Corporate Alert: New Company Law Enacted

[Robert]

President Fernández signed into law on December 11, 2008, a new company law (Law #479-08") which will revolutionize the way business is done in the Dominican Republic. The most important innovation brought about by the new statute is the creation of two new business entities: the "Sociedad de Responsabilidad Limitada or SRL" (Limited Liability Company or LLC) and the "Empresa individual de Responsabilidad Limitada or EIRL (Limited Liability Individual Business). The "Sociedad Anónima or S.A.," currently the entity of choice of 99% of Dominican businesses, has been amended to make it the vehicle for medium or large businesses. Here are the characteristics of the two new business entities (SRL and EIRL) and the most important changes made to the S.A.

Limited Liability Company (SRL):

• Based mostly on the current LLC's in French Company Law with certain similarities with American LLC's.
• Chief company officer(s): one or various managers ("gerentes"). Must be individuals.
• Minimum of two shareholders; maximum of 50. Spouses may be the sole shareholders.
• RD$100,000 minimum capital (full amount must be paid up and deposited in a bank in order to be able to record company at Business Registry).
• Shares not readily transferable, depending on wishes of shareholders.
• Shareholders' liability limited to their investment in the company.
• Ideal for small or family businesses.


Limited Liability Individual Business (EIRL):

• No shareholders; one sole individual owns the business.
• Owner must be an individual; companies cannot be an owner.
• Owner's liability limited to his or her investment in the company
• No minimum capital.
• Chief Officer(s): the owner and the manager. The owner may be the manager.
• Ideal for businesses owned by a single individual.


Sociedad Anónima (SA):

• Minimum capital: RD$30,000,000 (approx. $850,000 US).
• Board of Managers (“Consejo de Administración) required with a minimum of 3 members.
• “Comisario de Cuentas” required. (The Comisario de Cuentas is an independent company officer in charge of overseeing the company accounts. Comisarios de Cuentas must be Certified Public Accountants).
• Tougher criminal penalties for SA managers compared to SRL managers.

The new law will come into effect on June 19, 2009. By then, every S.A. must comply with the new requirements IF its shareholders wish to remain as an S. A.

If, on the other hand, shareholders wish to convert their S.A. into an SRL (LLC) or an EIRL (Individual Business), the conversion period will start on June 19, 2009.

Guzman Ariza attorneys have been active participants in the changeover process. Fabio J. Guzman-Ariza and Alfredo A. Guzman, senior partner and associate, respectively, in the firm, partnered with the Fermin Taveras Law Firm in the preparation of the regulations that will be used by the Business Registries ("Registro Mercantil") in the new process. They have also prepared for publication in April 2009 a book of company forms for the SRL’s and the EIRL’s, and a comparative study on the operation of the SRL’s.

[tflea]

Hope this does what's intended in streamlining and facilitating.

[Chip]

Great info Robert, thanks.

As far as the minimum deposit required, does this money have to be present in the account only at the time of the formation of the company or does a mimimum amount need to be maintained with what penalties if not?

Also, what happened to the C por A?

Thanks

[cobraboy]

No more putting faux shareholders on the books. Great!

[Chip]

Robert

Also, now that the process is streamlined and or made easier, for the Srl's and Eirl's can we expect lower fees from lawyers?

[Robert]

Originally Posted by Chip

Robert

Also, now that the process is streamlined and or made easier, for the Srl's and Eirl's can we expect lower fees from lawyers?

I hope so. Maybe Fabio can answer that one

[retiree]

It is clear when the conversion period from an SA to the others will start. Has it been announced or decided when the conversion period will end?

[Fabio J. Guzman]

There is no set limit for the end of the conversion period, but if your company is in business, you'll have to do it very quickly after June 19, otherwise, you won't be able to open new bank accounts, buy or sell in the name of the company, etc.

The C. por A. name will not be valid any longer. It will have to be changed to S.A.

For the formation of SRL's and EIRL's the paid-up capital has to be deposited in a bank until the company is registered. After this is done, the company can use the funds for its business operations.

Internal Revenue has not said anything yet about taxes on the formation of the new company structures. When these are known, we'll have an idea of what the new fees would be.

Finally, any DR1 member wishing to receive our legal news alerts on a regular basis may send an e-mail with News Alert in the Subject and their first and last names in the body of the message to info@drlawyer.com

[Oche]

Lawyers fees will surely increase now because they will encounter so many bureaucratic obstacles with Law 479-08 to hurdle so they'll have more work and better opportunity to charge for those services.

[Chip]

Originally Posted by Oche

Lawyers fees will surely increase now because they will encounter so many bureaucratic obstacles with Law 479-08 to hurdle so they'll have more work and better opportunity to charge for those services.

From the news reports this is supposed to make the formation of corporations easier, not harder. Certainly, there will be lawyers out there who will be looking to even increase their fees. Unfortunately for them and good for us, there are always to be found lawyers who will do the standard paperwork for less, and we should post their contact info here.