compliance with capital contributions and dividend distributions. A capital contribution or the designation of an amount of assigned capital is simply a contribution of capital, in the form of money or property. A dividend distribution refers to the distribution to the parent company or shareholders of the local vehicle of its net profits earned in the last financial year, after deducting any reserves or deficit carried forward from earlier years. 2. Elements of a Branch Office: First, we would like to establish that a branch office is not considered to be an independent legal entity, but an extension or commercial establishment of its home office. The branch is considered as a legal entity, which for purposes of its activity has to comply with all Colombian regulations. Taking this into consideration, under Colombian provisions, the establishment of a branch office will require the assignment of the following elements: (i) the purpose of the company which in Colombia is known as “objeto social;” (ii) the domicile of the company; (iii) the term of duration of the branch office and the causes for termination; (iv) an initial Capital Contribution to the branch office, which must be paid in full when it is first established; (v) the designation of a general agent with one or more alternates, whom will represent the company in all of the business deals to be celebrated in Colombia; (vi) designate an auditor, who must reside permanently in Colombia. The capital contribution will not be understood as the payment of equity as in an ordinary subsidiary, but it will enter the branch assigned capital for the development of its operations. The designation of the amount of assigned capital must be paid in full when it is first established and since its source is a foreign company it will be considered as a foreign

investment and as such it must comply with the obligatory registration before the Bank of the Republic within the next three months since the reimbursement of the assets is effectuated. There is no minimum capital required for the incorporation of an Office branch in Colombia, however any increase of the assigned capital of a branch requires an amendment of the incorporation document by the pertinent corporate body abroad. The amended document must be formalized by a public deed in Colombia. However, the branch may alternatively receive supplementary investment to its assigned capital from its home office abroad. In this case, the supplementary investment does not alter the assigned capital of the branch and therefore does not require an amendment to the incorporation document. The funds will be registered in the branch’s “supplementary investment to assigned capital” account, which is managed as a current account between the branch and its home office. The only formality required is the registration of all supplementary investments received from the home office in the preceding financial year, which in conclusion results in a very easy method to finance the office branch. For the distribution of dividends, since the branch office is not an entity with independent judicial capacity but an extension of the foreign company, there is not a dividend distribution as such, but a distribution of its net profits at the end of the corresponding financial year, which must be previously approved by the competent superintendence (Article 496 of the Commercial Code). These net profits may only be disbursed if the branch has complied with the legal reserve provision established in article 452 of the Commercial Code.

ILN Corporate Group – Establishing a Business Entity Series

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