Corporate structures for doing business in Argentina

In the last 10 to 15 years, the Chinese community in Argentina has grown significantly to about 100,000 residents, most of whom are engaged in the retail and supermarket business.

However, in light of China’s economic strength and expansion, and the various government-level agreements on trade and investment that have been signed between the two nations, including the recognition by Argentina of China’s market economy status in 2004, Chinese companies have shown an increasing interest in making direct investments in Argentina.

Chinese companies have invested in the areas of finance, transport (through the provision of rolling stock) and energy, especially in ventures for hydrocarbon exploration and development. To restrict their financial exposure, such investors often select corporate structures under which their members’ liability is limited to the contributed capital.

The two most commonly used types of structure in Argentina are the limited liability company (sociedad de responsabilidad limitada, or SRL) and corporation sociedad anónima, or SA.

Although liability is limited in both cases to the capital contribution agreed by their members and both types of structure work similarly in practice, the SRL has been conceived as an easier-to-manage company. The organizational and operational requirements are less onerous than those established for SAs.

The SA has been designed for higher net worth companies having a greater number of members, which makes their management, governance and supervision more complex and subject to greater compliance requirements.

Both types of company require at least two members to be maintained at all times, whether individuals or legal entities, and whether Argentine residents or not. Recently enacted regulations establish that on incorporation, no majority member may hold more than 95% of the corporate capital.

Members are not subject to any nationality requirement. However, foreign companies acting as interest-holders or shareholders have to file their corporate bylaws with the Office of Corporations (Registro Público de Comercio, or RPC) for registration.

An SRL is managed by one or more managers who have individual or joint authority, as determined by the company’s members. In contrast, SAs are managed by a board and are subject to requirements as to the number of members, residence and meeting intervals, which are not applicable to SRLs.

Branch offices and visa requirements

Branch offices are another choice frequently made by foreign companies seeking to establish a presence in Argentina. As a branch office is not, under Argentine law, a legal entity separate from its parent company, the latter’s liability is not limited. Consequently, parent companies are fully liable for the operations conducted by their branch offices in Argentina.
A branch office is managed by a representative designated by the parent company, with enough powers to manage the affairs of the Argentine branch.

Even though the legal representative is not required to be an Argentine resident (in contrast to the rules applicable to SAs), practical issues make it necessary for the representative to be domiciled in Argentina.

The extremely complex and time-consuming procedures to obtain work visas are a major drawback to having foreign officers appointed.

As a first step, the company for which the representative is to provide services must register with the National Registry for Foreign Party Applicants (Registro Nacional Único de Requirentes de Extranjeros). Then, the prospective representative may apply for a temporary work permit while the final visa to reside temporarily in Argentina is processed.

The process to obtain a visa for a foreign national takes about 12 months.

Money laundering and tax evasion

Another conflicting issue arises from certain resolutions enacted by the RPC for the purposes of preventing money laundering and tax evasion through the use of offshore companies.

As from 17 February 2005, through the issuance of Resolution 7/05, the RPC will not authorize the registration of companies organized abroad which are not qualified to do business in the place of their organization (“offshore companies”).

According to the RPC’s Resolution 7/03, in order to be authorized, foreign companies must:

1. have a branch or agency outside Argentina; or
2. hold an interest in another company outside Argentina, with such interest being recorded as a non-current asset according to generally accepted accounting principles; or
3. own fixed assets in their country of incorporation.

Companies organized in so-called low- or nil-tax jurisdictions or in those jurisdictions deemed to be “non-cooperating” in international anti-money laundering and counter-terrorist financing efforts must, in addition to the above, also supply evidence that they conduct business of significant economic value in their place of organization, registration or
incorporation.

Given that offshore companies often have no unlawful purpose but simply seek to make use of benefits afforded under any double taxation treaties as may be in place with their parent companies’ countries, or under the laws of their countries of incorporation, the RPC allows the requirements set forth in Resolution 7/03 to be met by the offshore company’s direct or indirect controlling company, which indirectly allows the use of this type of vehicle when doing business in Argentina.

Justo Federico Norman and Mariana Ardizzone are partners at Maciel Norman & Asociados (MNA), a full-service law firm based in Buenos Aires with associated offices in Brazil, Bolivia and Uruguay. They may be contacted on +54 11 4813 2044 or by email at jnorman@mna.com.ar or mardizzone@mna.com.ar