Find out why and when it is a good idea to get an entity health check in Chile. Manage your business risks and protect yourself from potential non-compliance issues before or after company formation in Chile. The country has well-established and solid legal and compliance frameworks designed to encourage and protect businesspeople in the country.
Key Takeaways
| Types of entity health check in Chile | There are two main types of entity health checks. They typically focus on either the fiscal or legal condition of the company. |
| Reasons for an entity health check in Chile | To enable executives to know how the business is being managed To reduce risks of penalties and negative reputation To reduce transaction risks |
| Necessity of entity health checks in Chile | It is not a legal necessity in of itself, but it will help you make sure you are staying compliant. |
| Who conducts an entity health check in Chile | It should be done by a fully independent auditor to ensure total neutrality. The auditor should also be well aware of Chilean company law. |
What is an entity health check in Chile?
As with other countries, an entity health check in Chile – also known as a corporate health or corporate compliance check – is one or more audits or due diligence reviews carried out on a legal entity. These reviews aim to understand if that entity is and has been fully compliant with local corporate regulations.
These reviews cover various aspects of a company’s activities, including the legal, accountancy, tax, human resources, licenses (administrative or others) operations. Entity health checks in Chile can vary quite a lot in terms of the extension, depth and aspects being audited. These are often split into legal or financial checks, but a full entity health check should include legal, accountancy and financial reviews.
We recommend that any thorough entity health check should include and cover the following items:
- Basic company details such as the name, commercial address, industry, capital, and shareholders
- Key facts such as license numbers, operational status of business, legal address and representatives
- Risk analysis and if possible, any sort of credit rating
- Tax compliance
- Parent company/shareholder details
- Directors’ details
- Legal history of the company (changes in ownership, share capital increases, and other activities)
- Litigations or other legal burdens the company has experienced.
When and why should I get an entity health check in Chile?
There are several important situations and reasons that every company should regularly undertake an entity health check in Chile.
1. When investing or acquiring a Chile-based company
Multinationals expanding into Chile, or operating in the country already, may consider acquiring an existing company in the country. An entity health check is an absolute must if you are looking to invest or to purchase a Chile-based company. This check is the best way to fully understand the ‘compliance picture’ of the entity you are acquiring or investing in.
An in-depth audit of a potential acquisition or investment target by a local and independent contractor will eliminate the potential of discovering nasty surprises down the road. Understand before investing your money what, if any, issues the company may have with its compliance and how the government may view its activities. The entity health check in Chile will scrutinize the entity to determine were it stands in its regulatory obligations.
Be empowered to make informed decisions about your prospective investment, and weigh up the costs and benefits of getting involved. An entity health check offers complete information in order to weigh it in in the price offer and thus in the negotiations with the seller for instance.
2. When you already own a legal entity in Chile
An entity health check in Chile will ensure your company complies with all relevant legal, tax, and accountancy obligations and avoid financial or penalties from government institutions. Being consistently compliant will cost you much less to do business in Chile.
This is especially helpful for foreign national business owners and executives. They may find Chile’s corporate compliance requirements difficult to navigate due to unfamiliarity or a language barrier. Entity health checks will ensure you are up to date with payments and avoid any unnecessary complications with the government.
3. Corporate Governance
Being compliant is crucial for a good and healthy corporate governance within your company as structures, protocols and procedures tend to get more and more complex as the company grows. Local compliance is something that inevitably will be less of a priority for management within this growth process and thus, can be easy to neglect.
Corporate governance is usually simpler for small businesses. But if your company is looking to expand, it is wise to complete an entity health check in Chile to properly support and allow for these shifts and increase in company ‘in-house relationships’.
4. Manage Risks
Being compliant is not just about having a good relationship with the government and its various public entities. It is also about managing risk and watching your own back. Avoid slippery slopes of small non-compliance issues growing into larger ones by conducting a regular entity health check in Chile.
Besides accumulating financial penalties from the government as mentioned above, non-compliance presents a reputational risk as well. Companies don’t need to put their credibility at risk, even if compliance measures are challenging for them to understand – hiring a third-party auditor or entity check provider can give you the information you need to make informed decisions and protect the reputation of your company in the public eye.
FAQs on an entity health check in Chile
1. Why should you get an entity health check?
The main advantages of conducting an entity health check include:
To enable executives to know how the business is being managed
To reduce risks of penalties and negative reputation
To reduce transaction risks
2. What steps are there to an entity health check?
Carrying out a successful entity health check involves the following 3 key steps:
1. Information collection
When carrying out an entity health check, a large amount of information will have to be gathered. This will include collecting data from your company’s operations, legal, accounting, and administrative departments.
Note that a best practice many companies are adopting is the creation of a compliance or audit department, in charge of centralizing important company information, which eases this first step.
2. Information validation
Once gathered, the information goes through a validation process. In this step, an entity health check agent will review all the data and documents obtained, cross-reference it against primary sources where necessary, and otherwise seek to prove the veracity of all records being audited.
3. Record Keeping
Records of all the documents and evaluations made during your entity health check will not only be valuable for presenting to tax authorities in case of an inspection, but also during future entity health checks. In some cases, keeping such records is a legal obligation, due to laws desiged to prevent money laundering.
3. What happens in an entity health check?
Generally, an entity health check includes:
Evaluation of finances, social security payments, and other fiscal obligations
Examination and review of contracts signed with third parties
Review of corporate and accounting books
Review of monthly tax returns and tax statements
Review of upcoming renewals of certificates and policies
Preparation of financial statements
Review of balance sheets submitted at the closure of the fiscal period
4. Who can perform an entity health check in Chile?
It should be done by a fully independent auditor to ensure total neutrality and make sure everything is in accordance with the authorities.
Biz Latin Hub can help organize an entity health check in Chile
Although Chile is a very favorable business destination, there may arise some complexities when doing business abroad due to legal and cultural hurdles. This includes understanding a company’s corporate compliance requirements.
Avoid unnecessary setbacks and protect yourself and your company by seeking an entity health check in Chile from experienced and trusted experts.
At Biz Latin Hub, our group of local and expatriate professionals offers a full suite of market entry and back-office services that can support your company operations and ensure you operate in full compliance with local regulations. Contact us now, or visit our website at bizlatinhub.com to receive personalized guidance on legal, accounting, tax, payroll, employment, trade, due diligence, and other matters.
Or learn more about our team and expert authors.
