Doing Business in Argentina Sociedad Anónima

In the second issue of our Guide to Set Up and Maintain a Company in Argentina, we explained the reasons why the so-called Sociedad Anónima (or SA) is the most chosen legal vehicle to do business in Argentina (please see our Legal Blog:

In this issue, we will explain the basics of a SA.

1. The main characteristics of a SA[1] (corporate purpose, duration, management, etc.) must be provided for in the articles of incorporation, charters or bylaws. These documents are to be executed by means of a public deed, published in the official bulletin (Boletín Oficial) and registered by the Public Registry of Commerce (Registro Público de Comercio or RPC).

2. At least two shareholders -either legal entities or individuals-, are mandatory to incorporate an SA. Except for specific and very exceptional cases provided by law, there are no nationality or residence requirements to become shareholders of a SA; foreign individuals (whether residents in Argentina or not) or foreign legal entities may hold the whole share capital. Shareholders’ liability is limited to the amount of capital they individually obliged themselves to contribute in accordance to the articles of incorporation.

3. Minimum capital stock is AR$ 100,000. While the share capital must be fully subscribed upon incorporation, if cash is paid in consideration for the stock only 25% need be paid-up on such shares and the balance within two years thereafter. When the consideration for the stock is other than cash (contributions in kind such as real estate, equipment or other non-monetary assets), it must be made in full at the time of subscription.

Equity is divided into shares of stock, which must be nominatives, non-endorsable and denominated in Argentine currency. Shares may be represented by titles of a certain number of shares and registered in the company’s Shares Registry Book or otherwise be implemented as records kept in shareholders accounts on a special register held by the issuing company or by commercial or investment banks or by authorized share depositary entities.

Different classes of shares may be created. Shares must be of equal par value and have equal rights within the same class. According to the rights they grant, shares may be classified into common or preferred. The latter usually have priority upon payment of dividends and do not carry voting rights.

Transfers of shares are generally unrestricted, but limitations may be included in the bylaws provided that they do not effectively prevent the assignment of them.

4. The SA is managed by a board of directors (made up of one or more individuals) elected at a shareholders’ meeting. There are no nationality requirements, nor is it required that directors also be shareholders. Directors and even the chairman of the board may be foreigners; however, the majority of the members of the board of directors must be Argentine residents (even though they may be foreign nationals). The board must appoint a president or chairperson, who has the legal representation of the corporation. Absolute majority of the entire board constitutes sufficient quorum to pass resolutions.

Directors of an SA are subject to a standard of loyalty and diligence; non-compliance with these standards results in unlimited, joint and several liabilities for damages arising there from. As regards public companies, the members of the board of directors have further regulated duties.

Stock corporations that given their particular characteristics fall under permanent government supervision are required to have at least three directors[2].

Bylaws must establish the directors’ guarantee[3]. Alternate directors are not required to provide a guarantee until they just potentially may hold office to replace one of the regular directors.

5. Shareholders meetings are the governing body of the corporation. Unless shareholders meetings be unanimously held (100% of the capital stock present at the meeting and all resolutions adopted by unanimity) meetings should be summoned by means of publications for a period of five days in the Official Gazette, and in specific cases in a nationwide newspaper, with at least 10 days of anticipation and no more than 30 days as of the day of the meeting. Quorum and majorities are different for ordinary and extraordinary shareholders’ meetings.

Shareholders’ meetings may be ordinary or extraordinary on the basis of the issues to be transacted therein. The following subjects must be dealt with at ordinary shareholders’ meetings: (a) Approval of the company’s financial statements; (b) Election of directors and syndics and approval of their compensation; (c) Definition of potential liabilities of directors and syndics; (d) Increase in capital up to five times the current amount, if such increase is allowed under the bylaws. All other matters must be approved at extraordinary meetings. To consider the issues stated in (a) and (b) above, ordinary meetings must be summoned within four months of the end of the fiscal year.

Any shareholder with interests in conflict with those of the company has a duty to abstain from voting on any matter which relates to such conflict. Failing to comply with this provision will hold shareholders jointly and severally liable for any damages resulting from a final resolution of the matter in conflict if such vote contributed to form the majority vote necessary to adopt the resolution.

Directors cannot represent shareholders at any meeting. Shareholders’ resolutions must be recorded in the appropriate minutes book.

6. SAs may be subject to the internal supervision of controllers or supervisors (síndicos or comisión fiscalizadora) allowed for in the articles of incorporation and appointed by the shareholders. When shareholders decide not to have controlling officers, a substitute director must be appointed and shareholders are empowered to directly and individually exercise control over the company. Yet controllers or supervisors are mandatory when SAs are subject to permanent government control as described in footnote 2.

7. Government control over commercial companies is in general limited to the articles of incorporation, their amendments and changes in authorized capital. However, stock corporations with special characteristics are under permanent government supervision (see footnote 2).

Stock corporations subject to permanent supervision should have their own supervisory position within the company that, depending on the circumstances, may be filled by an individual statutory auditor (síndico) or by a statutory audit committee which must have an uneven amount of members appointed by the Shareholders’ Meeting (comisión fiscalizadora). All stock corporations can also have a surveillance committee that will work alongside the statutory audit auditor or committee or even replace them (comité de vigilancia).

8. SAs must keep the following corporate books: Share Registry book, Attendance Record book for shareholders’ meetings, Board’s meetings minutes book, Shareholders’ meetings minutes book, and, if applicable, a Supervisory Committee minutes book.

9. SAs no matter their capital amount are required to prepare annual financial statements.

10. Within the jurisdiction of the Autonomous City of Buenos Aires, the IGJ charges an annual registration fee, which will depend on the amount of the corporation’s capital stock. The registration fee is payable regardless of whether the corporation has engaged in any business activity. Similar charges may be imposed by the other country´s jurisdictions.

Please, fill free to contact us if you need further information about any of the issues dealt with until know or any other you may require.

Mario E. Castro Sammartino

[1] In English, they are commonly referred to as corporations, or stock corporations.

[2] According to Section 299 of the LSC, corporations falling into any of the following categories must be subject to permanent government supervision:

(i) those that offer their equity or debt securities to the general public;

(ii) those whose corporate capital is above AR$ 10,000,000 (this limit is subject to adjustment

when deemed necessary);

(iii) state-controlled corporations and mixed ownership companies (these differ from standard business corporations, but are subject to similar regulations in many respects);

(iv) those engaging in capitalization or savings and loan operations, or otherwise soliciting funds or commercial papers from the public with the promise of future consideration or benefits;

(v) those operating government concessions or public utilities;

(vi) any corporation that controls or is controlled by another that is comprised in one of the above mentioned situations. Certain types of corporations are also subject to additional permanent controls. Those whose equity or debt securities are publicly traded come under the National Securities Commission (Comisión Nacional de Valores), banks and finance companies are monitored by the Argentine Central Bank (Banco Central de la República Argentina), insurance companies by the National Insurance Superintendence (Superintendencia de Seguros de la Nación), cooperatives by the National Institute of Cooperative and Mutual Action (Instituto Nacional de Acción Cooperativa y Mutual), companies handling workers compensation insurance by the Superintendence of Risks of Work (Superintendencia de Riesgos del Trabajo).

[3] Within the jurisdiction of the Autonomous City of Buenos Aires, the RPC is run by a federal agency: the General Inspection of Justice (Inspección General de Justicia or IGJ). By General Resolution Nº 20/2004, the IGJ established the managers of a SA may post a bond or take out a caution insurance policy to comply with the legal guarantee.

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