Simplified joint stock companies

December 28th, 2020

Simplified Joint Stock Companies (SJS) were recently incorporated into the Ecuadorian legislation, through the Entrepreneurship Law, published in the Official Gazette Supplement No. 151 of February 28, 2020. The objective of this form of company is to boost the economy, through the formalization of entrepreneurs, so that they can become credit subjects and thus improve and expand their production processes. This is due to the flexibility that this companies have to adapt to the needs and requirements of each business, and to the ease that exists for its establishment process, since it is relatively quick and less expensive. However, it is important to point out, that it will not only be the ventures who will benefit from this new form of company, but also small and medium-sized companies.

Some of the main characteristics and advantages of the SJS Companies are:

Characteristics:

1. They can be created and subsist with a single shareholder, either individuals or companies.
2. The corporate purpose is not limited, that is, it can be broad and include several activities without requiring that they be related. In the event that the corporate purpose is not specified within the incorporation document, it is assumed that the Company may carry out all types of lawful activities.
3. Partners respond only up to the amount of their contributions.
4. The term of duration is indefinite, since it is not mandatory to establish one. If not established, it is understood that it is undefined.
5. Unless prohibited in the bylaws, the shares are freely negotiable. In the case of a prohibition, it cannot last more than 10 years.
6. The shareholders’ agreements that address matters such as the increase of the share capital, the person who will represent the shares at the shareholders meeting, the transfer of shares, as well as the preference and restrictions to transfer the shares and or any other related issue, must be complied with, by the Simplified Joint Stock Company. The mentioned agreements must be placed in the offices where the company’s administration is established. If this is not fulfilled, the agreements will not bind the SJS, however, the validity between the parties will not be affected.

Advantages:

1. It does not require a public deed in order to be established. It can be done through a private document. (Except in cases where the shareholder(s) makes a contribution of real estate)
2. The company exists when the contract or unilateral act is registered in the Companies Registry of the Superintendence of Companies. Registration in the Mercantile Registry is not mandatory.
3. It is not necessary to determine a minimum capital, nor a percentage to be paid when establishing the company. However, if a capital is determined, it must be paid within a period of no more than 24 months.

The SJS companies could become the most applied corporate form in Ecuador, within the next few years. For this reason, it is important to know its characteristics and advantages.

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