Panama Limited Liability Companies

Panama enacted a new Law 4 of 2009 regulating Limited Liability Companies (LLCs), replacing legislation on the subject dating back to 1966.

Highlights

1. LLCs can engage in any lawful activity in the world.
2. An LLC must be incorporated by at least 2 persons, individual or corporations, Panamanian or foreign, in person or by proxy. The subscribers of the articles of incorporation need not be partners.
3. An LLC must have at least 2 partners. There are no restrictions as to the maximum number of partners.
4. An LLC will be legally operational as of the date of registration of its articles at the Panama Public Registry.
5. An LLC may be merged with any other legal entity of any nature, be that Panamanian or foreign, converted into any other type of legal entity and change its domicile.
6. An LLC may change its domicile back to Panama.
7. The articles of incorporation shall contain at least the following:
   1. Name of the company.
   2. Name and address of the subscribers to the articles as well as the partners.
   3. Domicile.
   4. Duration.
   5. Authorized capital and the number and value of partner shares.
   6. Name of the person or persons appointed as manager(s).
   7. Name of any attorneys in fact and its duties and powers.
   8. Appointment of a lawyer or law firm as resident agent of the company.
   9. Any other provisions deemed convenient.

Capital & Partner Shares

1. An LLC has not minimum authorized capital requirements.
2. The capital can be in any currency.
3. The authorized capital need not be totally paid by the partners at the time of incorporation.
4. The capital shall be divided into partner shares.
5. Partner shares shall be issued in nominative form and shall be represented in share certificates.
6. The transfer of partner shares shall be subject to the approval of the partners and as such transfer shall not achieve by the mere physical delivery of a certificate.
7. Besides cash, partner shares can be paid for with assets and services. The value of the assets and services shall be assessed by the partners. The payment of partner shares with assets shall be done forthwith.
8. Partner shares as well as rights arising therefrom can be pledged or assigned.
9. Each partner who has fully paid its partner shares shall have the right to vote in the partners meeting in proportion to his holdings.

Partners

1. The identity of the partners must be disclosed in the articles of incorporation.
2. Partners have the right to withdraw from the LLC voluntarily by notifying written notification three months in advance.
3. Partners may oppose to the purchase of new partner shares issued by the company and they shall have a preemptive right to acquire units for sale by another partner.
4. The liability of a partner is limited to the amount of his partner shares in the capital of the LLC.
5. The business of the company shall be managed by one or more managers who need not be partners and can be individuals or corporations, local or foreign.
6. The resolutions of the Partners Meeting shall be approved by the vote of the partners representing the majority of the issued capital of the company. The articles of incorporation can require a higher percentage.
7. Partners who have totally paid their corporate share will have the right to vote in proportion to the value of their share in the corporate capital.
8. Partners have the right to withdraw from the LLC if they vote against prolonging the duration of the LLC, varying the corporate purpose, increasing or reducing the corporate capital, converting the LLC in a different type of corporation, a merger.
9. There is no requirement of an annual meeting of the partners. The Shareholders Meeting can be called when necessary by the manager or at the request of the partners representing at least 5% of the total issued capital of the company.
10. Partners may attend meetings personally or by proxy.
11. Partners may be expelled by the Partners Meeting for –
    1. Competing with the company
    2. Defaulting in the payment on its partner shares on time
    3. Declaring bankruptcy
    4. Affecting the business of the company
12. The manager(s) or managing partner shall have the power of the daily management of the company.
13. The manager(s) can be appointed for an indefinite or stated term, and he/she can retire at any time upon decision of the Partners Meeting.
14. The LLC can be dissolved at any time. The manager shall become the liquidators. There is no term for ending the liquidation.

Conversion and Mergers

Law 4 of 2009 permits Panamanian LLCs to transform into any type of corporation or merge with any other type of corporation, if such a conversion or merger is approved in the manner that the articles of incorporation dictates or by decision of partners that represent the majority of the corporate capital. In the same manner, any other type of corporation can transform into an LLC.

Mergers and consolidations with other national or foreign corporations of any kind are also allowed, as long as there is an agreement between the partners, expressing the name of the surviving corporation and the rights that the partners will have in the resulting corporation. The merger or consolidation must be registered at the Public Registry and does not produce a transfer of assets, inclusive of all legal effects. The resulting corporation has the rights and obligations of the merged or consolidated corporation.

Continuation and Transfer of Jurisdiction

Law 4 of 2009 allows a foreign LLC to continue to exist under the laws of Panama, as long as it fulfills the incorporation formalities established by the new Law. In the same manner, a Panamanian LLC can continue in another country, if it fulfills the formalities established by the laws of the foreign jurisdiction.

Dissolution and Liquidation

Law 4 of 2009 states that a Panamanian LLC shall be dissolved in any of the following cases:

1. Pursuant to its articles of incorporation
2. Agreement of the partners
3. Fulfillment of its corporate purpose or impossibility of continuing its operations
4. Merger
5. Court judgment
6. If its assets are reduced to less than half of the corporate capital established in its articles of incorporation, because of losses, allowing the partners to prevent the dissolution by agreeing to supply the necessary sums of capital within thirty days of such a reduction of capital.
7. Reduction of the number of partners to less than 2, unless another partner joins within 60 business days.

TAXATION

Due to the territorial tax system in force in Panama, foreign source income and dividends paid to partners arising from foreign source income will not be taxable in Panama.

Dr.  Juan Francisco Pardini

pardini@padela.com