In El Salvador, there are different types of companies, which are divided between personal companies and capital companies. These are two types of corporate structures with significant characteristics and differences. The main difference lies in the personal quality of the partners or shareholders, so that, in the case of personal companies, trust and knowledge among the partners are essential when forming a partnership, while in capital companies, anyone can become a shareholder.

“In a personal company, partners are usually trusted individuals, such as friends or family, and the goal is to limit the entry of anyone outside the partners,” says our associate, Paola Ávila. “On the other hand, capital companies are based precisely on the ability to contribute capital to them.”

Personal companies include collective companies, simple limited partnerships, and limited liability companies, while within capital companies, there are anonymous companies, companies limited by shares, and new simplified stock companies.

Ávila explains that the choice of a company depends on several factors: “The choice of the type of company depends mainly on the objectives sought with it. Entrepreneurs must take into account the requirements that must be met for each one, the security it will provide regarding their assets, and the adaptability it must provide for the development of their business.” Regarding this, when choosing the company with which to develop a business, the needs of its members must be considered.

Now, in El Salvador, all the types of companies previously listed exist, however, in practice, limited partnerships have been mostly forgotten by entrepreneurs. Therefore, this article will focus on collective companies, limited liability companies, anonymous companies, and simplified stock companies.

Simplified Stock Companies 

“If the business you are looking to start is a newly launched venture, it is probably most convenient to focus on a simplified stock company. This type of company has a more flexible regulation, which allows new entrepreneurs to have a corporate structure that supports their assets, while allowing them to create rules that adapt to their operation. Likewise, these companies do not require a large investment in capital,” comments our lawyer.

Simplified Stock Companies (SAS in Spanish) are the new type of company that came into effect this year. These companies can be formed 100% electronically, can have a capital of USD$1.00, and can be constituted and formed by only one shareholder. Likewise, these companies allow the adoption of the variable capital regime, which enables new entrepreneurs to increase and/or decrease the social capital as the business develops.

On the other hand, SAS allow decision-making and meetings of social organs to be governed by what is established by the shareholders in the bylaws, and in case rules are not stipulated, they can be governed by the provisions relating to anonymous companies.

However, it is worth noting that SAS enable the holding of general meetings of shareholders, as well as meetings of administrative organs, to be carried out electronically; enabling, in addition, the registration of these through electronic or physical books, being mandatory only to have a minute book for administration and the usual accounting books.

“In this type of companies, as long as they can be considered as micro-entrepreneurs, the appointment of internal or external auditors or surveillance councils is not mandatory. In addition, if they have assets of less than USD$12,000.00, they can keep the accounts themselves.”

Paola adds that SAS can be the ideal vehicle for carrying out a specific activity within a large business group, especially when it is controlled by a few individuals. “On the other hand, if the entrepreneur has different investors, they can consider the possibility of establishing a joint-stock company, which will provide support for their assets, as well as predetermined rules for decision-making.”

Joint-Stock Companies 

Joint-stock companies allow shareholders to have limited liability regarding the debts and other obligations of the company, as they are liable only up to the amount of capital they have contributed to the company. Similarly, it provides pre-established rules regarding procedures for decision-making and management of the company.

The above is especially noteworthy, as these companies allow anyone to acquire a stake in them, as long as the necessary requirements for the acquisition of shares have been met. Thus, personal acquaintance among shareholders does not become a crucial point for the operation of these.

According to Ávila, joint-stock companies, by having the provisions determined by the legislator in the Commercial Code, “allow shareholders to be aware prior to the constitution of these, of the treatment and management that must be followed regarding the company.”

In El Salvador, joint-stock companies were regulated with the purpose of allowing entrepreneurs to manage their businesses within a regulated framework, which ensures that shareholders, regardless of the size of their participation, will enjoy complete protection and rights towards the company.

In this sense, there are clear rules for convening general meetings of shareholders, as well as board meetings, which enables shareholders to be involved in decision-making to ensure proper management of the company.

Additionally, this type of companies allows shares to be traded on the Stock Exchange, as well as to issue negotiable bonds, provided that authorization from the administration is obtained.

Collective Companies 

“On the other hand, collective companies constitute a particularly relevant corporate vehicle in case the trust placed in the members composing them is one of the main reasons for associating.”

This type of companies impose limitations on the transfer of the partners’ interests, since the unanimous consent of the remaining partners is required to admit a new partner or for the transfer of the interest, unless the bylaws provide that the consent of the majority will suffice.

Likewise, in these companies, partners are jointly and severally liable for the debts and obligations of the company; although it is highlighted that one of the advantages is that the contributions of the partners can be any property with an economic value, including their own work.

Limited Liability Companies 

“Finally, limited liability companies become especially important when new entrepreneurs seek to protect their assets, as well as to ensure that the members of the company are trusted individuals.”

This type of companies limit the liability of the partners to the amount of their interests, while still maintaining restrictions on the transfer or acquisition of interests. Additionally, these companies guarantee that all partners have rights to participate in decision-making concerning the company.