Corporate Governance 2024 Comparisons

The most common structures to conduct business in Colombia are: (i) the simplified stock company (S.A.S.) (ii) the corporation (sociedad anónima or S.A.); (iii) the limited liability company (Ltda); and (iv) the branch of a foreign company.

A summary of the main characteristics of the most commonly used vehicles is set out below. 

Simplified Stock Company or “S.A.S.”

A S.A.S. requires at least one shareholder and is incorporated by private document and registered at the local trade register, unless assets are being contributed at the time of incorporation for which a public deed is required for transfer (eg, real estate). This is a modern and flexible structure, allowing greater freedom of the parties to agree rights and restrictions of shareholders and is used for small single owner companies, multinational subsidiaries, family companies and joint ventures, among others. 

The corporate purpose may be broadly defined and the term of the corporation can be indefinite. Liability is limited to the capital contribution, absent fraud or abuse.

Capital is represented in shares. The transfer of shares is carried out by endorsing the share certificates or issuing a letter of instructions and registering the new shareholder in the company’s stock ledger. Share issues and transfers may be subject to a right of first refusal in favour of the company and the shareholders, if expressly set out in the bylaws. A board of directors is optional and a statutory auditor must be appointed when meeting certain thresholds. 

Corporation or “S.A.”

An S.A. corporation requires a minimum of five shareholders. None may hold 95% or more of the outstanding capital of the company. It is incorporated by public deed granted before a Colombian Public Notary and registered at the local trade register.

Corporations must define the corporate purpose and a fixed term in the bylaws. A board of directors and statutory auditor is compulsory, This is the traditional type of stock corporation used for listed companies and banks, among others. 

Capital is represented in shares. Liability is limited to the capital contribution, absent fraud or abuse. The transfer of a corporation’s shares is carried out by endorsing the share certificates or issuing a letter of instructions and registering the new shareholder in the company’s stock ledger. The transfer may be subject to a right of first refusal in favour of the company and the shareholders, if agreed in the bylaws. There is less freedom to agree different rules on the company structure, meetings, dividend distribution, reserves etc as these are regulated under the Colombian Commercial Code.

Limited Liability Company

This type of company requires a minimum of two and a maximum of 25 partners for a defined term. It is incorporated by public deed granted before a Colombian Public Notary and registered with the local trade register.

Limited liability companies must define the corporate purpose and a fixed term in the bylaws. This type of company has fallen into disuse since the simplified corporation became available in 2008. It is still used for certain industries and sectors where this structure is required.

Capital is represented in quotas, which can only be transferred on exercise of a mandatory first right of refusal, amendment of the bylaws and registration in the public register. Liability for tax and employment matters can extend to those holding quotas in these types of companies. There is less freedom to agree different rules on the company meetings, dividend distributions, reserves etc as these are regulated under the Colombian Commercial Code. A board of directors is optional and a statutory auditor must be appointed when certain thresholds are met. 

Branch of a Foreign Company

Branches are part of the same legal entity abroad (or home office) that sets up the branch, so there is no limitation of liability. The home office board resolutions are incorporated into a public deed granted before a Colombian Public Notary and registered at the local trade register. 

The corporate purpose must be narrowly defined and be within the home office’s corporate purpose. The term must be defined. Branches are frequently used in the oil and gas sector and for public procurement.

Colombian legislation does not establish mandatory governance codes or equivalent for privately owned companies or groups of companies.

Companies with publicly traded shares must comply with the following corporate governance requirements: 

Boards of directors must have at least five members and a maximum of 10 members. At least 25% of the members must be independent, which means that they cannot be:

• employees or officers of the company or of any of its affiliates, subsidiaries or controlling companies, including those individuals who have had such capacity during the year immediately preceding the appointment, except in the case of the re-election of an independent person;
• shareholders who directly or by means of an agreement direct, guide or control the majority of the voting rights of the entity or who determine the majority composition of the administrative, management or control bodies of the entity;
• the partner or employee of associations or companies that provide advisory or consulting services to the issuer or to the companies that belong to the same economic group of which it is part, when the income for such concept represents for them, 20% or more of their operational income;
• the employee or director of a foundation, association or society that receives important donations from the issuer;

Significant donations are considered to be those that represent more than 20% of the total donations received by the respective institution;

• the administrator of an entity in whose board of directors a legal representative of the issuer participates.
• a person who receives from the company any remuneration other than fees as a member of the board of directors, the audit committee or any other committee created by the board of directors.

When a plural number of shareholders representing at least 5% of the subscribed shares submit proposals to the boards of directors of the registered companies, these bodies must consider them and respond in writing to those who have made them, clearly stating the reasons for the decisions.

These companies will establish an audit committee, which will be composed of at least three independent members of the board of directors. The statutory auditor of the company will be present in the audit committee and be able to speak but not vote. The committee will be in charge of supervising compliance with the internal audit programme and will ensure the preparation, presentation and disclosure of financial information complies with the provisions of the law. This does not apply to entities subject to inspection and surveillance by the Superintendencia Financiera de Colombia.

Listed companies must submit an annual and a quarterly report on ESG matters to the Registro Nacional de Valores y Emisores.

Throughout 2023 there were several hot topics to be considered in corporate governance aimed at improving sustainability, transparency and responsibility within companies.

Environmental, Social and Governance (ESG)

Even though only listed companies must comply with ESG reporting, the implementation of sustainable policies has become crucial for all types of companies for several reasons:

• To enhance brand and customer loyalty to generate a competitive advantage. 
• To attract and retain talent as employees choose to work in a workplace that aligns with their values and has a supportive environment. 
• Cost and operations efficiencies: policies that reduce carbon footprint and improve the supply chain can lead to a cost saving making companies more efficient. 
• Risk management: reputational and regulatory risk can be controlled by the implementation of policies that address issues that impact stakeholders. 
• Attraction of investment: More robust governance and investor protection is becoming a prerequisite for outside investment. 

Reporting Regulations

In 2023, the Superintendencia de Sociedades introduced non-mandatory regulations on reporting for unlisted companies that met certain asset and revenue thresholds and operated in the construction, mining and other sectors.

• Conflict of interest: Under regulations introduced in early 2024, when a legal representative or an administrator, such as a board director, may have a conflict of interest, all relevant information must be disclosed to the shareholders so that they can decide whether to waive the conflict, thereby releasing the legal representative from responsibility, and whether a general authorisation can be granted. 
• Liability regime of administrators (legal representatives, liquidators, members of boards of directors, factors and any individual who exercise such duties in accordance with the bylaws of the company are considered corporate administrators). The Business Judgement Rule was formally recognised in Colombian regulations in Resolution 46 of 2024, see 4.6 Legal Duties of Directors/Officers. 
• Compliance, which includes SAGRILAFT and Transparency Programmes. 
• Diversity and inclusion policies.
• Digital transformation and how technology can be used as a mechanism to become more efficient.

Currently it is not compulsory for unlisted companies to report on ESG issues. However, the Superintendence of Corporations issued External Circular 100-000010 of 21 November 2023 (the “Circular”), adding a new Chapter XV on ESG reporting to its Basic Legal Circular. This Chapter establishes the recommendations to be considered by companies when preparing the sustainability report. The Superintendencia de Sociedades has not yet established dates for mandatory filing of this information. The recommendations are aimed at companies that meet certain thresholds – ie, companies that are subject to the permanent supervision or control of the Superintendence of Corporations, and have reached total income or assets equal to or greater than 40,000 minimum wages, as of 31 December in the year immediately preceding it. Reports must be based on international standards.

The legal representatives of the company, usually called general managers, are responsible for the day-to-day affairs of the business. As legal representatives they are able to legally bind the entity before third parties.

Board of directors. Board members do not have individual authority to bind the company but form a consultative body for planning, setting long-term goals, managing risks and supervising management. When a company is not obliged to have a board of directors the functions of the board are assumed by the shareholder assembly.

Shareholder Assembly. This is the governing body of the company and is usually responsible for considering annual accounts prepared by the management, appointing directors or legal representatives when the company does not have a board of directors, approving bylaws amendments, setting economic guidelines for the business, starting corrective actions against the management and making decisions on the distribution of profits.

General managers must seek to improve a company’s performance and profitability and implement the strategy and vision of the company. They will hire employees, sign contracts (subject to any limitations in the bylaws), prepare financial statements and are responsible for the day-to-day activities. 

The board of directors are usually involved in decisions concerning budgets, strategic decisions, reviews of annual accounts, share issues, approvals of indebtedness, acquisitions of relevant assets, appointments to management-level positionsand authorisations of certain contracts. 

Boards of directors are not mandatory for all types of companies in Colombia. When a board is included in the bylaws, rules for the issuing of shares, appointment of management, and the issue of authorisations to managers to enter into contracts restricted by a company’s bylaws are decisions usually reserved to this particular body.

The shareholder assembly adopts all other decisions, including approval of all bylaw amendments, annual financial statements, appointment of officers, including the statutory auditor and consideration of conflicts of interest.

The shareholder assembly and the board of directors can make decisions either by holding in-person meetings or virtual meetings. Decisions can also be made by written ballots provided that all shareholders or all directors participate. In this case, the legal representative of the company must send the necessary information to allow the directors or shareholders to vote and ensure the timing and other legal provisions are met. 

All decisions adopted in a meeting or by written ballot must be reflected in minutes which must be signed by the individuals authorised for this purpose or the individuals provided for in the law. 

In principle, shareholder assembly decisions require the affirmative vote of a majority of the shares represented at the meeting. However, the law provides that qualified majorities apply for certain decisions and certain types of entities. For example: simplified stock companies (S.A.S.) require a unanimous vote to: i) prohibit the negotiation of issued shares for a period of 10 years; ii) prior authorisation by the shareholders meeting for the transfer of shares; iii) set out grounds for exclusion of shareholders; iv) arbitration or amicable composition agreement for the resolution of corporate conflicts and v) conversion of the company into any other type of corporate structure. 

Corporations (S.A.) require a qualified majority for decisions such as: i) distribution of profits (at least 78% of the shares represented at the meeting); ii) issuance of shares without the pre-emptive right (70% of the shares represented at the meeting) and iii) payment of dividends in shares (80% of the shares represented at the meeting).

The board of directors may meet as agreed in the bylaws and its decisions will be taken in principle with the affirmative vote of the majority of its members. However, qualified majorities may be established in the bylaws.

The general managers or legal representatives of a company make decisions on the business following the policies established by the board of directors or by the shareholders. Under Colombian law, the general manager or other officers who are appointed as legal representatives under the bylaws, represent the company and are able to sign binding documents.

Corporations must have a board of directors. Simplified corporations and limited liability corporations are not obliged to have a board of directors. For companies whose shares are not publicly traded, there are no legal requirements related to the structure of the board of directors, other than those set out in 4.3 Board Composition Requirements/Recommendations and 1.3 Corporate Governance Requirements for Companies With Publicly Traded Shares. Typically a president and a secretary are selected, to lead and document the decisions taken in the board meetings. The appointment of independent members is not mandatory for unlisted companies, but is becoming more common.

The board of directors are considered administrators and form a collegiate body of the company but as directors, they cannot represent the company (unless they are granted a power of attorney by the legal representative). The legal representatives are the officers of the company that represent it can bind it with their signature and any delegation of authority must come from the legal representatives, even if authorised by the board. The board of directors is an advisory and collaborative body, which is empowered to order the execution or performance of certain acts or agreements, and can take certain decisions for the company to fulfil its corporate purpose and is usually in charge of the company’s policies. 

Corporations must have a board of directors formed of at least three members or their alternates (ie, someone selected as a replacement for a board member in the event that board member is unable to attend a meeting or make a decision). Directors must be individuals and not companies. There are no residency or nationality requirements for the members. 

The members of a board of directors are appointed and removed by the shareholder assembly. The managers (legal representatives) are appointed by the board of directors, or by the shareholder assembly. 

The appointment of directors and legal representatives of a local vehicle must be registered at the trade register. For such purposes, the minutes/resolutions (ie, shareholders or board resolution) appointing the directors and officers, must be filed with the letter of acceptance and a copy of the appointed person’s identification document. The appointment of the officers will be effective upon registration at the trade register. The members of the board of directors can act as directors once they have accepted their position, even if their appointment has not been registered with the trade register, if their decisions do not require public registration. Legal representatives must obtain a personal tax ID and update the information in the company’s tax ID.

The appointment of independent members is not mandatory for unlisted companies, but is becoming more common. Provision for this can be made in the company’s bylaws. Directors and officers should abstain from engaging, directly or indirectly, in their own interests or that of third parties, in activities involving competition with the company, or acts involving a conflict of interest, unless prior written authorisation has been provided by the shareholder assembly and it is not harmful to the company.

The law lists the duties that apply to administrators which include: 

• making all efforts for the adequate development of the corporate purpose; 
• ensuring that the laws, bylaws and duties are strictly complied with;
• ensuring that the instructions of the statutory auditor are carried out; and 
• confidential commercial and industrial information is protected.

Administrators are required to act in good faith, with due care and loyalty and meet the standard of a good businessman. There is a presumption that in making a business decision, the directors of a company acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company. However, corporate administrators enjoy full autonomy when making business decisions and are protected from being held personally liable, as long as the decisions do not contravene legal and statutory provisions. This autonomy is commonly known as the Business Judgement Rule. 

A company is bound by the acts of officers to the extent that these fall within the powers granted to them under the bylaws of the company and provided that they fall within the corporate purpose of the company.

Directors must exercise their duties in good faith, with loyalty, and with the diligence of a good businessman. They should act in the interests of the company, taking into account the interests of its shareholders. Directors will be jointly and unlimitedly liable for any damage they may cause to the company, to its shareholders or to third parties due to fraud or negligence.

The mechanism established by law for directors to repair damage caused is the company responsibility action (accion social de responsabilidad). This is valid in the cases were directors may have caused damage to the company, to the shareholders or to third parties, in the performance of their duties due to fault or fraud. This action will be initiated by the company, after a decision of the shareholder assembly or the partners’ meeting.

When the assembly has decided to initiate this action but it has not done so within three months following its decision, it may be initiated by any director, the statutory auditor or by any of the shareholders in the best interest of the company. Furthermore, creditors representing at least 50% of the company’s external liabilities may initiate the action, as long as the company’s assets are insufficient to satisfy their claims.

The company’s bylaws may establish other types of sanctions for directors who fail to perform their duties. 

It is not possible to absolve or limit the liability of the directors. Any clause that goes against this provision is deemed unwritten. D&O insurance can be arranged to cover certain risks.

Any decision related to the remuneration of directors and officers must be approved by the shareholder assembly or the company’s board, as applicable. A legal representative or director must disclose any conflict of interest in matters of remuneration, fees of other benefits. Failure to do so means that the director or officer could be investigated for not disclosing the conflict of interest, the decision on the salary could be void and the director or officer must provide an indemnity for any damages caused.

According to Article 446 of the Commercial Code the board of directors must prepare a report including the detail of expenditures for salaries, fees, representation expenses, bonuses, benefits in cash and in kind, transportation expenses and any other type of remuneration received by each of the company’s officers. This report is presented at the annual shareholder meeting. 

Shareholders are the “owners” of the company. Their main role is to make a capital contribution to the company (either in kind or in cash) in return for a participation percentage on the company (shares or quotas), which will allow the entity to start its productive activity, in order to obtain profits that allow a subsequent distribution of dividends to the shareholders.

The term for the payment of capital contributions and the liability of the shareholders/partners, for each type of entity are as follows.

Simplified Stock Corporations

The responsibility of the shareholders is limited to the amount of their contributions, except in cases of fraud or abuse by the company which results in detriment to third parties. The capital of the company must be paid within the two years following its incorporation.

Corporations

At incorporation, the shareholders must subscribe at least 50% of the authorised capital and pay at least one third of the subscribed capital. The remaining two thirds must be paid within a year of incorporation. Liability is limited to the capital contribution, assuming there is no fraud or abuse. 

Limited Liability Companies

The partners’ responsibility is limited to the amount of the capital contribution, which must be paid in full when the company is incorporated and on any additional increase, Partners are not liable for payment of any debt, except for tax obligations or labour liabilities, for which they are severally and jointly liable with the company and share capital that has not been fully paid.

Branches of Foreign Companies

Assigned capital must be fully paid. Any increase requires authorisation of the home office’s competent corporate body and registration in the trade register. Supplementary investment to assigned capital does not require any formalities and can generally be made in cash from abroad.

A branch does not have a separate legal personality to that of its home office. The home office is liable for the assets and liabilities of the branch in Colombia. The home office and the branch are jointly and severally liable for all business conducted in Colombia through the branch office, including the tax and corporate obligations of the branch, without limitation.

In addition, the shareholders are in charge of approving bylaws amendments, setting economic guidelines for the business, and policies for the management of the company, starting corrective actions against the management, and making decisions on the profits. These decisions are usually made following the quorum set out in the law or the bylaws for these matters.

Shareholders generally do not hold a managerial position solely because of their status as shareholders, but they can be appointed to management positions, as there are no legal provisions that prohibit this.

Except in cases of legal representation, the administrators and employees of the company may not represent shares, other than their own, at the meetings of the board of directors or the shareholder assembly of corporations or limited liability companies, while they are in office, nor may they substitute the powers conferred upon them. They may also not vote on the balance sheets and accounts at the end of the financial year, nor on the liquidation accounts.

The shareholders or partners must hold an annual meeting within the term set out in the bylaws. Where no provision is made the meeting must be held within the first three months of each calendar year. The matters to be considered at the annual meeting must at the least be the: 

• appointment or directors, officers and statutory auditor; 
• approval of the annual management report; 
• approval of the statutory auditor’s opinion to the annual financial statements; 
• approval of the annual financial statements; and 
• approval of the distribution of profits.

The company responsibility action (acción individual de responsabilidad) may be initiated when acts of the administrators (members of the board of directors, officers) caused specific damage to third parties or to a specific shareholder (and not directly to the company) by acting in the name and on behalf of the company negligently, fraudulently or in extra limitation of their functions as administrators. The damage suffered by the party by virtue of the violation of the duty of conduct must be demonstrated and the damage caused to the personal assets of the shareholder or third party affected by the actions of the administrators must be compensated for.

Companies who want to register in the Registro Nacional de Valores y Emisores, must provide a copy of their shareholding composition with the breakdown of beneficial owners. All issuers must disclose in a truthful, sufficient, complete and understandable manner for investors and the market in general, significant changes in the composition of the issuer’s shareholding, that is, any variation equal to or greater than 5% of the issuer’s capital, which has as its origin the purchase or sale of the capital by a person or group of persons who directly or indirectly form the same beneficial owner. 

Additionally, publicly traded companies listed in one or more stock exchanges, are required to report information on its beneficial owners to the Tax Authority, reporting any and all individuals exceeding a 5% or more of ownership/economic benefit, or control over the Colombian entity.

Annual financial statements must be deposited in the trade register of the entity’s domicile or with the Superintendencia de Sociedades, as applicable. 

Entities permanently supervised or controlled by the Superintendencia de Sociedades and entities that received a special request from this authority must file financial statements with their notes, management’s report, statutory auditor’s opinion and minutes of the annual general meeting. If controlling companies have more than one entity in Colombia or have registered as a business group, they must also file consolidated or combined financial statements with the Superintendencia de Sociedades. 

If a business group has been registered, the companies must also file their consolidated or combined financial statements with the tax authority, according to Article 631-1 of the Tax Code.

Company bylaws are registered in the trade register’s office and are public. In general, corporate governance arrangements are not public for private companies. However, for listed companies there is an obligation to disclose a report, which should contain, among other aspects, an analysis of the corporate governance of the entity and a description of the management structure of the entity, compensation schemes of directors and officers, board of directors and officers composition, and CVs of the directors and officers, quorums of the meetings, management of conflict of interest, statutory auditor’s fees and description of the committees created to control internal audit processes and equity treatment to the investors. 

Companies that are supervised or controlled by the Superintendencia de Sociedades need to file annual reports on corporate practices which includes information about certain corporate governance matters.

Companies in Colombia must make the following filings:

• Renewal of the commercial registration of the entity and of its commercial establishments at the trade register.
• Renewal of the public contracting register.
• Documents of incorporation of a company or branch and any amendments.
• Appointment of administrators (legal representatives, members of the board of directors, statutory auditors and liquidators).
• Appointment of general powers of attorney granted by the company.
• Dissolution and liquidation of companies.
• Capital increases and decreases.
• Mergers and demergers.
• Global transfer of assets - where the company intends to dispose of assets and liabilities that represent 50% or more of the company’s liquid assets.

Failure to register these documents means they are unenforceable against third parties.

These registered documents will also be publicly available.

If the entity’s assets were greater than 3,000 minimum monthly wages (USD750,000 approximately) or its gross were greater than 5,000 minimum monthly wages (USD1.25 million approximately), respectively, in the current year it must appoint a statutory auditor. The statutory auditor must be a Colombian public accountant and meet the independence provisions. The following persons will not be able to be appointed as a statutory auditor:

• shareholders from the company, its parent company or any of its subordinates;
• employees from the parent company;
• those who are related by marriage or kinship up to the fourth degree or first or second degree;
• those who are administrators’ partners and executive officers such as the cashier, auditor or comptroller of the company; and
• those who hold any other position in the same company or its subordinates.

Elected statutory auditors may not hold any other position in the company or in its subordinates during the same period.

Directors and legal representatives must ensure that the accountants keep the company books and that statutory auditors are allowed to properly perform their functions. 

They must implement a money laundering, financing of terrorism and financing of proliferation of weapons of mass destruction integral risk management and self-control system when the annual total assets or gross income exceed specific thresholds according to a company’s industry. 

Likewise, a transparency and business ethics programme must be adopted when certain international transactions or contracts with state bodies exceed specific thresholds.