Know the differences between the legal entities in El Salvador
The economic development in Central America is truly remarkable. With Costa Rica and Panama as its economic giants, any aspiring businessman should consider starting a new business somewhere in the region. However, the small country of El Salvador, a promising future economic tycoon, is rapidly shaping itself into an appealing business location for investors who are willing to start or expand their businesses. There sure are a lot of business opportunities in the country, however, one should first know what type of company should be established as there are different legal entities in El Salvador.
Before you embark on your business journey, you should be able to differentiate the legal entities in El Salvador, as well as the advantages and disadvantages these structures entail.
After reading this article, you will be able to find out what sets foreign branch office company and a local company apart. This will also help you to distinguish which of these legal entities in El Salvador suit your business well should you consider starting a business there.
There are various types of local companies which include Limited Liability Company and Public Limited Company, which is more utilized by investors with foreign origin. On the other hand, foreign branch office companies in the country are not completely isolated from its parent company, the ‘Casa Matriz’ as it is called in Latin America.
We, then, lay down the different characteristics of the legal entities in El Salvador:
Name of the company
Local company: You can choose any names provided that your desired name is not yet taken. If you choose a Public Limited Company, it will entail “Sociedad Anomina” (S.A.). On the other hand, if you choose a Public Limited Company, the company’s name will be followed by “Responsabilidad Limitada” (LTDA.).
Foreign Branch Office Company: The name should adopt the same name of the head office. The words “Sucursal El Salvador” will be attached at the end of the name.
Local company: It could be comprised of a board of directors or a representative chosen by its shareholders.
Foreign Branch Office Company: Selecting a legal representative must go under a Power of Attorney (POA) or ‘Poder’ that is chosen by the board of directors based in the main office.
Local Company: You must create company bylaws of the company that must be approved by the Public Registry of Commerce.
Foreign Branch Office Company: It must adapt the same laws of the main office.
Local Company: Once the company incorporation process is done with the Public Registry of Commerce, the company is ready to operate.
Foreign Branch Office Company: It is mandatory that the company should comply with some requirements issued by the Ministry of Economy for the registration of the social capital before its incorporation process in the Registry of Commerce.
The legal entities in El Salvador also has its advantages and disadvantages. Read further to find out.
Capital of the Company
Local Company: Minimum capital is USD$2,000, 5% of which should be paid during its incorporation process. The remaining capital shall be paid in under 12 months.
Foreign Branch Office Company: According to the Salvadorian Law, “all foreign companies who want to establish a Branch Office in El Salvador must meet the minimum required for initial capital of USD$12,000.”
Local Company: The process will take from 4 to 6 weeks.
Foreign Branch Office Company: The process will be from 8 to 10 weeks.
Company’s Incorporation with Various Institutions
Local Company: The first stage should be completed with the Public Registry of Commerce. Afterwards, it is worth noting to incorporate your business in other national institutions.
Foreign Branch Office Company: After the process, your company should be registered in other national institutions such as Registry of Commerce and Ministry of Economy.
Opening of a Corporate Bank Account
Though both legal entities in El Salvador demand the same requirements, there is a difference in terms of international bank transfers.
Local Company: After opening a bank account, it should take you 3 to 6 months before you can transfer funds internationally.
Foreign Branch Office Company: You can start transferring funds internationally once your company is already incorporated.