China is Peru's main trading partner, the largest destination of exports and the main source of imports for Peru. Peru is China's second largest investment destination in South America. The two countries have established a comprehensive strategic partnership and signed a free trade agreement. In the next five to 10 years, Peru will become another destination for Chinese enterprises going global. More Chinese companies will enter Peru and expand into the broader South American market through Peru. AllBright Law is actively exploring the legal service market in South America, providing reliable host country legal service resources and doing legal research on various host countries for Chinese enterprises going to South America, so as to provide legal protection for serving China's high-level opening-up and the "the Belt and Road" strategy. To this end, AllBright Law, together with Rodrigo, El í as &Medrano Law firms in Peru, launched this Series of Articles on Peru Business Environment, including Peru's going global, Peru's corporate structures, Peru's promotion of investment and legal stability, operational legal environment, business winding up and restructuring a business.
I. AVAILABLE CORPORATE STRUCTURES
A. Permanent Structures
i. Frequently used Corporate Structures
The stock corporation and the limited liability company are the most important and frequently used company types regulated under the General Corporations Law (LGS” for its Spanish acronym), effective on January 1, 1998.
The LGS Law recognizes and regulates seven types of corporations:
(i) Stock corporations, in its three corporate forms: general stock - S.A.; closely held--S.A.C. and publicly held - S.A.A
(ii) General partnership
(iii) Limited partnership
(iv) Limited partnership by shares
(v) Commercial limited liability company
(vi) Ordinary civil society
(vii) Limited liability company
On the other hand, Legislative Decree No. 1409 and its Regulations, published in September 2018 and October 2019 respectively, create and regulate a new corporate form: the Simplified Closed Stock Company (S.A.C.S.). This new corporate form, which allows only natural persons to be shareholders, seeks to have a more expeditious constitution procedure.
The most common corporations in commercial practice are the stock corporations. In general, Peruvian regulations on corporations are similar to those established in other jurisdictions. Peruvian legislation recognizes and regulates three types of stock corporations: (i) general stock - S.A.; (ii) closely held - S.A.C.; and (iii) publicly held - S.A.A. These three types of corporation mentioned above have the essential features of any stock corporation, that is, stocks are issued, their ownership is divided into equity shares and they have limited liability.
(i)A general stock corporation is a capital stock company. Its capital is represented by shares which give titleholders the rights set forth in the LGS Law, as well as in the respective company bylaws.
(ii) Specific regulations regarding closely held corporations include characteristics proper to a
capital stock company, and also provide a suitable corporate structure for a limited number of shareholders who are usually involved in the company management. Given the importance of shareholders’ personal factors in terms of ownership and capital management, its shares cannot be listed on the stock market.
(iii) An publicly held corporation must comply with one or more of the following conditions: (i) have made a primary public offering of shares or bonds convertible into shares; (ii) have more than 750 shareholders; (iii) more than 35% of its capital stock must belong to 175 or more shareholders, without considering within this number those shareholders whose individual owner equity does not reach two per thousand of the capital or exceeds 5% of the capital stock; (iv) it is incorporated as such; or (v) all shareholders with voting rights have unanimously approved to adopt such corporation system. Publicly held corporation must register its stock in the Stock Market Public Registry. This means that its stock trading of free transfer may not be restricted, unless otherwise expressly provided in the LGS Law. This type of corporation is subject to supervision by the Superintendence of Stock Market (SMV).
Regulations applicable to the limited liability company - S.R.L. are similar to those for closely held corporations as members’ personal factors are involved in these types of companies pursuant to the LGS Law. In these companies, capital is represented by membership interest.
a. General Features
The table below describes the most relevant features of the general stock corporation, closely held corporation, and limited liability companies.
b. Management
The table below provides a general overview of the corporate bodies involved in the management of general stock corporation, closed corporation, and limited liability company.
c. Incorporation Process
The process of incorporating a company takes approximately 15 business days. For founding partners of non-resident entities or individuals that are abroad at the time of incorporation, they will be required to have the corresponding powers of attorney registered. These documents must be registered before the Public Registry. This process could take up to 15 additional business days.
The table below is a timetable detailing the steps that need to be taken to incorporate a company in Peru:
ii. Branches
An alternative to setting up corporations is to establish branches, which are deemed to have permanent legal representation and enjoy procedural autonomy in the sphere of activities assigned to them by the parent company, in accordance with the powers granted to their representatives. Branches do not have independent legal status. The table below describes the requirements and procedure to establish a branch in Peru.
iii. Joint ventures
Peruvian law defines two different types of joint ventures: the consortium and the silent partnership agreement (contrato de asociación en participación). This is not an exhaustive list, so that other associative contracts, such as associations or joint ventures, are also permitted under Peruvian law, without the need for specific regulation.
The consortium is defined as a contract in which two individuals or legal entities join together in order to participate in a certain business to share profits and reduce their transaction costs. Consortiums do not generate a separate independent entity from its partners.
The LGS defines the silent-partnership agreement as a contract by means of which an individual or company grants to a person or persons (whether individuals or legal entities) a participation in the profits of the business that it carries out with third parties. In exchange, the participating partner usually provides some kind of contribution to the business. In this type of contracts, the participating party remains hidden from third parties with whom its partner may undertake business activities.
B. Agency / Reseller / Franchising / Distribution Networks
Peruvian law does not have any specific provisions for the establishment, requirements or treatment of agency, distributors, franchises or distribution networks. Likewise, there are no rules for the protection of the agent or distributor. Consequently, any agency, resale, franchise or distribution business conducted by Peruvian entities will be governed by the provisions of the contract entered into between the parties and the general provisions applicable to contracts and obligations.
Franchising agreements must be registered before the National Institute for the Protection of Competition and Intellectual Property (“INDECOPI” for its Spanish acronym), the Peruvian trademark authority, in order to use the marks involved in said agreements.
C. Representative Offices and other “Non-Permanent” Establishments
Foreign companies may establish representative offices and “non-permanent” establishments without the need for any registration or approval, except in certain regulated industries, such as banks and insurance companies. These types of establishments must have sufficient powers of representation so that the agreements signed by these establishments are enforceable under Peruvian law.
D. Authorizations and Registrations
The undertaking of certain business activities requires prior approval from the competent authorities. This is the case, for instance, for banking and financial, insurance, and telecom activities, among others. Likewise, any activities involving natural resources, both renewable and nonrenewable, require prior authorization or granting of a concession by the competent governmental authorities.
E. Sensitive Industries / Restrictions on Foreign Ownership
Generally, Peruvian law does not establish restrictions on undertaking any business activity or owning property in Peru, except for the limitations on shareholding ownership by foreigners in local companies in certain industries such as air and maritime transport, banking, among others, as well as the real estate property referred to in section V., subparagraph I. on property law and real estate investment.
F. Political Risk and Related Issues
Peru has provided a stable legal and business environment for the past 25 years. As a result, the country has recently been considered as a country with investment grade by major risk assessment entities. Provided they meet certain minimum requirements, foreign investors are entitled to enter into the Legal Stability Agreements referred to in Section IV below.
Source: AllBright Law Offices
Contributor：Peru Rodrigo, Elías & Medrano Law Office
Chinese Translation: WANG Liang, E-mail: wangliang@allbrightlaw.com
Disclaimer: The content of this article is produced by the author/AllBright Law Offices for informational purposes only and should not be construed as advertising, solicitation or legal advice. Reading and disseminating the content of this article is not intended to establish an attorney-client relationship, and subscribing to our articles does not constitute an attorney-client relationship. The information contained in this article is provided as general information only. The author/AllBright Law Offices does not regularly maintain, modify or update this article, so it may not reflect the latest legal developments. Readers should not rely on the information in this article for any purpose before obtaining legal advice on their own case from an attorney practicing in the relevant jurisdiction. The author/AllBright Law Offices expressly disclaims all liability, loss or damage arising from any form of use of this article (including actions or omissions).