Panamanian Limited Liability Companies

Regulation of the Limited Liability Company (S.R.L.) or Limited Liability Company (S. L.) in Panama

Generalities

The Panamanian Limited Liability Company (S. R. L.) or Limited Partnership (S. L.) is regulated by Law 4 of 2009. It is a mercantile entity that can be used to carry out all types of legal business, whether of a commercial or private nature, which can be constituted by persons of any nationality, whether natural or juridical, and the liability of the partners is limited to the amount of their contributions. The capital stock does not have to be paid by the partners at the time of incorporation and such capital may be declared in any currency. Unlike corporations, the identity of the partners must be registered and made public. The inclusion of new partners entails the modification of the Articles of Incorporation.

Incorporation

Subscribers: To incorporate an LLC, a minimum of two (2) persons must participate, whether Panamanian or foreign, natural or juridical. The subscribers of the articles of incorporation do not necessarily have to be the partners.

Capital stock: The capital stock does not have to be paid in by the partners at the time of the formation of the corporation. The capital stock may be represented by any kind of currency. The liability of the partners is limited to the amount of their contributions.

Partners: A minimum of two partners is required (Article 4). However, there is no maximum number of partners. The partners can be natural or juridical persons, of any nationality, and their participation quotas must be determined. THE REGISTERED PARTNERS, owners or proprietors of the corporation or Limited Liability Companies must be registered in the Public Registry of Panama. The partners may transfer their participation in the LLC at any time by means of a private document.

Special or general attorneys-in-fact: the Law requires the designation of one or more officers or attorneys-in-fact, general or special, and their functions.

Resident Agent: the designation of a resident agent is required, who must be a lawyer or a law firm.

The articles of incorporation shall include:

1. The identification of the subscribers and partners, as well as their domicile.
2. The domicile of the partnership
3. The duration of the partnership, which may be perpetual or for a term.
4. The corporate purpose, which may be broad or limited.
5. The amount of the authorized capital stock, which may be in any currency, the shares or quotas into which it is divided and the value of each one.
6. The designation of the person or persons who will oversee the administration and representation of the corporation, who may or may not be partners.
7. The designation of one or more dignitaries or general or special attorneys-in-fact and their attributions.

Organization of the Panamanian Limited Liability Company (S. R. L.) or Limited Liability Company (S. L.):

The general boar is the deliberative and decision-making body. The matters that can be dealt with by the Boar are those related to the management, the approval of the annual accounts, the appointment and dismissal of the administrators and the modification of the bylaws.

The administrator or administrators are those who direct the business of the company and are in charge of its representation. They may be natural or juridical persons, of any nationality, who may or may not be domiciled in Panama. The administrator must render accounts.

Summons of the General Board: The administrators can summon the General Board, which they will do within the first six months of each fiscal year. The purpose is to censure the corporate management, to approve the accounts of the previous fiscal year and to decide on the application of the result. If the meeting is not called, it may be called by the Judge of First Instance of the registered office of the company at the request of any shareholder.

Taxes: The personal assets of the partners are separated from the assets of the company, like what happens with the shares of corporations.

S. de RL. have the option to choose how to be treated fiscally, whether as corporations or partnerships, which is known as "Pass-Through Taxation". This is because Limited Liability Companies all members have liability, therefore, they must choose a direct tax treatment that allows the income or losses generated by the LLC to be reflected in the personal income tax return of the partners.

Foreign income and profits paid to the members are exempt from tax in Panama.

Obligation to keep Accounting Records: The Republic of Panama has approved by Law the establishment of the obligation, for all offshore companies, to keep Accounting Records and Supporting Documentation. Accounting Records are understood as all the data that clearly indicate the commercial operations of the legal entities, their assets, liabilities, and equity status and that allow determining the financial situation of the legal entity (assets and liabilities), as well as preparing the financial statements of such legal entity. These Accounting Records must be supported by Supporting Documentation (invoices, contracts, account statements, receipts or similar). Offshore Companies or Corporations shall be obliged to keep these Accounting Records and to keep the Supporting Documentation at the Resident Agent's Office or where it is established by the Company's Board of Directors.

Conversion of S. de RL. S.A.: The LLC can be converted at any time into a corporation and vice versa.

Differences between Panamanian Limited Liability Companies and Corporations

Similarities of the Limited Liability Companies with the Panamanian Corporations

1. The capital stock does not have to be paid in or paid up but is representative in shares or participation quotas.
2. They offer protection to the shareholders/partners since they are considered as a separate legal entity and these persons are only liable up to the amount of their participation.
3. Both legal entities can be used for offshore use as they have the same tax advantages in terms of tax payment.
4. Both will have to pay a one-time annual fee of USD 300.00.
5. Both will have to pay resident agent fee and compliance fee.