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The formation and operation of
Panamanian Corporations

 

Basically, the formation and operation of corporations or Sociedades Anónimas are matters that are governed by Law Number 32 of 1927. 

REQUIREMENTS FOR INCORPORATION

Two or more persons of full age, of any nationality even though not domiciled, nor physically present, in the Republic of Panama, may form a corporation for any lawful purpose pursuant to the formalities stipulated therein.

In addition, the referred Law Number 32 of 1927 imposes no restrictions upon the ownership of shares of a Panamanian corporation by foreign citizens or corporations, nor are there any nationality restrictions nor residence requirements imposed upon directors or officers of Panamanian corporations under the said law.

In practice, corporations are formed through nominee incorporators in Panama, who execute the basic instrument for incorporation called Pacto Social, or more commonly known in English as the Articles of Incorporation, before a Notary Public of the Republic of Panama, and who obtain its registration at the Public Registry office in Panama, at which time corporate existence begins.

The Articles of Incorporation may be executed anywhere, within or outside the Republic of Panama, and in any language, and the same may be executed by means of a public instrument, or in any other form, as long as the signatures appearing thereon are certified by a Notary Public, or by any other public officer authorized to certify at the place of execution thereof. If the Articles of Incorporation have been executed outside of Panama, they must be legalized by a Panamanian Consul, or in absence thereof, by the Consul of friendly nation, or apostilled.

Thereafter, the Articles of Incorporation must be protocolized with a Notary Public in Panama and registered at the Public Registry office in Panama.

The required contents of the Articles of Incorporation are prescribed by Article 2 of Law Number 32 of 1927, and may be summarized as follows:

u The name and domicile of each of the subscribers of the Articles of Incorporation, i.e., the incorporators.

u The name of the corporation, which shall not be the same nor similar to that of another existing Panamanian corporation, and which shall include a word, phrase or abbreviation to indicate that it is a corporation and which may be expressed in any language. As a matter of precaution it is always advisable to provide several possible names in order of preference, and thus avoid expenses and delays in communications.

u The general purpose or purposes for which the corporation is organized, i.e., commercial, shipping, trading, tourism, etc., and which may be ample and general.

u The proposed capital structure of the corporation, or its authorized capital, including the number and classes of shares, whether with or without par value, whether bearer or nominative (registered) shares, and if there are to be shares of different classes, the number of shares in each class, the designations and relative rights, preferences and limitations thereof.

In connection with the above, it should be noted that the amount of the authorized corporate capital and the par value of the shares may be expressed in currency of the Republic of Panama, or in legal currency of any country, or in both.

u The number of shares that each of the subscribers to the Articles of Incorporation agrees to take.

u The domicile of the corporation, which may be in Panama or elsewhere, as well as the name and domicile of its Resident Agent in Panama, who must be an attorney or an attorney's firm in Panama.

u The duration of the corporation, which may be perpetual.

u The full names and addresses of at least three directors.

u Any other lawful clauses which the subscribers may agree. It is usual practice to include the full names of the first officers of the corporation consisting of at least a President, a Secretary and a Treasurer, as this affords a considerable time saving. 

CORPORATE POWERS

Under Panamanian Law, every corporation has the authority to engage in and exercise the general array of powers provided for in Article 19 of Law No. 32 of 1927, as well as those contemplated in the Articles of Incorporation thereof, and subject to limitations imposed by operation of Law and restrictions established in the corresponding Articles of Incorporation.

CAPITAL STRUCTURE

Under Panamanian Law, the Articles of Incorporation must set forth the amount of the corporate capital and the number and par value of shares into which it is divided.

The corporation may issue shares without par value, if the Articles of incorporation so provide, and if it does the said articles must stipulate (a) the total amount of shares that the Corporation can issue, (b) the number of shares with par value, if any, and value of each one, (c) the number of shares without par value, and (d) one or the other of the following statements: (1) that the corporation's capital shall be at least equal to the total amount represented by the shares with par value, plus a stated amount with respect to each share without par value which is issued and the sums that from time to time may be incorporated into the corporate capital by means of a resolution or resolutions of the board of directors; or (2) that the corporate capital shall be at least equal to the total amount represented by the shares with par value, plus the value received by the corporation for the issuance of shares without par value, and the amounts that from time to time may be incorporated into the corporate capital by means of a resolution or resolutions of the board of directors.

In addition, if the shares are to be divided into several classes, the Articles of Incorporation should set forth the designations of each class and a statement of the preferences, privileges, voting powers, restrictions and relative rights concerning the shares of each class.

Furthermore, the Articles of Incorporation may impose restrictions for the transfer of shares, but any restriction which in an absolute manner prohibits the transfer of shares is null and void.

Under Panamanian Law, shares may be issued in exchange for money, labor, services or property of any kind, and must be issued pursuant to a resolution of the board of directors. Shares may be nominative or registered, or bearer. If nominative, or registered, such shares may be issued as fully paid and non-assessable, as partially paid, or even without any payment having been made thereon, and are transferable by endorsement and the subsequent registration on the books of the corporation (Stock Register Book). If bearer, such shares may not be issued unless they have been fully paid and non-assessable, and are transferable by delivery of the corresponding certificate.

Under Panamanian Law, share certificates are required to state upon their face the following data:

u The registration data of the corporation at the Public Registry.

u The authorized capital of the corporation.

u The number of shares belonging to the holder thereof.

u The class of the shares, if there are different classes, as well as any special conditions, designations, preferences, privileges, premiums, advantages and restrictions or requisites that any of the classes of shares may have over the other classes.

u If the shares represented by the certificate are fully paid and non- assessable, this fact shall be expressed in said certificate. If not fully paid and non-assessable, the sum that has in fact been paid shall also be stated in the certificate.

u If nominative or registered shares, the name of the person to whom the shares are issued.

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This information has been provided by Patton, Moreno & Asvat

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