Colombia offers several types of corporations or organisations for the development of business in its territory. The most common way to establish a business in Colombia is through the incorporation of a subsidiary or a branch.
The incorporation of a new legal entity or subsidiary may be done through any of the following types of business vehicles: simplified stock companies (SAS), corporations, limited liability companies, limited partnerships, amongst others. The following is a brief summary of the principal types of entities, with the most relevant aspects:
The SAS (sociedad por acciones simplificada) is currently the most common vehicle to undertake business in Colombia, since it is the most flexible type of entity. In the SAS, shareholders may be held liable only for an amount equivalent to their contributions, except for fraud cases. Nonetheless, such shareholders will never be held liable for tax, labour or any other type of pending obligations of the company. SAS may be incorporated and function with a sole shareholder, and there is no legal reference to a maximum number of shareholders.
SAS may be incorporated by a private document and, once incorporated, the subscribed capital may be paid by the corresponding shareholders in a two-year term. Nevertheless, the shareholders are granted a temporary title over their shares, even before they have been completely paid.
In corporations (sociedades anónimas – SA), shareholders may be held liable only for an amount equivalent to their capital contributions, except for fraud cases and other particular situations, that may lead to lifting the corporate veil. A minimum of five shareholders is required, and none may hold more than 95% of the capital. Such capital is divided into shares, which are by general rule freely negotiable.
The main corporate bodies of a corporation are the general shareholders' assembly and the board of directors. The shareholders' assembly acts as the principal corporate body of the company and must approve any distribution of profits, capitalisations, and appointments of the board members, amongst other matters.
All partners from a limited liability company (sociedad de responsabilidad limitada) may be held liable only to an amount equivalent to their contributions, except for any tax or labour obligations that the company does not entirely cover. A minimum number of two partners is required for the incorporation of an LLC, and the number of partners shall never exceed 25.
The capital of LLCs in Colombia is divided into quotas, which are not represented through physical titles. All transfer of quotas is deemed an amendment to the bylaws, which shall as such be formalised by means of a public deed before a local notary public.
The LLCs are not legally required to have a board of directors, as the partners are directly entitled to manage the company. Nonetheless, such management powers are commonly assigned by the partners to a general manager.
The main source of corporate governance in Colombia is the Code of Commerce, and some other laws or rules that regulate corporate matters are applicable to all types of entities, such as Law 222 of 1995 (“Law 222”). Additionally, SAS are regulated by specific regulations, such as Law 1258 of 2008.
Decree 2555 of 2010 provides further corporate governance principles to be complied with by listed companies. In addition, the so-called Código Pais contains several additional recommendations to encourage listed companies to adopt high corporate governance standards.
Furthermore, authorities such as the Superintendence of Companies and the Superintendence of Finance (“SFC”) issue circulars and notices applicable to the entities subject to their surveillance or control, in order to regulate corporate governance matters.
Companies with publicly traded shares have a particular corporate governance regime, which includes certain specific restrictions. Entities that trade their shares in the public market cannot be SAS, but rather SA. This regime demands the company to provide full disclosure to the market of certain material events that would affect the investors. Additionally, certain activities (such as the issuance of shares, mergers, divestitures, etc) must be approved by the SFC (subject to some exceptions).
Once companies are registered before the National Registry of Securities and Issuers, the following decision-making rules shall apply:
Furthermore, if any shareholders agreement is executed, it shall be made available to the market through the National Registry of Securities and Issuers.
The board of directors of companies that offer their shares in the public market shall have at least five members and a maximum of ten. Finally, such companies shall have an auditing committee, in which three members of the board shall be present.
Although general corporate governance rules and requirements are described throughout this document, there are specific governance matters that apply to specific types of companies. The application of such specific rules may depend on the corporate purpose of the company, or on the specific activities it will undertake. Likewise, there are governance rules that apply only to companies that are involved in specific transactions (such as finance operations), or that may vary depending on the company’s main surveilling body (eg, any of the existing superintendencies). As such, a case-by-case review is suggested in order to determine if governance policies shall be complied with by a specific company, besides the ones listed in this article.
Colombia is in a constant review of corporate laws and their applicability. For example, in 2018 Colombia joined the OECD, and since then has implemented the different OECD recommendations, in order to improve local corporate standards and regulations. Actually, in the past few years, several regulations have been issued to materially amend the legal framework for State-owned enterprises, including the creation of an office in charge of administering the shareholding of the State in different sectors of the economy, and the implementation of corporate governance rules applicable to all types of companies. Special topics addressed include the regulation of the participation of the national government in the board of directors of companies with the participation of the State, amongst others.
The principal corporate bodies involved in a company’s management and governance are the shareholders' assembly, the board of directors, and the legal representative, depending on the type of legal entity. Each will have specific functions, depending on the bylaws and the type of entity.
The shareholders' assembly is the main corporate body and has the following general duties:
The board of directors will have the powers assigned to it in the bylaws of the company. However, the board of directors is usually in charge of the folllowing:
Additionally, both the board of directors and the legal representative of a company are considered managers and, as such, shall:
The shareholders' assembly and the board of directors usually function through meetings in which specific quorum rules apply. The general rule is that there must be a simple majority of shares and directors in the meeting in order to deliberate. In terms of decision making, special majorities may apply, depending on the type of company.
An ordinary meeting must take place on a yearly basis, and must be held during the first three months of every year. Furthermore, each company shall have books of minutes from each of these corporate bodies, in order to keep a record of all decisions taken. All books of minutes from the shareholders' assembly and board of directors shall be registered before the corresponding mercantile registry.
Please note that, under Colombian law, no physical presence is required in order to hold a meeting, with Law 222 providing the specific regulation required to hold meetings by written consents, conference calls, etc. In practice, however, the systems provided under Law 222 to facilitate electronic voting are generally not feasible in public entities or large companies due to a requirement for 100% participation in order for the votes to be considered valid.
The structure of the board of directors depends on the type of company that is constituted. Not all types of entities require a board of directors, but such corporate body may be created by the bylaws. Generally, boards can be made up of any number of members, will decide by the majority of its members and are appointed by the electoral quotient system, which establishes rules of proportional voting to elect one list of candidates as regular members of the board. In practice, however, in Colombia most of the companies have a clear controlling shareholder who appoints the majority of the directors. The meetings will have a president and a secretary, which can be either fixed by the bylaws or appointed in each of the meetings. Decisions taken in every meeting of the board must be set forth in minutes and printed in the corporate book of the company, for the president and the secretary to sign. For companies listed in the stock exchange, there must be at least five board members and at least one independent member.
For listed companies, Decree 3923 of 2006 provides the criteria that have to be met by independent directors.
Colombian corporate law does not regulate specific roles for different members of the board of directors: all members of the board will have the same duties and the same rights (unless stated otherwise in the bylaws). There is no legal need for a fixed president or secretary of the meeting, since the law sets forth the possibility of a president and secretary being elected from the persons present in the meeting (whether board members or otherwise).
In practice, boards of directors are in charge of providing the general direction of the organisation, establishing the policies to be followed by officers, governing the organisation and exercising surveillance over the management.
Specific legal requirements for the composition of the board of directors in corporations (sociedad anónima) – where it is mandatory to have a board – are as follows:
Officers must be elected by the competent management body, as set forth in the law or in the bylaws of the company. For instance, in corporations, officers are usually appointed by the board of directors. In SAS with no board, they are elected by the shareholders' assembly.
The appointment may have a specific term. In any case, the body that appointed the officer (board of directors or shareholders' assembly) may freely revoke the appointment.
As a general rule, directors will be appointed by the shareholders' assembly from a list of candidates presented to the shareholders' meeting, following the electoral quotient system. The quotient shall be determined by dividing the total number of valid votes by the number of persons to be elected. The scrutiny will begin with the list that has obtained the most votes, then the second, and so on. Of each list there will be appointed as many persons as the quotient fits into the number of votes issued in favour of that list, and any positions left will be designated to the highest residue, which shall be scrutinised in the same manner. If there is a draw in the residue, chance/luck will be the deciding factor. Any blank votes will only be taken into account in order to reach the electoral quotient. The persons that are appointed cannot be replaced by partial elections, but have to follow a new election following the electoral quotient rule, unless the vacancies can be filled unanimously.
Please note that, pursuant to Article 39 of Law 964 of 2005, listed companies may adopt different voting procedures, as determined by the Colombian Government. Such alternative mechanisms shall only be acceptable whenever their application results in minority shareholders having more representation than with the electoral quotient system (cuociente electoral). To date, the Colombian Government has not regulated any such alternative.
Regarding staggered boards, such mechanism is unusual in Colombia and remains untested. The rules on the election of boards do not contain a restriction or prohibition on staggered boards but please note that, pursuant to Article 436 of the Commercial Code, a majority of the shareholders may remove any director at any time. Therefore, in principle, a company may establish a staggered board in its bylaws, as long as such provision does not limit the rule on Article 436.
There are no independence requirements in closed corporations. On the other hand, the Colombian securities laws set forth specific rules regarding the boards of directors of issuers of securities, as explained below.
Pursuant to Law 964 of 2005 and Decree 3923 of 2006, the boards of issuers must be formed by a minimum of five and a maximum of ten members, with their personal alternates, and at least 25% of the directors must be independent – if the board has five members, at least two must be independent.
Pursuant to Law 964 of 2005, an independent director is any person that is not the following:
Independence is not contingent on who nominates the director. Therefore, a member of the Board shall be independent if it does not fall under any of the above-mentioned conditions, regardless of whether it was appointed by the controlling shareholder or by the remaining shareholders.
Article 23 of Law 222 sets forth the main duties of the managers and is the basis for the conflict of interest regime. Such article states that managers should abstain from participating in activities that involve competition with the company or in acts for which there is a conflict of interest, unless expressly authorised by the shareholders' meeting.
However, Colombian law does not provide a definition of what constitutes a conflict of interest, nor does it contain a list of factual settings where a conflict of interest would be deemed to exist. The Superintendence of Companies and the SFC have consistently held that there is a conflict of interest whenever a director cannot simultaneously satisfy two interests: those of the company and those of the director (or a person whose interests are protected by the director). In the event of a conflict, the board member must summon a shareholders' meeting, provide full information related thereto, and have the shareholders expressly authorise the specific act or transaction.
Conflict of interest has become a major issue in Colombia, with the Superintendence of Companies recently issuing many judicial decisions regarding such matter. The main aspects of the Superintendence’s position are summarised below:
Additional regulation includes the prohibition to exercise more than five board member positions, and the prohibition to have a board composed mostly of people bound by marriage of third degree of consanguinity or second degree of affinity, or first civil, except in family companies.
The core Colombian law on the fiduciary duties of directors and officers is contained in Article 23 of Law 222. The main features of this statute are as follows:
Under Colombian law, the following additional main legal duties apply to managers (both directors and officers):
The legal duties set forth in Colombian corporate law are owed by the directors to the company, “taking into consideration the interests of shareholders.”
Article 25 of Law 222 provides that, in principle, the company itself is in charge of enforcing a breach of duties by managers. However, in order to do so, the shareholder general assembly must authorise the company to initiate such claim against the directors, with the favourable vote of the majority of the shares present in the meeting. The summoning for this meeting must be made by shareholders representing at least 20% of the outstanding capital of the company.
Furthermore, please note that a claim against directors for breaching duties regarding the conflict of interest regime can be started by any third party with an interest in the transaction. Additionally, third parties or shareholders may initiate a claim for any damages suffered by the acts or omissions of the manager, caused by wilful misconduct or gross negligence.
Any third party or shareholder may initiate a claim for any damages suffered by the acts or omissions of directors, caused by wilful misconduct or gross negligence. This claim will follow the same rules of tort liability in Colombia, pursuant to which the plaintiff will have to prove the following:
Note that Colombian law states that any statutory provision that would limit the managers' liability will be declared void, so it is not possible to limit the managers' liability vis-à-vis third parties (including the company).
There are, however, Directors & Officers insurance policies available in Colombia.
As a general rule, there is no law that restricts or limits the remuneration of directors or officers in Colombia. Pursuant to the Code of Commerce, such remuneration must be approved by the shareholders’ assembly. Thus, directors' remuneration is freely determined by the shareholders' assembly, while officers' remuneration is decided by the board of directors.
There are specific rules concerning the payment of fees to directors of entities in which the State has the majority of shares.
Pursuant to Article 446 of the Code of Commerce, the board of directors together with the legal representative must submit the financial statements to the shareholders’ assembly for approval, together with the details of the expenditures for salaries, representation fees, expenses, bonuses, cash and in-kind benefits, expenses for transportation and any other kind of remuneration received by each of the company’s directors.
In contrast to US publicly held firms, corporations in Colombia are characterised by a high concentration of ownership in the hands of a few controlling shareholders. Accordingly, the relationships between the company and its shareholders are usually fluent, since the controlling shareholder also controls the board. Despite this, one of the specific duties of directors is to grant a fair and even treatment for all shareholders.
Pursuant to Article 24 of the General Procedure Code, the Superintendence of Companies has the power to declare the nullity (nulidad absoluta) of the decisions taken by a shareholder when the shareholders do not exercise their right to vote in the interest of the company, for the purpose of causing damage to the company or other shareholders, or to obtain an unjustified advantage for themselves or for a third party, as well as that vote that may be prejudicial to the company or for the other shareholders.
Under Colombian law, a corporate body is not authorised to take powers granted to another corporate body in the bylaws for itself. The usurpation of functions results in a breach of the bylaws, which would make the approval decision absolutely void (absolutamente nula). The statute of limitations to claim a decision is absolutely void is a mere two months after the approval meeting.
In principle, the shareholders' assembly – composed of the existing shareholders of a company – is the main management body of the company. However, the shareholders must appoint a legal representative, through which the company may act before third parties, since neither the shareholders' assembly nor the shareholders themselves can bind the company vis-à-vis third parties. Thus, the day-to-day management of the company is usually delegated to the legal representatives (the manager and its alternates).
The involvement of the shareholders in the management of a company will depend on the rules set forth in the bylaws. For instance, the bylaws could stipulate that the shareholders rarely get involved in the day-to-day management and would only participate in specific matters such as capitalisations or amendments to the bylaws. However, the bylaws could also set forth certain limitations to the legal representatives, demanding that they request the approval of the shareholders' assembly before entering into certain acts or agreements.
Notwithstanding the above, the shareholders' assembly must meet at least once a year to approve financial statements, the manager’s report, the fiscal auditor report (when applicable) and the profit distribution project.
Please note that, under the regulation applicable to SAS, any person (including controlling shareholders) who is not technically a director but interferes in a positive activity of management of the company will incur the same responsibilities and sanctions applicable to other directors (administrador de hecho).
The general rules for shareholders' meetings are as follows:
Under Colombian law, shareholders have two potential ways to start claims against the company or directors:
Colombian regulations require companies with securities registered with the National Registry of Securities and Issuers (in Spanish the Registro Nacional de Valores y Emisores – the “RNVE”) to disclose their shareholder composition in the first, second and third tier, as described below. Listed Companies must report to the Colombian SFC their first, second and third tier shareholders on a quarterly or biannual basis, depending on the type of supervision that the SFC exercises over the corresponding company. Such disclosure would cover the first, second and third tier shareholders that meet the following criteria:
These shareholding disclosure obligations are only binding for the Listed Company, and not for the shareholders. This means that the Listed Company has a diligence duty to request information regarding the Second Tier Shareholders and Third Tier Shareholders from its First Tier Shareholders. However, First Tier Shareholders are not legally required to share such information with the Listed Company. As a result, in practice, First Tier Shareholders generally decide either to (i) voluntarily provide such information to the Listed Company (for which, in turn, the First Tier Shareholder would need to ask the Second Tier Shareholders for the information about the Third Tier Shareholders); (ii) abstain from answering the information requirements sent by the Listed Company; or (iii) simply deny supplying such information, supporting their denial with any reasoning they find applicable.
In any case, it must be noted that, under Decree 2555, 2010, the SFC has the authority to require any person to make ad-hoc disclosures to preserve market stability. However, these requests are very rare and generally are only triggered when the SFC believes there could be a violation of the rules regulating the acquisition of Listed Companies.
Also, it must be noted that, pursuant to article 184.108.40.206.5 of Decree 2555, 2010, the change of ownership of record of 5% or more of shares of a Listed Company is an event deemed to be relevant by local regulations and therefore will have to be disclosed by the Listed Company.
Finally, please bear in mind that there are additional tender offer regulations in Colombia that might trigger notification and/or authorisation obligations with the SFC and therefore should be considered when acquiring a significant stake in a Listed Company.
Annually, on 31 December, the companies must close their accounts in order to prepare the general-purpose financial statements, duly certified by fiscal auditors (if applicable). These financial statements must be presented by the legal representative of the company to the shareholders’ general assembly for its approval, together with the other documents referred to in Article 446 of the Commercial Code, which include the managers’ report, the fiscal auditor report and the profit distribution project.
Companies that are subject to the control and oversight of the Superintendence of Companies must send copies of the audited balance sheet of each fiscal year.
Listed Companies also have the obligation to report their financial statements quarterly to the SFC.
Under Colombian law, there are no requirements for the companies to disclose their corporate governance arrangements in financial reports. As a general rule, corporate governance arrangements, such as shareholders' agreements, are not subject to disclosure to third parties. Such arrangements must only be deposited with the company if shareholders want those agreements to be applied by the company. However, please note that Law 964 of 2005 provides that, for listed companies, in addition to being registered, such documents must be disclosed to the market as soon as they have been executed.
Companies must register the incorporation document, any amendment thereto, any capital increases, and the appointments of directors, managers or fiscal auditors, amongst other decisions, with the Chamber of Commerce. These filings are publicly available.
The Colombian Code of Commerce establishes that it is mandatory for the following companies to appoint an external (statutory) auditor (revisor fiscal):
Notwithstanding the above, the law establishes that any type of company must appoint an external statutory auditor when its gross assets as of 31 December of the immediately preceding year are or exceed the equivalent of 5,000 minimum wages (c. USD1,293,000) and/or when its gross income during the immediately preceding year is or exceeds the equivalent of 3,000 minimum wages (c. USD776,358).
The external auditor shall be appointed by the shareholders’ assembly. External auditors can be freely appointed and removed by the shareholders’ assembly, so may be removed at any time with the favourable vote of half plus one of the shares present at the meeting.
The auditors must be external to the company and must not have any other position or relationship during their appointment.
Colombia has implemented several policies, controls and procedures that have been adopted within international legal instruments in an effort to combat corruption. These treaties include the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, the United Nations Convention Against Corruption, and the Inter-American Convention Against Corruption.
Pursuant to Law 1778, legal entities shall adopt a robust compliance programme as a defence strategy to prevent criminal liability for its employees and reputational damage for itself. As such, the companies surveilled by the Superintendence of Companies that in the previous year have regularly carried out business of any nature with foreign natural persons or legal entities of public or private law will be obliged to adopt a business ethics programme when the following situations occur:
The compliance programme must fulfil Superintendence guiding principles in order to mitigate the risk of performing corrupt practices. The programme should: