By means of Law 85 of 2012, regulations were introduced regarding corporate spin-offs, mergers and transformations of commercial companies in Panama. Law 85 provides the legal framework for the demerger or spin-off of companies as a form of business reorganization and also allows the reactivation of companies whose dissolution has been voluntary.
Although, Panama Legislation has always regulated the merger and transformation of companies, corporate spin-offs have not been legally regulated. It is important to highlight that Panamanian law never prohibited spin-offs or invalidated the recording of a Panamanian corporation’s demerger. Spin-off transactions were recorded at the Public Registry and they were used for financial, legal or tax purposes. These transactions primarily consisted of the acceptance of a demerger by the General Shareholders Assembly, the partition of the company assets, and the formation of new companies with the split assets. These agreements and decisions aimed at "splitting up" companies were duly registered and recognized, giving them legal validity in Panama.
However, spin-offs have recently been included in the Panamanian legal framework, with the addition of six (6) articles into the Panamanian Code of Commerce. The newly adopted Law 85 states that any commercial company of any kind or nature may be divided by splitting up all or part of its assets and transferring them to one or more already constituted companies or upon the creation of new companies named beneficiaries, which have the same partners or shareholders as the company being divided or which have the latter company as their partner or shareholder.
The new law 85 also introduces procedures for the authorization, registration and notification of spin-offs. Spin-Offs will be approved by the partners or shareholders of the company being divided and the minutes approving same or a certification issued by whoever acted as secretary must be written through a Notary Public Deed and registered before the Public Registry in order to be effective with regard to third parties.
It is important to highlight that minutes approving the split must contain at least: The total or partial transfer of assets, individually or per blocks, the limitation of liability regime of the company being divided and of the beneficiary company or companies, the transfer or not of the liabilities of the company being divided, the transfer of the relevant interests or shares to the beneficiary companies, the amount of interests or shares corresponding to each partner or shareholder of the company being divided, in proportion to their capital share therein, and the approval of the Articles of Incorporation of the company or the new companies to be constituted.
According to the procedures introduced by Law 85, the final registration requirement is considered as notification to third parties and the publication of the Public Registry Office certification in a local newspaper for a term of 3 days. Under this article, a liability regime is established and beneficiary companies are liable in cases where the transfer of assets is damaging to their creditors. In addition, the spin-off may be challenged up to thirty (30) days after the publication of the Public Registry Office certification.
All transfers of assets resulting from corporate spin-offs are not considered a disposal for tax purposes, thereby eliminating the otherwise resulting tax. However, Law 85 introduces a prerequisite for the spin-off to take place, consisting of a 30-day prior notice to the General Revenue Directorate of the Ministry of Economic and Finance, which becomes a precondition for initiating a company’s spin-off process.
By Leonardo BonadiesTweet
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