In Costa Rica there are four types of companies:
- The stock corporation.
- The limited liability company.
- The general partnership.
- The limited partnership.
The trading companies most commonly used in Costa Rica are corporations and limited liability companies
How Does a Corporation Work?
The General Meeting is the main organ and is made up by the partners. Ordinarily, the Meeting meets once a year, and extraordinarily, as the need arises.
Management of a corporation is conducted through a Board of Directors, which must include at least a President, a Secretary, and a Treasurer.
Inspection is carried out by appointing a Supervisory Director.
What Is a Corporation?
A corporation is a legal entity in which you participate as a partner, by means of a number of shares with a specific value. The corporate capital is different from the partners’ personal capital. Agencies and branches may be established inside and outside of Costa Rica and can perform all sorts of business.
If you want to invest or develop an activity without using your personal assets to secure any debts you may want to acquire, the corporation is a perfect option, given that in a corporation, you will be liable only up to the amount of capital that has been contributed.
Formation of a Corporation
A minimum of two partners is required to form a corporation. It is not allowed to register the entire corporate capital in the name of one single person at the time of incorporation, but it is possible to subsequently assign all shares to one single shareholder.
In the event of partners sitting on the Board of Directors, this gives us a minimum of 4 people to form a corporation.
To form a corporation, the following aspects must be defined:
What will be the corporate name? This can be a fictitious name. Currently, it is also possible to register companies whose name consists of the corporate identity number assigned to them by the Registry.
What will be the corporate capital and share distribution? The general amount of the capital, the value of each one of the shares, and how they will be distributed among the partners.
What will be the corporate domicile? The place designated to receive communications.
What will be the duration of the corporation? It is required to determine the number of years the corporation will exist. The duration commonly used is 99 years.
Who will represent the corporation? By law, the President is the judicial and extrajudicial representative of the corporation, with the powers of a general attorney-in-fact with no amount limit, but it is also possible to appoint any people desired to represent the corporation.
Resident Agent. When the corporate representatives have no domicile in Costa Rica, it is mandatory to appoint a Resident Agent, whose function will be to receive communications addressed to the corporation.
What is a Limited Liability Company?
The advantage of a limited liability company is that it has almost the same characteristics as a corporation. In terms of the independence of its assets, it works exactly the same as a corporation. The formation of a limited liability company requires a minimum of two shareholders (called cuotistas). The company capital can later be transferred to one single person. Its management requires the existence of a Manager only, although a Submanager may also be designated.
How Does a Limited Liability Company Work?
All sorts of business may be conducted. Its structure is used for business of a smaller dimension than that of a corporation. The limited liability company’s Manager is the company’s judicial and extrajudicial representative, although it is possible to appoint several Submanagers.
Formation of a Limited Liability Company
Bear in mind that in a limited liability company, the corporate capital is represented by registered shares called cuotas.
It is required to define the number of cuotas making up the corporate capital, as well as their distribution. There always exists a preemptive right towards other shareholders that must be respected when shares are going to be transferred to someone else.
Differences between a Corporation and a Limited Liability Company
Organization and Management
A corporation has a Board of Directors composed of at least 3 people: President, Secretary, and Treasurer. In a limited liability company, management is conducted by one single person called Manager, or by any people designated, which facilitates its organization.
Representation of Corporate Capital
In a corporation, the corporate capital is divided into shares. In a limited liability company, shares are registered and are called cuotas.
In a corporation, shares can be transferred freely by means of endorsement. In a limited liability company, share transfer is more restricted and is carried out through assignment.
Differences in terms of registers.
Corporations are required to keep three legal record books (Minutes of the General Meeting, Register of Shareholders, and Minutes of the Board of Directors). Limited liability companies, which lack a board of directors, must keep only two record books (Minutes of the Shareholder Meetings, and Register of Shareholders).
Inspection of a corporation is the duty of a Supervisory Director (in Spanish: fiscal), whose position is entirely independent from the Board of Directors, whereas a limited liability company is subject to self-inspection, meaning that the Meeting of Shareholders is in charge of this duty.