Corporate Alert: New Company Law Enacted
March 14th, 2009, Dominican Republic
President Fernández signed into law on December 11, 2008, a new company law (Law #479-08″) which will revolutionize the way business is done in the Dominican Republic. The most important innovation brought about by the new statute is the creation of two new business entities: the “Sociedad de Responsabilidad Limitada or SRL” (Limited Liability Company or LLC) and the “Empresa individual de Responsabilidad Limitada or EIRL (Limited Liability Individual Business). The “Sociedad Anónima or S.A.,” currently the entity of choice of 99% of Dominican businesses, has been amended to make it the vehicle for medium or large businesses. Here are the characteristics of the two new business entities (SRL and EIRL) and the most important changes made to the S.A.
Limited Liability Company (SRL):
• Based mostly on the current LLC’s in French Company Law with certain similarities with American LLC’s.
• Chief company officer(s): one or various managers (“gerentes”). Must be individuals.
• Minimum of two shareholders; maximum of 50. Spouses may be the sole shareholders.
• RD$100,000 minimum capital (full amount must be paid up and deposited in a bank in order to be able to record company at Business Registry).
• Shares not readily transferable, depending on wishes of shareholders.
• Shareholders’ liability limited to their investment in the company.
• Ideal for small or family businesses.
Limited Liability Individual Business (EIRL):
• No shareholders; one sole individual owns the business.
• Owner must be an individual; companies cannot be an owner.
• Owner’s liability limited to his or her investment in the company
• No minimum capital.
• Chief Officer(s): the owner and the manager. The owner may be the manager.
• Ideal for businesses owned by a single individual.
Sociedad Anónima (SA):
• Minimum capital: RD$30,000,000 (approx. $850,000 US).
• Board of Managers (“Consejo de Administración) required with a minimum of 3 members.
• “Comisario de Cuentas” required. (The Comisario de Cuentas is an independent company officer in charge of overseeing the company accounts. Comisarios de Cuentas must be Certified Public Accountants).
• Tougher criminal penalties for SA managers compared to SRL managers.
The new law will come into effect on June 19, 2009. By then, every S.A. must comply with the new requirements IF its shareholders wish to remain as an S. A.
If, on the other hand, shareholders wish to convert their S.A. into an SRL (LLC) or an EIRL (Individual Business), the conversion period will start on June 19, 2009.
Guzman Ariza attorneys have been active participants in the changeover process. Fabio J. Guzman-Ariza and Alfredo A. Guzman, senior partner and associate, respectively, in the firm, partnered with the Fermin Taveras Law Firm in the preparation of the regulations that will be used by the Business Registries (“Registro Mercantil”) in the new process. They have also prepared for publication in April 2009 a book of company forms for the SRL’s and the EIRL’s, and a comparative study on the operation of the SRL’s.
Clients who have incorporated in the Dominican Republic are invited to contact their attorney at Guzman Ariza for a FREE consultation on how to proceed.