El Salvador, like many Latin American countries, offers a wide range of legal structures applicable to start-up companies. For those who want to incorporate a company in El Salvador, this article aims to provide a concise overview of the 3 main types of companies in El Salvador. These are similar to those generally prevalent in the region, specifically targeting entrepreneurs aspiring to enter the Salvadoran market.
Understanding the details of all types of companies in El Salvador is indispensable to making informed decisions about establishing a business. Whether contemplating the formation of a Sociedad Anónima (SA), a Sociedad de Responsabilidad Limitada (SRL), or other corporate entities, making the right decision at the start will ensure a smooth entry to the market.
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That’s where Biz Latin Hub comes in. We are experts in Latin America and the Caribbean, so we know all about the region. This includes detailed help with forming and operating all types of companies in El Salvador. We can help you get off the ground and that you continue to prosper with our back office services.
Types of companies in El Salvador
The following are the types of legal entities in El Salvador you can choose from:
- The Limited Liability Company (Ltda.).
- The public Limited Company (S.A de C.V.).
The Limited Liability Company (Ltda.)
The main distinguishing feature of this company structure is that capital investment is not based on stocks, but rather is an established process of Social Participation. In this system, partners replace shareholders. The Regimen of Administration can only be established by the management, who chooses the partners and manager/s who will serve as legal representatives of the company. In cases where partners do not select a manager or his legal function has expired, partners can assume the role of legal representative for the company.
This company structure is most commonly employed by private companies, and in circumstances where partners and a third party want to participate in the company formation. Once the partners have agreed on the aforementioned selection process, the denomination or name of the company it must include the words Sociedad de Responsabilidad Limitada for registration purposes.
The Public Limited Company (S.A de C.V).
This is the most common type of company found in El Salvador. This structure does include shareholders and corporate capital is based on stocks. The legal representation of this company structure is done by a Board of Directors or through Unique Administration. Similarly to the Ltda. structure, there are naming rights that must be fulfilled; all companies in this category must include the words Sociedad Anónima in their titles.
The main benefit of having a company based on stocks is that shareholders can endorse them independently to other shareholders. This type of company also does not hold a limit to the number of shareholders that can participate at an administrative level.
Our recommendation: The Limited Liability Company (Ltda.) It is commonly chosen by businesses operating in El Salvador due to its simplicity and effectiveness. Additionally, the Ltda. The structure is suitable for small to medium-sized enterprises and foreign businesses seeking to establish a presence in the country.
The Branch Office Company (Sucursal)
The Branch Office model is the least common structure seen in El Salvador, as a result of a much longer/complicated incorporation process, which requires registration at the Ministry of Economy, as well as the following documents and/or information:
- A minimum capital investment of USD$12,000.
- The necessary documents that prove the company is properly and legally incorporated in its country of origin.
- The presentation of initial financial statements from the branch office.
- A functioning corporate bank account.
- Finally, the branch must contain the name of the head office, with the additional words Sucursal El Salvador (El Salvador Branch).
The aforementioned steps must be followed before a company can present itself to the Commerce of Registry in El Salvador and incorporate it into the country. The legal representation of such a company can be done in one of two ways:
- The Board of Directors that directly manage the El Salvador branch can legally represent the company, or:
- Via the appointment of a legal representative and establishing a Power of Attorney (POA)
FAQs on Types of Legal Structures in El Salvador
1. Can a foreigner register a company in El Salvador?
Yes, if you want to register a company in El Salvador, you will need to follow the same registration procedures as local entrepreneurs.
2. What type of legal entity is recommended in El Salvador?
The recommended legal entity in El Salvador varies depending on the specific needs and preferences of the business. However, one popular option is the Simplified Shares Company (S.A.S), which offers a combination of speed, flexibility, and investor-friendly features, making it a suitable choice for both local and foreign businesses looking to establish a presence in the country.
3. How do I create a legal entity in El Salvador?
To create a legal entity in El Salvador, you need to follow the registration procedures outlined by the Commercial Registry. Additionally, it’s advisable to seek guidance from legal professionals or consultants familiar with Salvadoran business laws and regulations.
4. What is an LLC in El Salvador?
In El Salvador, an LLC refers to a Limited Liability Company, a legal structure that offers limited liability protection to its owners while providing flexibility in management and taxation. Forming an LLC in El Salvador involves registering with the Commercial Registry and drafting an operating agreement outlining the company’s structure and operations.
5. What is the business structure of a Simplified Shares Company (S.A.S) in El Salvador?
The Simplified Shares Company (S.A.S) in El Salvador offers a combination of speed, flexibility, and investor-friendly features that make it an attractive option for businesses, both domestic and foreign. This legal entity allows for simplified formation procedures, reduced administrative burdens, and greater operational flexibility, making it an ideal choice for entrepreneurs seeking to establish a presence in El Salvador’s dynamic business landscape.
Any Additional Questions on Company Structures in El Salvador?
According to the nature of the services you wish to provide, the size of your company, and your own personal management preferences, it is important to understand the different types of companies and/or legal entities that exist in El Salvador.
Our team of experts can assist you in making informed decisions that perfectly suit your business model, providing support with legal assistance and with the steps involved with a company incorporation. For any queries that you may have, please do not hesitate to get in contact with us and learn about ways we can help your company in El Salvador.
Interested in doing business in Latin America? Watch this short video below to learn more.
