Which Type of Corporation Should I Set Up for Buying Property in Costa Rica?
The Sociedad Anónima (S.A.) or the Sociedad de Responsabilidad Limitada (S.R.L.)
Provided by the Professional Legal Team at Invicta Legal
There are two common types of companies in Costa Rica and choosing the best option for you is an important decision to make when purchasing a property in this country. Familiarize yourself with each type of company and please feel free to follow up with us regarding any further questions.
General Information About Costa Rican Companies
The Sociedad Anónima (S.A.) and the Sociedad de Responsabilidad Limitada or Limited Liability Company (S.R.L.) are the most common types of companies that are usually incorporated in Costa Rica.
For its legal creation, companies in Costa Rica shall be registered before the Mercantile Registry, a section of the National Registry. The new companies’ names shall be different from the names of already existing companies in Costa Rica. To facilitate the new registration process, the Registry has authorized for new companies to use as its corporate name, the corporate ID number to be assigned by the Registry upon its registration. The aforementioned section of the Registry is in charge of registering the articles of incorporation of all companies in Costa Rica, as well as future corporate amendments. Once a company is duly registered, it may begin its operation.
According to the Costa Rican laws, a minimum of two persons, who will be the initial stockholders shall grant the articles of incorporation of a company. Once the company is duly registered, there will be no restrictions on the number of stockholders of the company (i.e. sole stockholder).
All companies must have duly authorized corporate books. The corporate books consist of a Stockholders’ Registry Book, Stockholders’ Meeting Minutes Book, and three Accounting Books. Sociedad Anónimas also require a Board of Directors’ Meeting Minutes Book. Please be informed that these Books are needed in order to amend the articles of incorporation or in order to transfer the corporate stock.
Costa Rican companies need to have a determined management structure, which will vary depending if it is a Sociedad Anónima or a Sociedad de Responsabilidad Limitada, as indicated below. The directors will be empowered with the faculties set forth in the articles of incorporation. However, the company may also grant powers of attorney or administrative capacities to additional persons who may not be part of the management structure, such as employees or counselors.
If the company’s representatives do not have a domicile in Costa Rica, a Resident Agent must be appointed. Said Agent is entitled by law to receive judicial and administrative notices on behalf of the company, and must be a duly incorporated attorney to the Costa Rican Bar Association. Its appointment and removal, shall be agreed through a Stockholders Meeting and recorded at the Mercantile Registry.
If the company will conduct a business activity in Costa Rica, it shall be reported as an active company before the local tax authorities. Additionaly, its dividends shall only be distributed if an approved Profits and Losses Statement determines that the company’s activity has generated profits. The statement must be approved by a Stockholders Meeting. For such purpose, the company’s fiscal year normally ends on September 30th, as ordered by law. However, special authorizations may be granted by the Tax Authorities. Please take note that the bankruptcy of an S.A. or a S.R.L does not imply the bankruptcy of its stockholders, since their responsibility is limited to the payment of their initial contribution to the corporate stock.
According to Costa Rican legislation, all companies registered in Costa Rica need to pay an annual Corporation Tax. This is a fixed amount depending on the tax status of the company (registered as active or inactive before the Tax Administration Offices) and on its yearly income.
The following pros and cons of each type of corporation (S.A. and S.R.L) are useful to understand and decide which one to use depending on each person’s particular needs:
I. Sociedades Anónimas (S.A.)
A. Corporate Stock:
The corporate stock shall be composed of a determined amount of common shares, with voting rights. Preferred shares may also be issued with limited or additional rights.
Shares in an S.A. shall be transferred by endorsement of the certificates that represent them. Such transfer shall also be registered on the Shareholders Registry Book.
The Shareholders Meeting is the maximum corporate authority. Representation for said Meeting may be authorized by shareholders to third parties through proxy letters.
The Board of Directors acts as the Board of the company and also performs the duties of a Corporate Executive Committee as it would in U.S corporations. Said Board must have a minimum of three members, which are President, Secretary and Treasurer; their faculties shall be established in the articles of incorporation.
A comptroller must be appointed to oversee the adequate management of the company.
II. Sociedades de Responsabilidad Limitada (S.R.L.)
A. Corporate Stock:
The corporate stock shall be composed of a determined amount of nominative quotas.
Quotas in a S.R.L. cannot be transferred by endorsement. Transfer is performed by means of a Quota Transfer Agreement, which is subject to the approval of the remaining quota holders by means of a formal quotaholders meeting. Such transfer shall also be registered on the Quotaholders Registry Book. Please take note that the remaining quotaholders have the right of first refusal over an eventual share transfer.
The Quotaholders’ Meeting is the maximum corporate authority. Representation for said Meeting may be authorized by quotaholders to third parties through proxy letters.
S.R.L.’s are managed by one or more managers or vice-managers. Said representatives will be empowered with the faculties set forth through the articles of incorporation. In addition, Costa Rican law prohibits such managers or vicemanagers to represent other companies with similar economic activities, or to carry out such activities on their personal behalf. If desired by the quotaholders one sole Manager may be appointed to manage the company.
No comptroller is needed.
No Board of Directors is needed as the Manager(s) is in charge of all the administration duties.
C. Tax Purposes:
S.R.L. may be treated either as a corporation or as a partnership under Regulations to Sections 301.7701-1 through 4, of the United States of America. Please review this information with your USA tax advisor and or accountant if applicable.
Can I contact Invicta Legal for additional inquiries?
Please do not hesitate to contact us for additional informatior or if further questions arise. It is a pleasure for us at Invicta Legal to assist you and we are strongly committed to top level customer service practices.
At Invicta Legal we are looking forward to provide you professional and efficient legal services. Each and every client is attended by a team supervised by one of the partners in order to guarantee top quality service. We have also created an important network with many other professionals such as architects, builders, accountants, appraisers, topographers, etc, that may be useful for our clients.
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