closely held SA’s are privately traded. Shareholders of a SA may freely transfer their shares without the consent of the other shareholders, and without amending the corporation’s bylaws. Distribution of profits in closed SA’s is ruled by the bylaws. If there are no provisions on point, distribution is ruled by the general rules affecting open corporations, under which at least 30 percent of net profits must be distributed in cash, unless otherwise agreed by all shareholders. In case of accumulated losses, the profits of the period must be used first to cover said losses. Management. SA’s are managed by a board of directors of at least three members, who are essentially revocable. The chairman and CFO of the company are elected by the same directors. The board of directors is vested with ample

managing powers and can represent the SA before third parties. c) Sociedad por Acciones An SpA is fairly similar to a SA but simpler. Besides certain minimum provisions set forth in the law, the shareholders are free to agree upon any rules in their bylaws. It seeks to combine the flexibility in management of a corporation, with the structure of rights and obligations of a SA. Unlike the prior companies, SpA’s may have one single shareholder for all the duration of the entity. They are therefore preferred by Venture Capital Companies and other companies with an intention to incorporate partners in the future. Capital and Shares. There are no minimum capital requirements for the incorporation or the operation of a SpA. The shareholders may pay the stock capital in cash, assets, or the contribution of personal work (which is not allowed under an SA structure). The initial capital and capital increases must be fully subscribed and paid within the term fixed by the shareholders, or a maximum of five years counted from the incorporation or the capital increase date, if such term is not set forth in the bylaws. The bylaws can establish that the SpA may issue different kinds of shares, such as non- voting preferred shares, limited-voting shares, or with multiple votes. In general, shareholders of a SpA may freely transfer their shares without the consent of the other shareholders and without amending the bylaws. If an SpA reaches 500 (five hundred) or more shareholders or, at least, 10% of the nominal capital belonging to a minimum of 100 (one hundred) shareholders, during more than 90

ILN Corporate Group – Establishing a Business Entity Series

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