COMMERCIAL AND CORPORATE LAW

What does commercial law involve?

The Commercial and Corporate Law services provided by ERP Lawyers & Associates aim to protect the interests of customers, through innovative and responsible legal advice on labor, tax, trademark and intellectual property, financing and relationships with banks, incorporation of companies, among others. For companies or national and foreign corporations that operate in and out of Costa Rica, we cover all types of legal needs.

How does ERP guide me in the fields of commercial law?

We advise our clients to choose the type of commercial corporation that best suits them, according to the needs that they raise.

The legal advice includes a large explanation of the differences and similarities in the different types of Costa Rican commercial companies; as well as requirements for registration. Our public notary will be responsible for the process of registration and legalization of books before the National Registry.

Company acquisitions and sales.

Through the process known as Due Diligence, we carry out a study to determine if the acquisition of a company is promising or not, always with the objective of safeguarding the financial aspect of our client.

We make sure that there are no contingencies that have not been previously determined in the negotiation process, and that could mean a detriment to their interests. Thanks to this process we can give you the approval from the legal point of view and help you finish the negotiation process.


Mergers and dissolutions of companies.

In this case, the same Due Diligence process is applied, to assure the interested party the best way to carry out a merger between companies (for example, that one company prevails over the other). Regarding the dissolution of companies in Costa Rica, we advise the client in the liquidation process according to the requirements established in the Commercial Code and, subsequently, with the notary procedure before the National Registry.


Structuring of deals, agreements and contracting.

This section includes the review of preliminary agreements to adjust them legally, always protecting the interests of the client. The aim is to translate the negotiations between the parties into a contract, until an agreement is reached on all the points that allow carrying out a legal transaction. We also give advice on lease contracts, as well as the creation of deeds, powers of attorney, etc.

Notary services and General Counseling.

As part of our advice on corporate matters, we also carry out procedures of Notary Law: Issuance of certifications of personality and share capital; celebration of ordinary or extraordinary assemblies; and registration of Assemblies before the National Registry.

The members at ERP & Associates accumulate years of experience in Business Law, Notary, Registry, and Business Administration. Contact us with us today and allow us to safeguard your company’s legal processes.

What is a merger or acquisition of companies and why are they carried out?

Mergers and acquisitions are part of a business strategy in which two or more companies come together as one to grow, gain competitiveness in the market and strengthen each other.

A merger can be defined as the union of two or more companies or corporations in which they join their assets to form a new entity or strengthen one of them.

There are several forms of mergers, the most common are:

  • Complete merger in which the companies come together to form a new company under a new name.
  • Merger in which one of the entities absorbs the other’s assets and maintains its name.
  • Merger in which the entities contribute part of their assets to form a new one, without any of the originals disappearing.

On the other hand, an acquisition occurs when one entity buys the share package of another. The first one has control of all the shares and assets of the second and the name of the legal entity is retained.


Reasons why companies seek to merge.

Some of the reasons for generating this type of negotiations are listed below:

  • Purchase or merger of a company with which it competes in the market: this with the purpose of affirming a strong position in it, seeking better economic stability, reducing costs or acquiring new resources for production.
  • Reach new markets: refers to the union with a company that operates in other geographic locations where the company does not operate, this to increase participation and expand in the market.
  • Integration with suppliers: purchase or merger with the supplier of raw material to produce their own inputs and lower production costs.
  • Product diversification: occurs when two companies with little or no relationship in the market come together to merge and expand their product portfolio. Likewise, the case is presented when one of the companies offers complementary products to those of the other.

In Costa Rica, there is the Commission to Promote Competition (COPROCOM), an entity attached to the Ministry of Economy, Industry and Commerce, whose purpose is to ensure compliance with the Law on the Promotion of Competition and Effective Defense of the Consumer No. 7472, which promotes healthy competition between companies and investigates and sanctions monopolistic practices and other restrictions on the efficient functioning of the market.


What is a franchise?

Business model that in recent years has taken relevance in Costa Rica and that can be used by small, large or medium entrepreneurs. Through the franchise the owner of a brand, service or business, which for these purposes will be called a franchisor, provides another person (franchisee) the right to exploit their brand. The franchisee pays a fee for the exploitation of the brand and in return also receives administrative, financial and commercial advice. The most common franchises are:

  • Franchises of the food sector: Fast food restaurants
  • Dedicated services franchises: Hotels.
  • Beauty and personal care franchises: Chains of beauty salons.
  • Franchises of food supplements.

What are the requirements to buy or sell a franchise?

  • Your business must be successful and financially orderly.
  • It must be a business whose characteristics allow replicating it in different markets and countries.
  • In order to sell or buy a franchise, it is necessary that the business has a very well-defined target audience.
  • Because the person who pays to exploit the brand (franchisee) also receives administrative and financial advice, the business must always have updated operations manuals and procedures.
  • If you want to sell your franchise you first need to register your brand in the National Registry.
  • Remember that the franchisor (creator of the brand) and the franchisee sign a contract for at least five years where they specify all the conditions to assign the franchise, the payments to be made and the rights and obligations of both parties.
  • Approximate initial amount to acquire a local franchise in Costa Rica: less than $50,000.
  • Approximate initial amount to acquire an international franchise in Costa Rica: between $100,000 and $250,000.

What are the advantages of a franchise?

Currently, in Costa Rica, more than 250 local and international franchises operate and provide employment to more than 28.000 people. Franchises are a very profitable business model that generates various benefits, both for those who sell the franchise and for those who buy it.

  • Being the boss of your own successful business: when you acquire a franchise, you will obtain a business that is already successful on its own.
  • You will recover your investment very soon: if the franchise is properly managed in 64% of the cases, the initial investment is recovered in less than two years.
  • Constant accompaniment: Whoever acquires a franchise (franchisee) receives constant contributions from the creator of the brand, in matters of know-how, administration, personnel management, business exposure, finance, among others. In turn, you will receive access to technology and systems that will make it easier to provide the service and properly manage the company.
  • Exhibition: whether the person acquires a local or international franchise will benefit from the publicity that the brand makes at a general level.
  • Expansion: The franchises are not limited to the local part but allow expanding the business internationally.

What are the types of societies in Costa Rica?

The Stock Corporation (S.A. in Spanish) and the Limited Liability Company (S.R.L. or LTDA. In Spanish) are the most used corporations in Costa Rica when you want to invest in a business or participate in commercial activities.

The Stock Corporation (SA) and the Limited Liability Company (SRL or LTDA.) are suitable for carrying out activities without the personal capital of their members being put at risk: before lawsuits or attachments, for example, only the capital will be affected. contributed by the members of the company. Nonetheless, the Public Limited Company is the best to start large businesses.

Who are the people involved in Corporations?

Members: The Stock Corporation has a President, Secretary, Treasurer and prosecutor; while the Limited Liability Company only needs a Manager who also acts as a judicial representative.

Share capital: In the Stock Corporations, shares that are transferred by endorsement are handled; and in the Limited Liability Company the share capital is made up of nominative shares that can be transferred prior approval of the share holders

Administration: In Stock Corporation. the highest authority is the Shareholders Assembly; in the Limited Liability Company. it is the General Meeting of Share Holders

Registries: The Stock Corporation manages the three legal books Membership Assembly Records, Board of Directors Record and Shareholders Registry. The Limited Liability Company. only keeps the Book of Records of Assembly of Share Holders and the book of Registry of Share Holders.


What are the requirements to start a company or corporation?

  • Partners: As a minimum, a commercial company requires 2 partners to comply. Once conformed there will be no maximum limit of members and if necessary you can keep only one.
  • Members: The Stock Corporation must have a President, Secretary, Treasurer and a Prosecutor without any legal power. For a Limited Liability Company, only one Manager is needed who, in turn, will be the legal representative of the company.
  • Registration: The companies are registered in the Registry of Legal Entities of the National Registry. It will be necessary to specify which activity(ies) the company will carry out; provide information such as: full name of the members, copy of the ID, marital status, profession or trade and exact address of residence; In addition to specifying the total capital that the company will have, the number and value of the shares or quotas and how they will be distributed among the members.
  • Registration: When registering the company, the tax on legal persons, other taxes and stamps is paid in advance.
  • Address: To create a company it is necessary to have a fixed address and office to receive legal notifications, this within Costa Rica. If those who represent e company do not have a fixed address in Costa Rica and live abroad, it will be necessary to appoint a Resident Agent: a lawyer who represents the company when required.


What is factoring?

When a company has many accounts receivable, in the form of invoices or bills of exchange, for example, it can go to factoring, system offered by more than 50 companies in Costa Rica. Factoring becomes a very viable option when the company requires cash to continue operating normally, because if it meets certain requirements you will get fast money, equivalent to the invoices that have not been paid. In exchange for the signing of a contract and the payment of a commission, the companies that carry out the factoring activity finance the amount of the invoices and charge them to the debtor.

What is factoring as a legal concept?

In Costa Rica, companies engaged in factoring are grouped in the Costa Rican Chamber of Factoring Companies (CCEF), which details the system as “a financial product that consists in anticipating the payment of an account receivable, which is assigned to a physical or legal person and this is responsible for managing and collecting said document.

Factoring can be used to convert credit sales into cash sales, and includes invoices, bills of exchange, promissory notes, contracts and any other document that supports an account receivable owed by a customer.

It is very important to add that once the contract is formed, the debtor must be notified about the assignment of the invoices to the factor.


What types of factoring exist?

Types of factoring

Domestic factoring: For companies that operate in Costa Rica and establish factoring with the Factor, through a contract and the payment of a commission. When the contract is established, the Debtor is notified and from that moment on he must pay the Factor directly. International factoring: There are two types, the factoring of exportation when the Client and the Factor are in the same country while the Debtor resides outside; and the import factoring when the Client lives abroad, and in the same nation the Factor and the Debtor reside.

Who participates in factoring?

The 3 figures that participate in the factoring:

Client:

It is the company that requests the service, since it requires capital and there are many invoices for services or products that still do not cancel it.

Factor:

It is known as Factor to the company that provides the factoring service, that is, that finances the money from the invoices. They can be banks, solidarity associations, individuals, legal entities or financial entities in general.

Debtor:

Person or organization that owes the Client money.

What are the requirements to obtain factoring?

  • The company presents a profile where it specifies its activities and the most important clients it manages.
  • The client provides the Factor with varied information:
  • History; products or services provided; general and legal background (Letter of Credit Application).
  • Recent financial statements: last two or three fiscal periods and a cut that contains information of not less than three months.
  • Bank account statements.
  • Legal personality.
  • Constitutive Act
  • Certificate of the representatives of the company.
  • The Client delivers the invoices to be financed for their respective revision. These must comply with a series of requirements (see ‘Characteristics of the invoice’).
  • If the client complies with the legal and financial requirements of the Factor, both parties establish a contract with all the terms of service, and agree to pay a commission to the Factor, who will provide the money from the invoices and charge the debtor.


What are the characteristics of the invoices that can be used in factoring?

The invoice, clarifies the Costa Rican Chamber of Factoring Companies, “arises because of the realization of commercial operations, fundamentally of the sale of products or merchandise. The invoice is the document that specifies the quantity, characteristics and price of the product that was sold “. For a customer to use an invoice in factoring, it must meet certain criteria, such as being well typed and legible, in addition to other characteristics established in Article 460 of the Costa Rican Code of Commerce:

  • Carry the name and signature of the buyer, his agent or manager, duly authorized in writing.
  • The invoice must be validly transmitted by means of a transfer agreement.

What is the range of the factoring contract?

When the Client and the Factor agree to carry out the factoring, they sign a contract that stipulates the range of the business. The factoring contract or “invoice assignment agreement”, as it is also known:

  • Includes the names of all the parties.
  • It establishes all the rights and obligations of those involved.
  • It details the commission that the factor will receive for taking over the unpaid debts and collecting them.
  • It indicates that the Factor will assume the accounting of the invoices that the Debtor is canceling or not (accounts receivable).
  • It is issued for a specific period; the possibility of extension is left open (clause of “renewal or extension”) or it is signed indefinitely.
  • Specifies the actions to be followed by the Factor, in case the Debtor does not pay. For example: the factoring contract may indicate that the Client must take charge of the debts, or else, the Factor may take the Debtor to Judicial Collection.
  • It can be done in public deed for greater validity, although it is not mandatory. It depends on the debtor’s rules to accept the assignment of the invoice.
  • The invoice must be endorsed, and the client must do it directly when it is a natural person, or by the legal representative of the company in the case of a legal entity.

When the factoring contract is established, the Debtor is notified so that, from that moment, he pays his debts directly to the Factor.


What are the benefits and risks of using factoring?

Risks of factoring

  • Factoring, in Costa Rica, lacks legal regulation.
  • That the Debtor does not comply with the payments that correspond or has insolvency, forcing the Factor to incur administrative costs to charge him (Judicial Collection process).
  • If the Debtor does not pay then the Client must re-assume the payments to the Factor, if so established in the factoring contract.
  • Falsification of invoices. The Factor must allocate resources to extensively investigate the validity of invoices before accepting them, to avoid discounting falsified invoices or alterations.


10 benefits of using factoring as a source of capital:

  • You get fast money; it’s like charging cash credit bills.
  • It opens the possibility of not having to apply for a bank loan, which can take a long time to process, and whose administrative costs and interest are going to be higher than with factoring.
  • There is an additional saving by not having to take charge of collection management
  • The company will have immediate cash to invest in diverse areas that make your business grow
  • Both large and medium-sized companies can turn to factoring
  • The type of guarantee used in factoring does not record the assets of the client
  • The pending company accounts, when handled by an external figure with experience, are processed more efficiently
  • With his experience in collections the Factor becomes a figure to imitate, a kind of commercial master for the Client
  • The factoring allows importing companies of raw materials to acquire currencies in advance, to mitigate the risk by a possible fluctuation of the same
  • The Factor will be responsible for keeping the respective accounting


What is electronic invoicing in Costa Rica?

The electronic invoice, based on what the Ministry of Finance of Costa Rica says, “is a commercial document with tax effects, generated, expressed and transmitted in an electronic format.”

The main objective of the electronic invoice is to have a more accurate control of the profits of the “liberal professionals” with tax obligations, such as: Doctors, Veterinarians, Lawyers, Notaries, Accountants, Engineers, Architects, among others, who work independently.

In Costa Rica, it is essential to start the project so that the electronic invoice is obligatory (voluntary use has already been applied for some time), since according to the General Comptroller of the Republic in 2015, the income of the liberal professionals was ¢1,3 billion and only taxed ¢30,000 million.

Currently, the Government of Costa Rica works on the technological platform that will receive, validate and store electronic invoices, but for years there are companies that provide systems for small, medium and large entrepreneurs, as well as independent professionals, issue electronic invoices to their clients.


What are the benefits of using electronic invoicing?

  • There is a more precise control of the earnings of the “liberal professionals” who must pay the income tax.
  • Guarantees more agile sales and collection processes.
  • Decrease in operating costs.
  • Reduction in the use of paperwork, printing, ink, storage, invoice dispatch and administrative processes.
  • The environment is protected by reducing paper consumption.
  • Electronic invoicing provides more security by including the digital signature of the person who facilitates the service or product.


What are the characteristics of the electronic invoice?

The electronic invoice meets the same legal requirements as traditional invoices:

  • It carries a name, in this case: Electronic Invoice.
  • Identifies the person who provides a service or product (taxpayer): Full name or company name; name or business name; Identity card number; legal identity card; complete business address; Telephone numbers; email.
  • It presents a consecutive numbering to identify it, which the system assigns automatically.
  • Indicates the date it was issued.
  • Specifies whether it is a cash, credit, section, consignment or lease invoice.
  • If the invoice includes a discount this is specified: description and amount of the discount.
  • Full name of the buyer or his business name; your physical or legal identification number; address of your business, in case of frequent transactions.
  • Detail of the product or service provided: Quantity; unit price; Net price; product / service code; description; subtotal and total amount.
  • The invoice indicates, if applicable: Amount of the Selective Consumption Tax; identification of taxable and exempt; Sales Tax amount.
  • At the bottom of the invoice, the following must appear: Issued in accordance with the provisions of the electronic invoicing resolution, No. DGT-02-09 of January 9, two thousand and nine of the General Directorate of Taxation.
  • It must be delivered to the buyer in electronic format and stored on a technical platform where it cannot be deleted.
ERP COSTA RICA LAWYERS