In Paraguay’s thriving landscape, investors are presented with a plethora of options when it comes to selecting the appropriate legal entities in Paraguay offers. As in other countries, the decision often centers on whether to establish a foreign company with a branch office in the country or to form a new, independent legal entity capable of adopting a variety of structures.
Our review delves into the most common types of entities for foreign companies operating in Paraguay, elucidating the advantages and disadvantages associated with each. From corporations to Limited Liability Companies, understanding the nuances of these legal entities in Paraguay is essential to navigating the regulatory framework and making informed decisions aligned with your business objectives.
That’s why it makes sense to partner with a local specialist such as Biz Latin Hub. With 18 dedicated local offices across Latin America and the Caribbean, we can help you with legal entities in Paraguay or elsewhere in the region. Our array of back office services span the period from company incorporation through day-to-day management right up to eventual termination.
Incorporation in Paraguay – Establishing an Agency
In this scenario, the newly incorporated company in Paraguay will be a branch of the legal mother entity located overseas. This means it would not be legally independent, which has consequences in terms of liabilities, tax calculations, and other corporate responsibilities.
The process to incorporate an agency in Paraguay involves the following steps:
- Draft the Company’s by-laws or Articles of Incorporation and sign them at the local Notary.
- Acquire the certificate issued by the Chamber of Commerce of the Country where the Parent Company is based (or its equivalent)
Finally, you’ll need to acquire a Board Meeting Decree or Act from the Parent Company, indicating:
- Clear intent and/or desire to establish the agency in Paraguay
- How much capital the agency will have
- The fiscal address for the agency
- Who will administer the agency
- Granting a Power of Attorney (POA) in favor of the Administrator of the agency.
As the company is technically a legal extension of the Parent Company, it will be simpler to open a bank account and engage with third parties as financial records and balances will be available immediately.
One challenge to note with the agency structure is that incorporation procedures are considerably longer as one needs to secure a series of documents from the Parent Company, and authentication processes can take time.
What are the two most common legal entities in Paraguay?
To establish an independent legal entity, the company’s by-laws or Articles of Incorporation need to be drafted and signed at the local Notary. Note that identification is needed and in case they also want to act in a managerial capacity, a “Carnet de Radicación Permanente” or Permanent Filing Card must be provided.
A fiscal address for the company needs to be specified as well as the person or people who will administer it.
Independent legal entities can adopt, for our purposes, one of the following two legal structures:
- Sociedad Anónima (S.A.).
- Limited Liability Company (SRL).
1. Sociedad Anónima (S.A.)
The Sociedad Anónima is commonly known as a ‘corporation’. In Paraguay, as in most countries, this structure is used for large scale business models which can also publicly offer their shares.
It’s main characteristics are:
- It must have at least two shareholders, and one of them must be a Paraguayan national.
- The Legal name must end with the initials S.A.
- An authorization from the Public Court Registry needs to be secured.
- If the company is going to engage in export-related activities, a minimal capital of USD 10,000 is required.
- The incorporation process for this type of entity approximately takes 12 weeks to complete.
This structure suits large-scale businesses typically found in the energy, mining and industrial sectors, among others. It is also the way to proceed if the company wants to publicly offer its shares.
One complication that businesses using this structure need to be aware of is that the company would be subject to supervision by the Public Regulator (Equivalent to the SEC in the US).
2. Limited Liability Company (SRL)
Even though the corporation and the agency are types of LLC companies, in Paraguay the equivalent ‘Sociedad de responsabilidad limitada’ or SRL structure is by far the most popular one, as it provides plenty of protection to shareholders.
Its main characteristics include:
- It must have at least two shareholders, and one of them must be a Paraguayan national.
- The legal name must incorporated with the initials ‘S de RL’
- They are not forced to register in the commercial entities’ public records.
- No minimal capital is required.
- The incorporation process for this type of entity approximately takes 10-12 weeks to complete.
The SRL structure is flexible, and equity is divided into shares, allowing for easy entry and exit for investors. In general terms, the SRL allows for swift incorporation and foreign investment and is overall the most commonly recommended structure for foreign companies.
FAQs on Types of Legal Structures in Paraguay
1. Can a foreigner register a company in Paraguay?
Yes, Paraguay welcomes foreign investment and allows foreigners to register companies within its jurisdiction. However, certain regulations and procedures must be followed. Foreign investors may need to appoint a local representative or legal advisor to facilitate the registration process and ensure compliance with local laws.
2. What type of legal entity is Sociedad Anónima (S.A.) in Paraguay?
Sociedad Anónima (S.A.) in Paraguay is a form of corporation where ownership is divided into shares of stock. It offers limited liability protection to its shareholders and is subject to specific regulatory requirements outlined by Paraguayan law.
3. How do I create an LLC in Paraguay?
Creating a Limited Liability Company (LLC) in Paraguay involves several steps, including drafting the articles of organization, defining member rights and responsibilities, registering the company with relevant authorities, and obtaining necessary permits and licenses.
4. What is an LLC in Paraguay?
A Limited Liability Company (LLC) in Paraguay is a business structure that combines the limited liability protection of a corporation with the operational flexibility and pass-through taxation of a partnership.
5. What is the business structure of Simplified Shares Company (S.A.S) in Paraguay?
The Simplified Shares Company (S.A.S) offers a combination of speed, flexibility, and investor-friendly features that make it a suitable choice for foreign businesses looking to establish a presence in Paraguay.
Biz Latin Hub can help you with legal entities in Paraguay
It’s inevitable that businesses expanding into a new area will encounter complexities within a foreign bureaucratic system during the company formation phase. In Latin America, processes and procedures can vary greatly, and it’s a good idea to seek professional market entry guidance.
At Biz Latin Hub, we help your business move through the formation process smoothly and navigate legal and cultural differences in your new market. Our team of professionals offer a full range of market entry and back-office services to help you manage your investment in Paraguay or another market of choice in Latin America.
Reach out to us today to find out how we can help you with your expansion. Additionally, you can learn more about who we are and our market entry services by watching the short video below.
