Main Commercial Vehicles

The main corporate vehicles used in Ecuador are as follows.

• The S.A.S. (Simplified Joint Stock Company) is the most flexible and economical. It requires one or more shareholders, no minimum capital and private incorporation.
• The S.A. (Joint Stock Company) is ideal for large ventures/capital markets. It features freely transferable shares, and requires 100% subscription and 25% paid-in capital upfront.
• The Cía. Ltda. (Limited Liability Company) is designed for closed/family businesses, with a maximum of 15 partners. It requires 50% paid-in capital, and transfers require unanimous consent.

Other Entities and Vehicles

The following are also relevant.

• The foreign branch requires a local representative. The parent company retains full liability.
• Consortiums are formed through temporary joint agreements (often for public tenders) and are taxed as companies without separate legal personality.
• Commercial trusts and benefit and collective interest companies (BICs) – trusts manage assets/real estate, while “BIC” is a social-purpose designation, rather than a distinct entity type.

Key Decision Factors

The key factors to be considered when choosing a structure are as follows.

• Liability – S.A.S., S.A. and Cía. Ltda. have limited liability, while sole traders, partners and parent companies of foreign branches have unlimited liability.
• Taxation – the standard corporate income tax rate is 25%. A Simplified Regime for Entrepreneurs and Popular Businesses (Régimen Simplificado para Emprendedores y Negocios Populares, or RIMPE) is available for small businesses.
• Regulatory treatment – annual financial/UBO (ultimate beneficial owner) filings are mandatory, and external audits are required if certain asset thresholds are met.
• Foreign investment – subsidiaries shield parent liability better than branches.

Entity Types and Key Requirements

The main requirements for each entity type are as follows.

• The S.A.S. requires a private document and a minimum of one shareholder, but no minimum capital. The process takes three to seven days, and there are no notary/registry fees.
• The S.A. requires a public deed and admission to the Mercantile Registry. There is a minimum of one shareholder, and USD800 minimum capital. The process takes two to four weeks, and notary/registry fees apply.
• The Cía. Ltda. requires a public deed and admission to the Mercantile Registry. It can have between one and 15 partners, with a minimum of USD400 capital. The process takes two to four weeks, and notary/registry fees apply.

It should be noted that boards with three or more members require gender parity.

Incorporation Procedure

The incorporation procedure follows these steps.

• Name reservation – the chosen name is reserved via the SUPERCIAS portal.
• Execution and registration – the private by-laws (S.A.S.) or notary deed (S.A./Cía. Ltda.) are signed and then registered with SUPERCIAS or the Mercantile Registry.
• Tax and local set-up: the taxpayer identification number (Registro Único de Contribuyentes, or RUC) is obtained from the Internal Revenue Service (SRI), followed by the Municipal Licence (Patente).

Ongoing Compliance

The following obligations are ongoing.

• Annual filings – financial statements must be filed with SUPERCIAS by April 30th, and the annual SUPERCIAS asset fee must be paid.
• Governance and disclosure – the annual shareholder meeting must be held by March 31st. UBOs must be disclosed annually.
• Registers and labour – minute/share books must be maintained, and employees must be registered with the Ministry of Labour (Sistema Único de Trabajo, or SUT) and the Social Security Institute (Instituto Ecuatoriano de Seguridad Social, or IESS).

Statutory Rules Governing Share Capital

Under the Ecuadorian Companies Act (Ley de Compañías), S.A. and S.A.S. entities issue shares, while Limited Liability Companies (Cía. Ltda.) issue social quotas.

• Authorised v issued capital – by-laws may set an authorised capital ceiling for future issuances without charter amendments. Issued capital is the subscribed amount.
• Par value and premiums – all shares must have a fixed USD par value (no par shares are prohibited). Any excess paid over par goes into a share premium reserve (prima de emisión).
• Alterations – capital changes (increases, reductions, debt conversions, splits) require extraordinary general assembly approval and SUPERCIAS/Mercantile Registry filing.

Share Classes and Rights

The S.A.S. allows broad contractual flexibility, while the S.A. is rigidly regulated.

• Voting and economic rights – classes may grant multiple, limited or non-voting rights (non-voting rights are capped at 50% capital in an S.A.). Preferred shares offer priority dividends and liquidation preferences.
• Conversion and pre-emption – shares can feature conversion mechanisms. Statutory pre-emptive rights apply to new issuances, although S.A.S. shareholders can waive or modify them.
• Each shareholder’s voting strength is determined by their paid-in capital contribution; consequently, any provision in the by-laws that limits voting freedom is legally void, notwithstanding private agreements between shareholders regarding their votes. For limited liability companies (Cía. Ltda.), any equity transfer to third parties requires unanimous consent.

Key Requirements on Distributions and Returns of Capital

The following requirements must be met.

• Real profits and loss absorption – dividends must come solely from approved net liquid profits or retained earnings, and prior losses must be covered first. Distributing fake profits triggers personal liability for management.
• The legal reserves are:
1. S.A. – 10% of annual profits up to 50% of capital;
2. Cía. Ltda. – 5% of annual profits up to 20% of capital; and
3. S.A.S. – optional unless mandated by the by-laws.
• Approval and priority – declared dividends require general meeting approval (becoming enforceable debts), and preferred share rights take priority over common shares.
• Returns of capital must be executed via a formal capital reduction (SUPERCIAS and Mercantile Registry filing) and distributed pro rata, unless waived.

Buybacks, Redemption, Cancellation, Solvency and Financial Assistance

• Share buybacks (S.A./S.A.S.) must use net profits or free reserves (not social capital). Voting and dividend rights are suspended; shares must be reissued within five years or cancelled.
• Redemption and cancellation – redemption applies to preferred shares per issuance terms. Share cancellation requires a formal capital reduction.
• Solvency test and creditor protection – capital returns require a solvency report from the legal representative. They cannot result in negative net equity, and they give creditors a statutory right to oppose.
• Financial assistance prohibition – companies cannot grant loans, advances or guarantees secured by their own shares or to fund the acquisition thereof.

Disclosure Obligations

The following must be reported.

• Real owners (UBOs) – the actual people behind the business (even through complex parent companies) must be revealed if they hold 10% or more of shares/profits or exercise true management control. If nobody meets this threshold, the top executive (General Manager) must be listed. The UBO must be reported to SUPERCIAS and the SRI.
• Annual update (by April 30th) – a full report of directors, managers and direct owners must be submitted.
• The eight-day transfer rule – SUPERCIAS must be notified within eight business days whenever shares are bought or sold.
• Regulated businesses – real estate companies, car dealers and high-value sellers must also report to the Financial and Economic Analysis Unit (Unidad De Análisis Financiero y Económico, or UAFE).

Consequences of Missing or Late Reports

If reports are not filed on time, or are not filed at all, the penalties include:

• higher income tax, with the rate increasing from 25% to 28%;
• frozen profits and voting, with foreign owners losing voting rights and becoming unable to receive dividend payouts; and
• frozen operations, with business certificates blocked, thereby halting banking access and legal contracts.

Primary Legislation

Corporate governance in Ecuador is built mainly on the Companies Law, which sets the rules on shareholders’ meetings, boards, managers, directors’ duties and minority rights for all commercial companies, including the simplified joint stock company (S.A.S.). The Organic Monetary and Financial Code adds specific governance requirements for banks, insurers and other regulated financial institutions. The Securities Market Law imposes additional disclosure, audit and conduct obligations on issuers whose securities are publicly offered.

Secondary Regulation

The following secondary regulations are of relevance:

• resolutions of the Superintendency of Companies, Securities and Insurance (Superintendencia de Compañías, Valores y Seguros, or SCVS), which develop the Companies Law and securities rules in practice;
• the Codification of Monetary, Financial, Securities and Insurance Resolutions, issued by the financial policy regulator; and
• the Organic Law on Personal Data Protection, which shapes how companies handle shareholder, employee and client information.

Codes and Best Practices

The SCVS has issued Ecuadorian corporate governance standards that are largely voluntary for ordinary companies but are increasingly expected of issuers. Separately, savings and credit co-operatives and similar entities must follow the 2025 Good Co-operative Governance Standard issued by the Superintendency of Popular and Solidarity Economy, adapting their internal rules by April 2026.

Core Fiduciary Duties

Directors and managers in Ecuador owe two main duties to the company: the duty of diligence requires them to act with the care of a prudent and informed business person, while the duty of loyalty requires them to put the company’s interests ahead of their own and to disclose and avoid conflicts of interest. Recent reforms to the Companies Law also recognise a business judgement rule, protecting decisions made in good faith, on an informed basis and without personal interest.

Judicial Interpretation

Published case law on directors’ duties remains limited. Many disputes are resolved through arbitration or before the SCVS, so courts have not yet developed a detailed body of doctrine. In practice, judges focus on whether the director followed the law, the by-laws and shareholder resolutions.

Personal Liability

Directors may be held personally and jointly liable when they:

• cause damage to the company, shareholders or third parties through negligence, bad faith or breach of the law or by-laws;
• fail to comply with tax and labour obligations as legal representatives; or
• use the company to commit fraud, which allows courts to disregard the corporate veil.

Private Companies

Ecuadorian law gives private companies broad freedom in designing their governance structure. A board of directors is optional, and many companies are managed directly by a general manager and a president appointed by the shareholders. There are no general nationality or residence requirements for directors, although in practice the legal representative needs local tax registration and a reliable presence in Ecuador to deal with authorities.

Listed Companies and Issuers

Issuers of publicly offered securities face stricter standards. They must set up an audit committee whose members are independent from day-to-day management, and they are subject to closer oversight by the SCVS. Banks and insurers must also have their directors qualified by the relevant regulator, which reviews suitability, experience and potential conflicts.

Independence and Diversity

The regulator’s voluntary governance standards recommend independent directors and diverse boards.

Savings and credit co-operatives must apply gender equity in board nominations and have boards of between three and nine members, under the 2025 co-operative governance standard.

When the board of directors has three or more members, at least one member must be female.

Legal Framework

Ecuador’s Constitution recognises the rights of nature, and the Organic Environmental Code imposes strict liability for environmental damage. Recent reforms to the Companies Law also allow companies to adopt BIC status, which commits them to social and environmental goals upon which they must report annually.

Disclosure Requirements

There is currently no mandatory climate-related financial disclosure regime for ordinary companies. However, ESG reporting is growing through other channels:

• issuers of green, social and sustainable bonds must disclose how proceeds are used and verify their impact;
• financial institutions are increasingly expected to assess environmental and social risks in their lending; and
• savings and credit co-operatives must report on social responsibility and publish a social balance.

Directors’ Duties

Directors’ duties are owed to the company, and the law does not expressly require them to weigh stakeholder interests. In BIC companies, however, directors must consider those interests as part of the company’s purpose.

Best Practices

Boards are encouraged to assign ESG oversight to a specific committee, to integrate ESG risks into enterprise risk management, and to report voluntarily under recognised international standards.

General Rules for Companies

Under the Companies Law, directors and managers with a personal interest in a transaction must disclose it and abstain from taking part in the decision. Transactions between the company and its directors generally require prior approval from the board or the shareholders’ meeting, depending on the by-laws. Directors who ignore these rules may be personally liable for any resulting damage.

Financial Institutions and Issuers

Stricter rules apply in regulated sectors:

• banks and other financial institutions face strict limits on loans and exposures to related parties, as defined in the Organic Monetary and Financial Code and regulator rules;
• securities issuers must disclose related-party transactions in their audited financial statements and report material events to the market; and
• co-operatives cannot contract with relatives of their directors, managers or key officers, nor with companies in which those persons hold more than 10%.

Tax and Disclosure

Related-party transactions are also subject to transfer pricing rules. Companies above certain thresholds must file annual reports with the tax authority, showing that prices reflect market terms. In practice, many companies adopt internal conflict-of-interest policies and require annual declarations from directors and senior officers.

Core Rights

Ecuadorian law grants shareholders a set of fundamental rights that the by-laws cannot remove. These include:

• participating in profits and in any surplus on liquidation;
• equal treatment within each share class; and
• attending and voting at general meetings.

Shareholders also hold statutory pre-emptive rights on new issuances, although S.A.S. shareholders may waive or modify them. Voting power is proportional to paid-in capital, and by-law clauses restricting the freedom to vote are void, although shareholders may agree privately on how to vote. In limited liability companies (Cía. Ltda.), transfers to outsiders require unanimous consent.

Access to Information

Shareholders have unrestricted access to financial statements, management and audit reports, meeting minutes and the shareholder list. Other company records may be examined under management supervision, and access may be refused only on objective grounds, unless holders of at least 50% of the capital support the request. Before a meeting, shareholders may submit written questions on agenda items and ask to postpone an item for up to three days if information is insufficient. A breach of these rights gives rise to damages rather than the annulment of the meeting.

Fundamental Changes

The general meeting decides on by-law amendments, mergers, spin-offs, transformations, dissolution and the purchase or sale of essential assets. An asset is presumed essential when the transaction exceeds 25% of total assets in the latest approved balance sheet. Shareholders dissenting from these asset transactions or a transformation may withdraw and receive the fair value of their shares.

Statutory Remedies

Holders of 10% of the capital may require a general meeting to be called and, if management fails to act within 15 days, may ask the SCVS to convene it. Holders of 5% may also add one item to the agenda of a convened meeting, within 72 hours of the notice. Challenge routes include:

• administrative suspension – within ten days, any shareholder may ask the SCVS to suspend a resolution that breaches the law or by-laws, or that results from abusive voting;
• judicial challenge – resolutions that harm the company for the benefit of certain shareholders may be challenged within one year, or five years if contrary to public order, and shareholders who voted in favour become jointly liable;
• appeal – shareholders who were absent or voted against may appeal within 30 days through summary proceedings; and
• nullity – resolutions adopted in breach of the law or by-laws may be declared void.

Judges may also fine claimants who litigate abusively, up to 5% of the company’s equity.

Typical Uses

Shareholder agreements are widely used in joint ventures, private equity transactions and family businesses. They typically address voting commitments, rights of first refusal, tag-along and drag-along rights, lock-ups and exit mechanisms. In an S.A., the by-laws cannot restrict share transfers, so any such restrictions must be set out in a private agreement. S.A.S. by-laws, by contrast, may themselves prohibit transfers or require prior approval.

The SCVS’s Ecuadorian Corporate Governance Standards (Normas Ecuatorianas para el Buen Gobierno Corporativo) are voluntary unless incorporated into the by-laws, which requires two thirds of the capital. They recommend disclosing agreements to the other shareholders and, in widely held companies, avoiding provisions that bind directors’ votes or govern their appointment.

Enforceability

Agreements bind their parties but generally not third parties, unless a third party knew of them. Depositing the agreement at the company’s offices is a key practical step, as the company must then comply with it, and votes cast in breach are not counted. Following a breach, the affected party may seek specific performance or termination, in both cases with damages.

Dispute Resolution

Mediation and arbitration clauses may be included in the by-laws or in a shareholder agreement. By-law arbitration clauses also bind future shareholders, but adding or removing them requires unanimous approval.

Oppression of Minority Shareholders

Ecuador recognises a specific oppression action, comparable to common law unfair prejudice remedies. Any non-controlling shareholder may sue majority shareholders whose conduct undermines minority rights, within one year of the oppressive resolution. Courts may cancel the resolution, order the conduct to cease or require the company to purchase the minority’s shares at fair value.

Derivative Actions

If the general meeting approves proceedings against directors but the company fails to file within one month, any shareholder may sue on its behalf. Claims for breach of the duty of loyalty may be brought directly, without meeting approval. Derivative actions also extend to conflicted shareholders, shareholders who abuse their votes and shadow directors, and are time-barred after five years.

Abuse of Voting Rights

A vote is abusive when it is cast to harm the company or other shareholders, or to obtain an unjustified advantage. Where the minority or a deadlocked group abusively blocks a resolution, courts may order its implementation, which is a useful tool against deadlock.

Exit and Winding-Up

Ecuadorian law does not allow shareholders to petition for winding-up on just and equitable grounds. Disputes are instead generally resolved through buyouts, withdrawal rights or the exclusion of a shareholder. The SCVS may dissolve a company at a party’s request where achieving its corporate purpose becomes clearly impossible.

Principal Sources of Law

M&A transactions in Ecuador are primarily governed by:

• the Companies Law and the regulations of the SCVS, which cover mergers, spin-offs, transformations and share transfers;
• the Securities Market Law (Book II of the Organic Monetary and Financial Code) and the regulations of the Financial Policy and Regulation Board, which govern tender offers for listed companies;
• the Organic Law on Regulation and Control of Market Power, under which the Superintendency of Economic Competition (SCE) reviews and clears concentrations; and
• sector-specific rules for banking, insurance, telecommunications, mining and hydrocarbons, which may require additional regulatory approvals.

Labour, tax, data protection and investment rules also play a decisive role in how transactions are structured.

Private Acquisitions

Most acquisitions involve unlisted companies and are structured as share purchases. Shares in an S.A. or S.A.S. are transferred by private assignment, which becomes effective against the company once recorded in its share register. The SCVS must then be notified within eight days.

In a Cía. Ltda., transfers to third parties require unanimous partner approval. Transforming the target into an S.A. or S.A.S. before the sale may therefore facilitate the transaction.

Asset purchases are less common. Where the assets exceed 25% of the seller’s total assets, shareholder approval is required, and dissenting shareholders may withdraw.

Statutory Mergers and Spin-Offs

Companies may merge by absorption or by forming a new company. Each company’s general meeting approves the merger terms, the SCVS approves the public deed, and the merger takes effect upon registration. The absorbing company succeeds to the rights and obligations of the absorbed company, including licences and permits, provided it meets the applicable requirements.

The Companies Law also offers streamlined routes:

• a parent may absorb a wholly owned subsidiary by decision of its legal representatives or board, without a meeting of the subsidiary’s shareholders;
• where one company owns more than 90% of another, management may approve an abbreviated merger, although holders of 1% may request a general meeting within 15 days of the notice; and
• reverse mergers, combined operations and inbound cross-border mergers, in which an Ecuadorian company absorbs a foreign company, are expressly regulated.

Spin-offs may be total, partial or by segregation of a business unit. These alternatives allow sellers to carve out the relevant business before a sale.

Role of the Courts and Creditors

Ecuador does not provide for court-sanctioned schemes of arrangement, and courts intervene only in specific circumstances. Once the SCVS approves certain corporate acts, an extract is published online and creditors may oppose registration before a civil judge within six days. In mergers by absorption, this step may be avoided where the absorbing company assumes the absorbed company’s liabilities and has sufficient resources to discharge them.

Tender Offers

Acquiring a significant stake in a listed company requires an SCVS-authorised tender offer and, where applicable, competition clearance. Tender offers remain uncommon given the limited number of listed companies.

There is no statutory squeeze-out mechanism. In a merger, however, the absorbing company may offer to acquire minority shares at fair value.

Key Structuring Considerations

• Tax: gains on direct or indirect transfers of Ecuadorian shares are subject to a single 10% income tax. Restructurings, mergers and spin-offs are tax-neutral where the same beneficial owners retain the same proportions, and mergers fall outside the scope of VAT.
• Labour: a buyer of a business must honour existing employment contracts. Ecuadorian-domiciled shareholders holding at least 25% may incur subsidiary liability for employee claims, in proportion to their stake.
• Data protection: disclosing employee or client data during due diligence requires a valid legal basis, so anonymised data rooms are advisable.
• Foreign investment: no prior authorisation is required and profits may be freely repatriated, although beneficial ownership must be disclosed.

Common Deal Structures

Negotiated share purchase agreements are the usual structure, often supported by escrow arrangements or deferred payment mechanisms. Buyers frequently integrate the target through a subsequent merger by absorption, while sellers may use a spin-off to separate the business being sold.

Recent Legislative and Regulatory Changes

The 2023 reforms to the Companies Law introduced the streamlined merger procedures outlined above and additional spin-off modalities. In October 2025, the SCE issued non-binding guidelines on the assessment of concentrations, giving notifying parties greater predictability.

Judicial Developments

The most significant recent ruling is Constitutional Court Judgment 51-25-IN/25 of September 2025, which invalidated a June 2025 law that had barred S.A.S. companies from strategic sectors such as mining, with retroactive effect. Consequently, the S.A.S. remains available as an acquisition vehicle for all lawful activities, although its shares cannot be listed.

Regulatory Framework

Ecuador’s securities rules sit in Book II of the Organic Monetary and Financial Code (COMF), known as the Securities Market Law. Detailed rules appear in the codified resolutions of the Financial and Monetary Policy and Regulation Board. Together they cover offerings, exchanges, brokers, fund and trust managers, rating agencies and issuers.

Regulatory bodies

• The board sets policy and issues binding rules.
• The SCVS supervises the market, keeps the Public Securities Market Registry and alone approves public offerings.
• The Quito and Guayaquil stock exchanges issue self-regulatory rules, which the SCVS must approve.

Public Offerings

A public offering is any invitation to the public, or part of it, to buy or sell securities. Before launching, an issuer must:

• obtain a credit rating for debt and securitisations;
• register the issuer and securities in the Registry;
• issue an SCVS-approved prospectus; and
• comply with standard issuance rules.

Legal representatives are liable for the prospectus. An issuer’s bonds, securitisations and accepted invoices cannot exceed 200% of equity unless extra guarantees cover 120% of the excess; banks and savings co-operatives face a 50% limit.

The SCVS has 15 days to approve a complete file, with silence counting as approval. Financial issuers need their own supervisor’s approval. Approval lasts nine months, and is extendable once. Issuers report material events within three business days and file semi-annual statements.

Exchange Listing

After SCVS approval, securities must also be registered with a stock exchange, which admits them based on that approval. Registering with Quito or Guayaquil covers both. Exchanges require extra documents and reports, and may suspend securities that break their rules, separately from SCVS sanctions.

Prospectus Exemptions

Ecuador has no general private offer exemption: any public offer needs approval, whatever its size. The SCVS can stop offers that look public but lack approval. The following limited cases are not public offerings:

• offers to existing shareholders, and transfers by inheritance, gift, merger or to a trustee;
• direct sales between two parties, without intermediaries, of unregistered securities; and
• state sales up to 1% of a company’s capital, if the board allows.

Small and medium-sized companies can use the Special Stock Exchange Registry (REB), which is a simpler segment. Only institutional investors or qualified investors (people with investment experience) may buy.

Resale Restrictions and Consequences

Ecuador sets no minimum holding period. Resale still has limits: offering issued securities to the public needs SCVS approval, and securities in the REB can be traded only there.

Breaking the rules can lead to:

• offer suspension for up to 30 days, then cancelled registration;
• fines from six to 418 basic salaries (minimum monthly wages), or up to 20–50% of a transaction’s value, within those limits;
• bans from serving as director or officer; and
• possible civil or criminal liability.

Continuous Disclosure Requirements

Entities registered with the SCVS, not only exchange-listed ones, must keep information current. They file:

• half-year financial statements;
• audited annual accounts and management reports with the exchanges, and with the SCVS only if it does not already supervise the issuer; and
• updates within three days of any change.

Material Events

Legal representatives must report anything that could influence investment decisions, such as mergers or director changes, to the SCVS (and exchanges where relevant) within three business days. Confidentiality needs three-quarters of directors’ approval, with SCVS notice the next business day. False reports are sanctioned.

Market Abuse and Insider Trading

Inside information is knowledge of facts that are able to move securities prices before they become public. Directors, officials and others with access, and their close relatives, must keep such information secret and may not trade on it, reveal it or advise others to trade on it. Price manipulation is banned. The Criminal Code (COIP) punishes fictitious trades, fraudulent price-fixing and false information with three to five years’ prison, but has no specific insider trading offence.

Enforcement Powers

The SCVS can inspect participants and investigate, fine, disqualify and suspend offerings and registrations. It reports crimes to prosecutors. Exchanges sanction rule breaches.

Shareholder Disclosure

Ecuador regulates significant shareholdings in companies registered with the SCVS.

Thresholds and Entities Covered

• Holders of 10% or more of a registered company, and its managers, must notify the SCVS and exchanges five business days before trading.
• Transfers by inheritance, gift or merger reaching 10% are reported to the exchanges within 24 hours.
• Reaching 35% or 51% of voting shares requires a public takeover offer (OPA) to all shareholders.

Consequences of Non-Compliance

Trading without the required notice or OPA is an administrative infringement, punishable by fines and disqualification.

Compliance Programmes and Internal Controls

Directors must act with an orderly businessperson’s care. Brokers, exchanges and fund managers must run an anti-money laundering programme comprising a registered prevention manual, client due diligence, staff training, independent testing and a compliance committee. Each appoints a compliance officer and a deputy.

Whistle-Blowing

These firms must report suspicious operations within five days and transactions of USD10,000 or more monthly. The identity of staff who file such reports is protected. Citizens must also report suspicious activity through the financial intelligence unit’s secure channel.

Governance Frameworks

Companies must adopt conflict-of-interest procedures for directors, and must register beneficial owners with the tax authority.

Principal Laws and Types of Security

Secured lending in Ecuador is governed mainly by:

• the Civil Code, which regulates pledges, mortgages and anticresis, and ranks creditors;
• the Commerce Code, which covers commercial, agricultural and industrial pledges, retention of title, guarantees and factoring;
• the Companies Law, which covers pledges over shares;
• the Monetary and Financial Code, which covers guarantee trusts; and
• the General Code of Procedure, which governs court enforcement.

The main forms of security are as follows.

• Commercial pledge – movable assets, shares, bills of exchange or receivables are delivered, endorsed or recorded in favour of the creditor.
• Agricultural or industrial pledge – specified assets stay with the debtor.
• Mortgage – real estate stays with the debtor. In anticresis, the creditor holds the property and collects its income.
• Retention of title – the seller of movable goods keeps ownership until the price is paid.
• Guarantee trust – the debtor transfers assets to a trust that secures the debt.
• Personal guarantee and factoring – a commercial guarantor is jointly liable with the debtor, and assigned receivables pass with their guarantees.

Perfection and Enforcement

Each type of security has its own formalities. A mortgage needs a public deed and registration; without registration it has no value, and its date counts only from registration. Agricultural and industrial pledges need a written contract and registration in the local registry, and take effect between the parties and against third parties only from that date. Retention of title must be in writing and registered at the Mercantile Registry where the goods are delivered.

A commercial pledge needs a written contract with recognised signatures, and its privilege lasts only while the creditor holds the asset. Pledged shares are noted in the company’s share ledger, and a pledged receivable requires delivery of the title and notice to the debtor. A guarantee trust needs a public deed, and the lender must approve in writing the assets and their value.

Priority follows the Civil Code. The order is as follows:

• employee claims, which prevail even over mortgaged property – other first-class claims, such as social security and certain State debts, reach mortgaged property only if other assets are insufficient;
• pledge creditors, on the pledged asset; and
• mortgage creditors, by date, and by registration order if the date is the same.

Trust assets cannot be seized by the debtor’s creditors, unless the contract allows it.

A creditor holding an executive title, such as a notarised contract, mortgage deed or promissory note, can use executive proceedings. The debt must be clear, due and quantifiable, and the debtor’s defences are limited. Pledged assets are sold at public auction or awarded to the creditor at an expert valuation; clauses letting the creditor keep the asset are void. The creditor can bid and offset the price against the debt. Mortgage creditors need not wait for a general insolvency process, but must post a prudent guarantee for first-class claims.

Acquisition Financing

Acquisition financing mixes ordinary security with company law limits. Lenders can take pledges over the target’s shares, mortgages and guarantee trusts. In a share pledge, the owner keeps the votes and dividends, unless the parties agree otherwise. To pledge shares in a limited company, all partners must agree. A company cannot lend money against its own shares. If a listed company gives security over 10% or more of its assets to related parties, an independent expert must prepare a report.

In a guarantee trust, the trustee never becomes the debtor. Banks can benefit from these trusts only for certain listed loans, such as housing or infrastructure, and the trust must be registered in the Securities Registry. Priority among lenders follows the legal order described above.

Recent Changes

Since 2023, promissory notes and bills of exchange (whether physical, dematerialised or electronic) and loan contracts accepted electronically are executive titles; the auction rules were also changed. In 2021, the rules on banks as beneficiaries of guarantee trusts were reformed. The 2024 anti-money laundering law, reformed in 2025 and 2026 and implemented by a February 2026 regulation, bars cash payments of USD10,000 or more, except for obligations arising from financial system products. It also requires companies to register their beneficial owners, and obliges financial institutions to apply customer due diligence. The Commerce Code, issued in 2019 and last reformed in 2025, contains the pledge and retention-of-title rules.

Formation

Ecuador follows the civil law tradition and has no consideration doctrine; its functional equivalent is causa. A valid contract requires capacity, consent free from defects, a lawful object and a lawful cause. Commercial contracts are generally consensual and may be proven by any lawful means, but some transactions are formal. Real estate transfers require a public deed recorded in the Property Registry, and distribution agreements must be in writing. Electronic signatures are fully valid and have become standard practice, including before notaries.

The 2019 Commercial Code replaced a framework dating back to 1906 and regulated contracts that had long remained innominate despite being common in practice, including supply, agency, distribution, franchising and joint ventures. Parties now negotiate against statutory default rules rather than a blank slate.

Invalidity

Absolute nullity arises from an unlawful object or cause, the omission of a required formality, or acts of absolutely incapable persons, and cannot be ratified. Relative nullity arises from defects of consent (mistake, duress or fraud) or relative incapacity, and may be cured by ratification.

Interpretation and Enforcement

A valid contract is “law for the parties” and must be performed in good faith, binding the parties to everything flowing from the nature of the obligation. Where intent is clearly established, it prevails over literal wording. Liability caps and exclusions are generally enforceable, but a waiver of future fraud is void, and gross negligence is treated as equivalent to fraud. Penalty clauses are enforceable but may be judicially reduced when excessive. There is no general B2B unconscionability doctrine, although abusive clauses are void in consumer contracts.

Parties may choose a foreign governing law, subject to public policy and mandatory rules. Arbitration under the Arbitration and Mediation Law is increasingly the preferred forum for commercial disputes, offering speed and specialisation that ordinary courts often cannot.

Remedies

In bilateral contracts, every agreement carries an implied resolutory condition. If one party fails to perform, the non-breaching party may elect either specific performance or termination, and in both cases may claim damages. Damages cover actual loss (daño emergente) and lost profits (lucro cesante). They are limited to foreseeable losses, except in cases of fraud, where the breaching party also answers for unforeseeable direct consequences. As a rule, damages accrue only once the debtor is in default. A party may also withhold its own performance while the other remains in breach (exceptio non adimpleti contractus).

Termination

Ecuadorian law does not recognise unilateral termination for breach as a default rule: termination must be declared by a court or arbitral tribunal. Parties increasingly negotiate express termination clauses to accelerate exit, but their self-executing effect remains debated, and prudent drafting pairs them with arbitration. Long-term and typified commercial contracts, such as agency and distribution, carry additional notice and compensation rules under the 2019 Commercial Code. Wrongful termination is itself a breach, exposing the terminating party to damages and, where still possible, to an order of specific performance.

Force Majeure, Hardship and Frustration

Force majeure is defined as an unforeseeable event that cannot be resisted. It excuses the debtor unless the debtor was already in default or contractually assumed the risk. Ecuador has no general statutory hardship (imprevisión) doctrine, and frustration of purpose is not recognised as an autonomous ground for termination. The COVID-19 pandemic tested this gap. The 2020 Organic Humanitarian Support Law encouraged renegotiation of affected contracts on a temporary basis, but did not create a permanent hardship remedy. As a result, market practice has shifted toward bespoke hardship, renegotiation and price-adjustment clauses, which are now standard in long-term supply, construction and real estate development agreements.

IP is governed by the 2016 Organic Code of the Social Economy of Knowledge, Creativity and Innovation (Código Ingenios), together with Andean Community Decisions 486 (industrial property) and 351 (copyright), and is administered by the National Service of Intellectual Rights (SENADI). Assignments and licences of registered rights should be recorded with SENADI to be enforceable against third parties, and recordal is also relevant for the tax treatment of royalties. Trade secrets are protected as undisclosed information under Código Ingenios and through unfair competition rules, so robust confidentiality covenants remain essential in any deal.

Ownership of IP Created in Commercial Relationships

Código Ingenios reversed the traditional employer-friendly rule, which is the single most important IP point in Ecuadorian M&A and technology deals.

Copyright

Unless otherwise agreed or specially provided, ownership of works created under an employment relationship or on commission belongs to the author, not the employer or commissioning party. Moreover, such authors retain a right to equitable remuneration for the exploitation of their work, except in the case of software, and this right applies even where ownership of the work is transferred. Express assignment clauses in employment and service contracts are therefore indispensable, and IP chain-of-title is now a standard due diligence item.

Patents

Patent rights over inventions developed in performance of a contract belong to the commissioning party or employer, unless otherwise agreed, but inventors hold an inalienable right to participate in ownership and in the benefits of exploitation in a percentage of no less than 25%.

Joint development

Absent agreement, co-ownership rules apply, making contractual allocation critical.

AI-generated content

Authorship presupposes a human creator. There is not yet any specific legislation or case law on AI-generated works, so ownership must be allocated contractually.

Remedies

Rights holders may pursue administrative enforcement before SENADI (cease-and-desist orders and fines), civil actions for injunctions and damages, precautionary measures including seizures, and border measures. Criminal liability is limited to commercial-scale counterfeiting and piracy.

Principal Framework

Consumer relationships are governed by the Organic Consumer Protection Law (LODC). Its provisions are of public order, prevail over ordinary laws, and must be interpreted in the manner most favourable to the consumer in case of doubt. In practice, this means commercial terms cannot contract out of the LODC in B2C dealings. Key features include:

• cooling-off – a statutory right of return, mainly for sales concluded outside commercial premises or at a distance;
• unfair terms – abusive clauses are void, including those excluding provider liability, allowing unilateral modification or imposing waivers of the consumer’s procedural rights; and
• disclosure – mandatory information duties on price, characteristics, warranties and contractual conditions.

E-commerce is further governed by the Electronic Commerce Law, the e-commerce provisions of the 2019 Commercial Code and the 2021 Organic Personal Data Protection Law, which now shapes most online consumer contracting.

Enforcement

The Ombudsman’s Office (Defensoría del Pueblo) handles consumer complaints and mediation. Infringements are prosecuted before judges with jurisdiction over contraventions, who can impose fines and order full reparation. The competition authority sanctions misleading advertising and deceptive practices as unfair competition.

Approach of Courts and Regulators

Enforcement remains largely complaint-driven and fragmented, which is precisely what the legislature has tried to fix. A comprehensive bill to replace the 2000 law, adding specific rules on e-commerce and digital platforms and a dedicated sanctioning regime, passed first debate in May 2025. However, the committee recommended shelving it at second debate, and a new reform bill was introduced in early 2026. For businesses, the practical takeaway is to align online terms with international standards: platform regulation is coming, and the direction of travel is clear.

Framework

Merger control is governed by the Organic Law on Market Power Regulation and Control (LORCPM) and its regulations, and enforced by the SCE. Only horizontal and vertical transactions require mandatory prior notification. Conglomerate deals have been excluded from mandatory control by the authority’s own precedents, so do not require notification.

Thresholds and Timing

Notification is mandatory when either of the following two thresholds is met:

• turnover – the parties’ combined turnover in Ecuador exceeds an indexed threshold, which stood at approximately USD92 million in 2024; or
• market share – the parties hold a combined share of 30% or more of the relevant market.

A recent reform created uncertainty as to whether turnover is now measured only in the affected relevant market, although the SCE’s notification form still refers to the parties’ total turnover in Ecuador.

The filing deadline is unusually tight, at eight calendar days from the conclusion of the agreement. Pre-filing consultations and a fast-track procedure are available. The substantive test asks whether the transaction may significantly restrict competition, with the SCE assessing market definition, shares and concentration indices (HHI).

What’s New

On 6 October 2025, the SCE issued its non-binding Guidelines for the Analysis of Economic Concentration Transactions, which clarify jurisdictional questions, simplified review scenarios and the treatment of ancillary restraints such as non-compete clauses.

Failure to Notify

Failure to notify a transaction subject to prior control, or closing before authorisation, is a serious infringement. It exposes the parties to turnover-based fines and to corrective measures, including the reversal of the transaction.

Anti-Competitive Conduct

Cartels and abuse of dominance are sanctioned with fines calculated as a percentage of turnover, together with cease-and-desist orders and corrective remedies. A leniency programme is available for cartel participants who self-report. Private parties may also claim damages before the courts.

Review and Approval

Ecuador has no general foreign investment screening regime. Under the Organic Code of Production, Trade and Investment (COPCI), foreign investors receive national treatment and may freely establish companies, acquire shares and repatriate profits. Foreign direct investment is registered with the Central Bank for statistical purposes only. There is no approval requirement, no deal-size threshold and no filing fee.

Restricted Sectors

The Constitution reserves strategic sectors to the State, including hydrocarbons, mining, energy, telecommunications and water. Private and foreign capital participates through concessions, delegated management and public-private partnerships rather than outright ownership. Further sector-specific rules apply.

• Financial services – acquisitions of significant holdings require prior authorisation from the banking and insurance regulators.
• Media – foreign ownership of national media is restricted.
• Border and coastal areas – acquisitions of real estate by foreigners are subject to security-related authorisation.

These restrictions are enforced through sector licensing; non-compliant transfers may be denied registration or approval, or declared void.

National Security Review

There is no standalone national security review process. Security considerations operate only through the sector-specific rules outlined above.

Incentives

The main tool is the investment contract, which grants stability to tax incentives for its term, along with customs and foreign currency outflow tax (ISD) exemptions on capital goods and access to arbitration. The December 2023 Organic Law on Economic Efficiency lowered the minimum investment required to sign an investment contract from USD250,000 to USD100,000. The same reform relaunched the former special economic development zones (ZEDEs) as free trade zones, with more flexible rules and tax benefits for operators and users. Sector incentives also exist for tourism, renewable energy and PPP projects.

Recent Developments

The reforms of 2023 lowered barriers to investment contracts and revamped the free trade zones. Ecuador has also expanded its trade network, notably with the China FTA. The main remaining constraint is constitutional. Article 422 limits the State’s ability to submit investment disputes to international arbitration, and voters rejected lifting this restriction in the April 2024 referendum. Investors therefore rely on investment contracts and arbitration clauses within the constitutional exceptions.

Data protection is governed by the 2021 Organic Personal Data Protection Law (LOPDP), its 2023 General Regulation, and a fast-growing body of secondary rules issued by the Superintendency of Personal Data Protection (SPDP). The SPDP became fully operational in 2025, and that year marked the shift from a “law on paper” to active supervision. Sector rules overlay the LOPDP, notably for credit information and banking secrecy, health data and telecommunications.

Key Obligations

The LOPDP is closely modelled on the EU’s GDPR.

• Legal bases – consent must be free, specific, informed and unambiguous, but it is only one of several legal bases, alongside contract performance, legal obligation and legitimate interest.
• Accountability – controllers must keep a record of processing activities, conduct impact assessments for high-risk processing, enter into data processing agreements with processors and honour data subject rights.
• Data Protection Officer – in July 2025, the SPDP approved the Regulation on the Data Protection Officer, which details such officer’s appointment, independence and protection against retaliation.
• Breach notification – breaches must be notified to the SPDP and, where they affect data subjects’ rights, to the individuals concerned, within short statutory deadlines. The SPDP’s Technical Regulation on Security Breach Notification was approved in April 2025 and is already being updated. Notifications are filed digitally through the SPDP’s national system.
• Sanctions – fines are calculated as a percentage of turnover, under a fining methodology approved in 2025.

Cross-Border Transfers and Localisation

In the most significant development of 2026, the SPDP issued the General Regulation on National and International Transfers of Personal Data on 28 January 2026. International transfers not covered by an adequacy decision or recognised safeguards must now be registered in the National Data Protection Registry. Recognised safeguards include binding corporate rules, codes of conduct and certification. Controllers must also keep an updated record of all transfers, and a transitional regime allows previously undeclared transfers to be regularised. There is no general data localisation requirement, but intra-group data flows and cloud arrangements now require documented safeguards, making transfer mapping a priority for multinational groups.

The framework was overhauled in 2025. The Organic Law on the Prevention, Detection and Combat of Money Laundering and the Financing of Other Crimes entered into force on 29 July 2025, replacing the previous law. The changes most relevant to businesses are as follows.

• Wider scope of obliged entities – reporting entities now include virtual asset service providers, lawyers, accountants and notaries, alongside financial institutions and designated non-financial businesses such as construction companies, real estate agents and vehicle dealers.
• Risk-based compliance – obliged entities must implement internal compliance programmes, subject to independent audit, and apply enhanced due diligence on beneficial owners and politically exposed persons.
• Cash restrictions – notaries may no longer authorise title transfers paid in cash, which is a significant change for real estate transactions.
• Implementing regulation – the regulations issued under Executive Decree 298 in January 2026 created a national AML co-ordination council, strengthened cash limits and empowered the UAFE to freeze funds administratively in urgent cases.

Ecuador has no autonomous economic sanctions regime. Targeted financial sanctions by the UN Security Council are implemented through the AML framework: obliged entities must screen against binding lists and report matches. Export controls are limited to sector-specific rules. In practice, the greater exposure for local businesses comes from foreign regimes such as OFAC, which drive the requirements of correspondent banks.

The COIP establishes criminal liability for legal entities, and 2021 reforms criminalised private-to-private bribery, alongside recognising effective compliance programmes as a factor in assessing corporate liability. Companies typically structure programmes around a compliance officer, risk mapping, third-party due diligence, gifts-and-hospitality policies and whistle-blowing channels, often aligned with ISO 37001.

The UAFE and the sector superintendencies supervise and sanction obliged entities through fines, licence measures and, now, administrative freezes. The Attorney General’s Office prosecutes money laundering and corruption offences, and the Comptroller General audits the use of public funds.

Environmental Requirements

The 2008 Constitution is unusual: it recognises nature as a holder of rights and establishes strict and joint liability for environmental damage. Environmental actions are also imprescriptible. The Organic Environmental Code (COA) and its regulations implement this framework. Projects require a registration or an environmental licence, depending on their impact level, issued through the online system SUIA, with environmental impact studies and public participation required for higher-impact projects. In transactions, environmental licences and remediation obligations follow the asset or project, and transferring a licence requires authority approval. Environmental due diligence is therefore not optional. Ecuador has no carbon tax or emissions trading system, and carbon markets remain voluntary.

Climate Litigation and Corporate Liability

Ecuador is a global reference in rights-of-nature litigation. In the Los Cedros case (2021), the Constitutional Court annulled mining permits in a protected forest on rights-of-nature grounds. In the 2023 Yasuní referendum, voters mandated the phase-out of oil extraction in Block 43. Courts have also ordered the progressive elimination of gas flaring in the Amazon. For investors, the practical consequence is that constitutional actions can suspend permits already granted, so permitting risk now extends beyond regulatory compliance to rights-of-nature and prior consultation challenges.

Health and Safety

Ecuador is a unitary state, so there is no federal–provincial interaction. OHS obligations derive from the Labour Code and the 2022 Regulation on Occupational Health and Safety. They are supervised by the Ministry of Labour, while the IESS manages occupational risk insurance. Employers must maintain risk assessments, safety committees and medical surveillance proportional to their size.

Licensing and Sector Regimes

Every business needs municipal operating licences. Regulated sectors require specific authorisations:

• hydrocarbons, mining and energy from the energy and mining regulator;
• telecoms from ARCOTEL;
• pharmaceuticals and food from ARCSA; and
• banking, insurance and securities from the respective superintendencies.

In M&A, changes of control in regulated entities frequently require prior approval or notification, which should be built into transaction timelines as a condition precedent.

Ecuador has no AI-specific legislation. AI systems are governed by general rules, the most relevant of which is the LOPDP. It grants individuals the right not to be subject to decisions based solely or partially on automated processing, requires impact assessments for high-risk processing, and imposes transparency duties on controllers. Constitutional non-discrimination guarantees, consumer protection rules on information and misleading practices, and the human-authorship requirement under Código Ingenios complete the picture. In practice, AI governance in Ecuador today is data protection governance.

Policy and Proposed Legislation

2026 has been a defining year, albeit without a law.

• National strategy – in March 2026, the government adopted the Strategy for the Promotion of the Development and Ethical and Responsible Use of Artificial Intelligence, a 2025–2029 roadmap built on three axes: AI governance, capacity and technology, and adoption.
• First bill shelved – on 15 September 2026, the National Assembly voted, with 88 votes, to shelve the Organic Law on the Regulation and Promotion of Artificial Intelligence, which would have classified AI systems into four risk levels (low, moderate, high and extreme). Lawmakers criticised its prohibitive approach and its fiscal cost.
• New bill pending – a new Organic Law for the Development, Ethical Use and Governance of Artificial Intelligence was filed on 1 September 2026. It follows a risk-based model, recognises rights of individuals affected by AI and includes innovation incentives, with particular focus on protecting minors.
• Criminal law – a separate bill to amend the COIP would penalise AI-generated fake intimate content and treat the use of AI as an aggravating circumstance for certain offences.

Practical Obligations

Pending legislation, organisations deploying AI should treat LOPDP compliance as the baseline, implementing documented legal bases, impact assessments for profiling and automated decisions, human review mechanisms, and contractual allocation of liability with AI vendors. The direction of travel points to a risk-based model inspired by the EU AI Act, so early alignment with that model is the prudent course.

Beyond the regimes previously outlined, foreign investors most often underestimate the following four areas.

• Corporate reporting – companies supervised by the SCVS must file annual financial statements and shareholder and management information. Companies above statutory thresholds must also file external audit reports. Non-compliance can lead to fines and, ultimately, to the company’s dissolution.
• Beneficial ownership – companies must report their shareholders and beneficial owners to the SRI and update this information annually. Opaque structures, particularly those involving entities in tax havens or preferential tax regimes, face higher tax rates and specific deduction limitations.
• Foreign currency outflow tax (ISD) – payments abroad, including dividends, imports and service fees, are subject to ISD unless an exemption applies. ISD is a key structuring variable for cross-border transactions and intra-group flows.
• Labour profit-sharing – employers must distribute 15% of their annual profits to employees. This is a mandatory cost that directly affects valuation and should be reflected in any financial model.

A further labour obligation affects larger employers, which must meet a minimum quota for hiring persons with disabilities; non-compliance is sanctioned with fines.

Compliance is increasingly digital. Electronic invoicing is mandatory, and the SRI and the Superintendency of Companies cross-check data automatically, so inconsistencies between tax, corporate and AML filings are now detected far more quickly than in the past. For new entrants, the practical recommendation is to build a single integrated compliance calendar from day one, covering corporate, tax, labour, data protection and AML obligations.

Principal Employment Framework

The employment regulatory framework in Ecuador is led by the Constitution, which guarantees non-waivable rights, job stability and fair compensation. Likewise, the Labour Code regulates the employment relationship, defining contractual modalities, working hours, salary payments, statutory bonuses and the calculation of overtime and supplementary hours. In addition, the Ministry of Labour regularly issues Ministerial Agreements that regulate specific employment contracts, administrative procedures and working schedules tailored to various economic sectors. Furthermore, the Social Security Law mandates compulsory enrolment for all payroll employees from their first day of work, while an approved Internal Work Regulation establishes the company’s operational rules and disciplinary regime.

Termination Procedures and Just Cause (Visto Bueno)

To legally terminate an employment relationship without incurring wrongful dismissal indemnities, employers must substantiate the termination under statutory grounds set by law. The formal mechanism to establish just cause is the administrative procedure known as Visto Bueno, conducted before a Labour Inspector from the Ministry of Labour. This petition must be filed within a strict, non-extendable one-month deadline from either the commission of the infraction or the date the employer became aware of it. Common grounds include unexcused absences for more than three consecutive days, severe indiscipline, manifest ineptitude, and workplace harassment or violence.

During this administrative procedure, both parties submit evidence within a formal hearing, enabling the Labour Inspector to issue a reasoned decision. This decision may be challenged by either party through administrative channels and subsequently before the judicial courts. Without a favourable Visto Bueno resolution, any unilateral termination is treated as wrongful dismissal, triggering the obligation to pay statutory severance.

Wrongful Dismissal Claims and Remedies

Wrongful dismissal occurs when an employer unilaterally terminates an employment contract without statutory grounds or a favourable Visto Bueno ruling. In such cases, Ecuadorian law entitles the employee to statutory severance payments calculated based on length of service and compensation. Except for special protected categories (such as pregnant workers or union leaders), the standard legal remedy is monetary compensation rather than job reinstatement. Judicial claims for these payments and unpaid benefits may be brought before Labour Courts within a general three-year statute of limitations.

Constructive Dismissal and Employer Liability

Constructive dismissal occurs when employer actions force an employee to resign by substantially and adversely altering their agreed working conditions. Practices such as unilateral job demotions, unexpected compensation reductions or systematic wage delays entitle the employee to request a Visto Bueno against the employer. If the administrative or judicial authority confirms the employer’s breach, the company is required to pay indemnities equivalent to a wrongful dismissal. To mitigate these legal risks, companies must strictly document all organisational changes and maintain effective internal dispute resolution mechanisms.

Executive Compensation Structuring

Executive incentive structuring in Ecuador fundamentally depends on whether the officer is legally classified as a commercial manager or as an employee under an employment relationship. According to the Labour Code, legal representatives holding general administrative powers of attorney act as commercial managers and are excluded from standard labour regulations. Consequently, their fees and performance bonuses are freely negotiated without statutory obligations to pay mandatory employment benefits such as 13th and 14th month salaries, reserve funds or the 15% profit-sharing allocation. Conversely, senior executives without legal representation are protected by labour law, which mandates guarantees for social security enrolment, paid vacations, overtime and supplementary hours, agreed bonuses, profit sharing, statutory bonus salaries, and wrongful dismissal severance.

Equity-Based Incentives

The introduction of the S.A.S. has provided flexibility for issuing special share classes tailored for retention programmes. Despite this corporate option, phantom shares and cash-settled stock appreciation rights remain the most widely used tools in Ecuador as bonuses or long-term incentives. These synthetic incentives grant executives the right to receive financial payouts tied to company valuation without granting shareholder status, thereby eliminating corporate deadlock risks or minority litigation. Governed by freedom of contract principles, these plans feature vesting schedules or specific performance targets with clear payout rules, executed through commercial service contracts or payroll performance bonus agreements.

Tax and Social Security Implications

All monetary compensation received by an executive constitutes taxable income that must be reported as a bonus within the personal income tax base. For payroll employees, these amounts are also subject to mandatory contributions to the IESS. To ensure that these payments are deductible as operating expenses in the company’s corporate income tax return, employers must timely execute all corresponding tax withholdings and social security contributions. Any failure to withhold or contribute results in the rejection of the tax deduction and the assessment of tax adjustments and interest charges against the company.

Change of Control Provisions

These control agreements are fully valid and enforceable for commercial managers under general freedom of contract principles. Within these management agreements, parties may freely agree on financial compensation or contractual penalties triggered by an early removal resulting from a corporate merger or acquisition. However, for executives employed under a labour relationship, these benefits must be structured as independent extraordinary bonuses in addition to mandatory, non-waivable statutory severance payments. Rigorous drafting must prevent these bonuses from being reclassified as part of the executive’s regular salary, thereby avoiding retroactive claims for social security contribution recalculations.

Restrictive Covenants

The validity and enforceability of restrictive covenants in Ecuador vary substantially depending on the legal framework under which they are agreed upon.

Non-competition

During the employment relationship, the duty of non-competition is mandatory, and its breach constitutes just cause for dismissal through a Visto Bueno procedure. However, post-employment non-compete clauses in labour contracts are considered null and void for violating the constitutional right to work. In contrast, commercial non-compete covenants are fully enforceable provided they are limited in time, geographic scope and objective, and include express financial compensation.

Non-solicitation

Agreements prohibiting the diversion of clients or the poaching of key employees are broadly recognised under commercial and competition laws. Their procedural enforceability before courts is significantly enhanced by incorporating penalty clauses that predetermine liquidated damages, avoiding complex expert evidence on damages.

Confidentiality

Confidentiality and trade secret protection agreements are highly effective and may extend indefinitely following the executive’s departure. Ecuadorian legislation authorises civil precautionary measures and even criminal sanctions for the unauthorised disclosure or exploitation of commercial secrets.

Forms of Land Ownership and Acquisition

The Ecuadorian Civil Code recognises individual and collective private property rights, authorising co-ownership and horizontal property regimes for subdivided independent units. Real estate may be acquired through purchase, donation, dation in payment, acquisitive prescription, testate or intestate succession, or structured via trusts. In urban areas, land use and development are regulated by Land Use and Management Plans (PUGS) enacted by local municipal governments. In addition, the Constitution recognises community and ancestral land rights belonging to indigenous communities, which remain inalienable, unseizable and indivisible.

Requirements and Restrictions

Foreign individuals enjoy the same civil rights to acquire, encumber and sell real estate as Ecuadorian citizens, requiring only a valid passport to execute public deeds without prior legal residency requirements. For foreign corporations acquiring real estate as a passive asset or non-recurring investment, the Companies Law does not mandate branch domiciliation, requiring only the registration of a local general power of attorney. However, if property ownership or usage forms part of regular and ongoing commercial operations, the foreign entity is required to formally establish a local branch with the Superintendency of Companies.

Territorial Restrictions and Public Domain Assets

Ecuadorian legislation enforces specific geographic and legal boundaries on real estate acquisition.

• Border security zones – the Public Security Act strictly prohibits foreign individuals and corporations from acquiring or holding real estate or concessions within 20 kilometres of land borders or ten nautical miles of maritime coastlines, subject to narrow statutory exceptions.
• Galapagos Special Regime – all real estate transactions, land subdivisions or investment developments within the insular province require prior authorisation from the Governing Council of the Special Regime of Galapagos.
• Public domain property – assets such as roads, public squares, rivers, beaches and territorial waters belong to the public domain and are strictly inalienable, unseizable and imprescriptible, making private ownership legally impossible.

Tax Framework, Exemptions and Foreign Currency Outflow Tax

Ecuador does not impose discriminatory taxes based on foreign nationality, but property transfers are subject to local municipal transfer taxes (Alcabalas) and urban capital gains taxes (Plusvalía). In addition, specific cantons such as Guayaquil levy an additional surcharge benefiting the Junta de Beneficencia, alongside mandatory regulated notary fees and Property Registry filing fees defined by local municipal ordinances. At the national level, capital gains realised by natural persons from occasional real estate sales (up to two non-habitual transfers per fiscal year) are exempt from Income Tax. When a non-resident owner sells property and repatriates the funds abroad via the financial system, the transfer is subject to the Foreign Currency Outflow Tax (ISD), while foreign capital is incentivised through a five-year Temporary Fiscal Residency for real estate investments of at least USD150,000.

Legal Framework and Real Estate Registration

The regulatory framework governing commercial real estate transactions in Ecuador is based primarily on the Civil Code and the Code of Commerce, and secondarily on the Companies Law and the Organic Code of Territorial Organisation (COOTAD). Property conveyances and the creation of in rem rights strictly require the execution of a public deed before a notary public. Furthermore, the land registration system is decentralised, with an independent Property Registry operating in each canton. Mandatory registration of the public deed at the Property Registry of the canton where the asset is located is a constitutive legal requirement for ownership transfer and enforceability against third parties.

Due Diligence, Title Insurance and Environmental Liability

Acquiring or disposing of commercial real estate requires rigorous legal due diligence to mitigate operational and financial risks. Key considerations include the following.

• Title search and ownership chain – this involves reviewing historical acquisition deeds and obtaining the Ownership History Certificate to verify the uninterrupted chain of title.
• Encumbrance Certificate – this is an official document issued by the Property Registry confirming the absence of mortgages, liens, foreclosures, prohibitions on transfer, or pending lawsuits affecting the asset.
• Land use and municipal compliance – verification of the Land Use Certificate under local Land Use and Management Plans (PUGS) to ensure the property is zoned for the intended commercial operations.
• Municipal appraisal – reviewing the cadastral appraisal certificate to ensure transaction pricing complies with statutory limits and avoids rescission claims based on gross disparity.

Title insurance is not a customary or standard practice in Ecuador, as legal certainty is achieved through comprehensive due diligence and official public land registry certificates. Regarding environmental liability, the COA imposes strict and joint liability for environmental remediation on property owners and operators. Consequently, conducting Phase I and Phase II environmental site assessments is highly recommended for industrial and complex commercial assets, to avoid inheriting historical contamination liabilities.

Commercial Mortgage Financing

Commercial real estate financing is typically secured through mortgages executed via public deed and registered at the local Property Registry. Under the Civil Code, mortgage claims rank as third-class preferred credits, granting the lender priority over the proceeds from the judicial sale of the encumbered asset. This priority can only be displaced by first-class privileged claims, such as labour liabilities, statutory child support or direct tax debts, if the debtor possesses no other assets. When multiple mortgages encumber the same property, priority among creditors is determined strictly by the chronological order of their registration.

Upon a payment default, the lender initiates judicial foreclosure proceedings to obtain an attachment order and register a prohibition to sell the asset. Subsequently, the property is appraised by a court-appointed expert for public auction. In Ecuador, judicial foreclosures are conducted exclusively through the online auction system managed by the Judicial Council. Lenders are strictly prohibited from directly appropriating or taking possession of the mortgaged asset without completing the public auction process.

Commercial Leases

Commercial property leases are governed by the Code of Commerce and the Civil Code under general freedom of contract principles, distinguishing them from residential tenancies governed by the Tenancy Law. Parties to a commercial lease are free to negotiate duration, rent amounts, adjustment formulas and security deposits. By statutory default, tenants are strictly prohibited from assigning the lease or subletting the premises without the express written consent of the landlord.

Furthermore, commercial legislation does not grant tenants an automatic right to lease renewal or first refusal upon expiration. To prevent unwanted tacit renewals, commercial agreements typically include express expiration terms and structured renewal procedures. In cases of tenant default or breach of contract, parties commonly rely on contractual penalty clauses and dispute resolution through mediation and arbitration centres. In the absence of an arbitration clause, landlords must pursue judicial eviction and contract termination before civil courts.

Recent Developments

Ecuadorian authorities have recently tightened anti-money laundering controls through regulations issued by the UAFE. A notable regulation strictly prohibits cash payments equal to or exceeding USD10,000 for real estate transactions, requiring mandatory banking channels. For transactions under this threshold, parties must submit a sworn declaration confirming the lawful origin of funds. In addition, national tax regulations continue to exempt capital gains earned by natural persons from occasional real estate sales, provided the seller conducts no more than two transfers per fiscal year outside their ordinary business.