Under Chilean law, joint ventures are not specifical1y regulated by law. The most appropriate forms of business organiza tion are limited liability partnerships. A limited liability partnership is a legal entity in Chile, but not in the u.s.
Under Chilean law, joint ventures are not specifical1y regulated by law. The most appropriate forms of business organiza tion are limited liability partnerships. A limited liability partnership is a legal entity in Chile, but not in the u.s.
Under Chilean law, joint ventures are not specifical1y regulated by law. The most appropriate forms of business organiza tion are limited liability partnerships. A limited liability partnership is a legal entity in Chile, but not in the u.s.
: with the EU requirements, 1 providing indirect support .x and cus toms mechanisms, in economy through adver ~ i a n producers. An effective stitutions aimed atsupport tive - both Bulgarian and F onomy where joint ventures 'positive change. Chile Patricia Nez Nez, Muoz y Ca Ltda, Abogados Santiago, Chile Introduction Chile is a civil law country. Legal regulations in connection with legal matters are set forth in statutes, including codes, specific laws, decrees, and written regulations in general, with the specific purpose of addressing and regulating different legal aspects. However, under Chilean law, joint ventures are not specifical1y regulated by law. Therefore, parties interested in entering into such agreements may basically choose one oftwo ways: (1) Adapt the specific agreement that they intend to execute in accor dance with any of the business structures provided by law; or (2) Enter into an agreement not specifically ruled by law. Forms of Business Organization In General Chilean law provides different business structures. However, practical experience shows that the most appropriate forms ofbusiness organiza tion to carry out a joint venture in Chile are limited liability partnerships, corporations, and contractual mining companies. The latter business forms are specifically provided by the law for mining business. Limited Liability Partnership A limited liability partnership is a business structure that guarantees lim ited liability to its partners. 1 In fact, the partners of a limited liability - [ Limited Iiability partnerships are govemed by Law Number 3918, published in the Offical Gazette on 14 March 1923. This structure also is govemed bythe provisions on collective companies, set forth in the Chilean Cornmercial Cade, Article 348 bis, and by the rules on company agreements, provided in the Civil Cade, Article 2053 bis. 52 International Joint Ventures partnership are liable only for the amount of their respective contributions; they are not personally responsible for debts incurred by the partnership. Generally, the primary difference between a limted liability part nership and a corporation (discussed under the section "Corporation" below) is the importance of each partner 's identity in relation to that form ofthe association. While a limited liability partnership is a legal entity in which each partner's identity is deemed an essentfal element ofthe association, a c10sed corporation is an entity in which this e'le ment is not really significant. Regarding incorporation requirements, the partners of a limited liability partnership are not restricted in terms of nationality, domi cile, or residence. However, foreign partners of a Chilean limited liability partnership are required to appoint an attorney for tax pur poses and, in accordance with the current regulation issued by the Chilean Tax Revenue Service, the appointed attorney must be a resi dent of Chile or domiciled therein. Incorporation process does not impose a minimum capital requirement though it is advisablethat the amount of capital be reasonably related to the company's purpose. With respect to the management structure, the administration of a limited liability partnership may be exercised according to several formulas. Chilean law provides that the management of those part nerships may be delegated to their respective partners or to third parties. Accordingly, this type ofpartnership may be managed by all the partners, a third party, or even a board ofdirectors. In the last case, the members of the board may be partners of the company or third parties. The business profits may be freely allocated by the partners. In the absence of a special agreement on this matter, the law provides that profits will be distributed among all the partners, in accordance with their respective capital contributions. One relevant feature ofthis business entity is that the partners may not freely transfer their quota rights; to do so, they requre the other partners' consent. Moreover, any transfer of quota rights requires an amendment of the incorporation deed. The amendment must specify that the other partners express their consent to the original partner's departure as well as to the new partner's entrance. Without this amendment, no transfer will be legal1y effective. Disputes among the partners, disputes between one partner and the limited liability partnership, and disputes related to the partnership's liquidation are subject to may appoint an arbitrator ( the partners do not make ) made by the Chilean court Corporation Corporations in Chile may tion" or a "c1osed corpora those that offer their stoc accordingto Artic1e 2 ofth( legal entity that has any of (1) It has 500 or more sr (2) It has ten per cent ofi imum of 100 shareh holdings exceed that persons; and (3) It is registered witl whether sueh registr; AH other corporations are are governed by stricter rul matters such as corporate duties. This differential trE corporations involve certai vant in c10sed corporations However, the following open and c10sed corporatio (1) Shareholders' labilit ration with respect to capital contributions. (2) While shareholders n dence, foreign sharer for tax purposes, and domiciled thcrein; an (3) There are no legal re though it is advisabl ably related to the nt 2 Corporations are govemed by L the Official Gazette on 22 Octo 53 Patricia Nez ntures liquidation are subject to arbitration. To this purpose, the partners ponsible for debts incurred 110unt of their respective may appoint an arbitrator or arbitrators in the incorporation deed. If the partners do not make an appointment, the designation will be reen a limited liability part made by the Chilean crourts. :r the section ItCorporation" s identity in relation to that Corporation ability partnership is a legal leemed an essential' element Corporations in Chile may adopt the structure of an "open corpora ; an entity in which this ete- ' tion" or a "closed corporation".2 In general, open corporations are those that offer their stocks for sale on the market. Specifically, s, the partners of a limited according to Article 2 ofthe Corporation Act, an open corporation is a terms of nationality, domi legal entity that has any of the following characteristics: rtners of a Chilean limited (1) It has 500 or more shareholders; lint an attorney for tax pur- , (2) It has ten per cent of its subscribed capital in the hands ofa min nt regulation issued by the mum of 100 shareholders, excluding the shareholders whose lted attorney must be a resi holdings exceed that percentage, individually or through other ,rporation process does not persons; and lOugh it is advisable that the (3) It is registered with the Securities Registry, regardless of to the company's purpose. whether such registration has been freely decided or not. ture, the administration of a rcised according to several AH other corporations are c10sed corporations. Open corporations management of those part are governed by stricter rules than closed corporations, especially in Jective partners or to third matters such as corporate governance, transparency, and disclosure 'ship may be managed by all duties. This differential treatment is comprehensible, because open of directors. In the last case, corporations involve certain public interest matters that are not rele ers of the company or third vant in closed corporations. However, the following key characteristics are common to both Jcated by the partners. In the open and c10sed corporations: l1atter, the law provides that (1) Shareholders' liability for responsibility incurred by the corpo partners, in accordance with ration with respect to third parties is limited to their respective capital contributions; ntity is that the partners may (2) While shareholders may have any nationality, domicile, or resi do so, they require the other dence, foreign shareholders are required to appoint an attorney :r of quota rights requires an for tax purposes, and this attorney must be a resident of Chile or 'he amendment must specify domiciled therein; and sent to the original partner's (3) There are no legal requirements imposing a minimum capital, er's entrance. Without this though it is advisable that the corporation 's capital be reason ably related to the intended business. ; between one partner and the :s related to the partnership's 2 Corporations are govemed by Law Number 18046 (the Corporation Act), publlshed in the Official Gazette on 22 October 1981. 54 International Joint Ventures 1, The management of a corporation is entrusted to a board, which is composed of a certain number of directors: a mnimum ofthree direc tors in closed corporations, five in open corporations, and seven in open corporations with assets traded on the Stock Exchange equiva lent to or exceeding approximately US $52,000,000. The board also exercises the judicial and extrajudicial representation ofthe corpora ton, without prejudice to the judicial representation t h ~ t may be entrusted to general managers, if they are appointed. . The founding shareholders of a corporation must apppint a board of directors in the incorporation deed. That board must be unani mously elected, and will continue in operation until the first shareholders' meeting is held. During that meeting, the shareholders may confirm the existent board or elect an entirely e ~ board. A director's appointment has a statutory duration of three years when this term is set forth in the corporation bylaws. Ifthe bylaws do not set forth the term , the director's appointment may . last only one year. Once the appointment term expires, shareholders must elect a new board. In any case, directors are essential1y removable, and they may be re-elected indefinitely. In relation to voting rights, the Corporation Act provides that the primary principIe is the equality ofaH the shares; thus, one share usu ally represents one vote. ExceptionaHy, the law allows the issue of privileged shares, and one ofthe privileges ensuing from such shares may include having preferential voting rights. Shares with special privileges are called "preferred shares". However, share privileges are of a limited duration. With respect to corporation auditing, aH shareholders have the right to review and inspect the corporation's balance sheet and finan cial statements. However, this right may be exercised only within fifteen days prior to a general shareholder's meeting, and it does not affect the board ofdirectors' prerogative to withhold certain informa tion, especial1y if such information is deemed essential to pending transactions, sensitive in the context of the company's interests, or harmful if it were disclosed. Surveillance of closed corporations is carried out by account inspectors or external auditors who are in charge of inspecting and reviewing the company's accounts, balanc,e sheet, inventories, and financial statements. However, in open corporations, this surveil lance task may only be entrusted to external auditors. Account inspectors and externa! auditors are required to report their opinion to the shareholders. Open c controls executed by the e Insurance. 3 Under Chilean legislati alIy accepted accounting p: Securities and Insurance al accounting standards that ( by the said authority. Mining Companies The Mining Code provides for the mining industry. 4 1 the "contractual mining ca A legal mining compan: ing business with a simplt type of entity acquires legi more prvate persons or le or claim for mining right5 body of rules applicable te tially the company's byla matters such as the compal and duties. On the other focused on those mining bl corporate structure. A contractual mining ca ofincorporaton, must havl mining properties as a part ble for the obligations o respect to third parties, al pany's maintenance and ex respective shares. A contractual mining ce and assigned. The shareholders' meeti pany's management polic) 3 Open corporations that offer tb subject to a filrther auditing 1 directors. 4 Mining Code, Article 172 bis. 55 ntures rusted to a board, which is ;: a corporatlOns', and seven m he Stock Exchange equiva 52,000,000. The board also presentation ofthe corpora representation that may be e appointed. ration must appoint a board That board must be unani operation until the first lt meeting, the shareholders m entirely new board. :ory duration of three years ion bylaws. Ifthe bylaws do ,ointment may last only one s, shareholders must elect a mtial1y removable, and they Iration Act provides that the ! shares; thus, one share usu the law allows the issue of ensuing from such shares rights. Shares with special . However, share privileges 7 ", all shareholders have the )n's balance sheet and finan iy be exercised only within er's meeting, and it does not to withhold certain informa ieemed essential to pending the company's interests, or , is carried out by account in charge of inspecting and ance sheet, inventories, and n corporations, this surveil external auditors. Account lired to report their opinion to Patricia Nez the shareholders. Open corporations also are subject to auditing controls executed by the Chilean Superintendence of Securities and Insurance. 3 Under Chilean legislation, corporations usual1y abide by gener ally accepted accounting principIes. The Chlean Superintendence of Securities and Insurance also has the authority to set forth additional accounting standards that are mandatory for corporations controlled by the said authority. Mining Companies The Mining Code provides for two specific company types available for the mining industry.4 These are the "legal mining company" and the "contractual mining company". A legal mining company is designed for a less sophisticated min ing business with a simple and mandatory company structure. Ths type of entity acquires legal personality by the mere fact that two or more prvate persons or legal entties jontIy register an application or claim for mining rights. Chilean law provides a comprehensive body of rules applicable to a legal mining company, which is essen tially the company's bylaws. These legally defined rules govern matters such as the company's management and shareholders' rights and duties. On the other hand, a contractual mining company s focused on those mnng businesses that require a more sophisticated corporate structure. . A contractual mining company is a stock company that, at the time ofincorporation, must have at least two shareholders and one or more mining properties as a part of its patrmony. Shareholders are not lia ble for the obligations of the contractual mining company with respect to third parties, although they must contribute to the com pany's maintenance and exploitation expenses, in proportion to their respective shares. A contractual mining company's shares may freely be transferred and assigned. The shareholders' meeting decides upon a contractual mining com pany's management policy. The decisions are adopted by a simple 3 Open corporations that offer the sale ofassets valued at more than US $52,000,000 are subject to a further auditing mechanism, which consists of a special committee of directors. 4 Mining Code, Article 172 bis. 56 International Joint Ventures majority vote. However, the shareholders may entrust the company's management to one or more administrators or a board of directors. A contractual mining company is automatically liquidated when the mining interests are wholly disposed, or when they are terminated or precluded. In this case, all the shares will eventually be held by one single individual orentity. On the basis of this pattern, shareholders are entitled to agree on the corporate structure that best suits their needs. ' Agreements Not Specifically Ruled by Law Even though there is no specific regulation regarding joint venture agreements under Chilean law, parties may freely en ter into an agree ment to regulate any joint venture that they intend to undertake. In fact, this kind of agreement will be governed by the general principIes of contract law provided in the Chilean Constitution and the Com mercial and Civil Codes, which apply to all types of agreements. In accordance with the general principIes provided in the Consti tution and the Codes, it is recognized that any person has the right to freely undertake any entrepreneurial activity, to en ter into any act or agreements, and to freely determine the content ofthese acts or agree ments, to the extent that they are not contrary to law and public policy principIes. Conclusion Joint venture agreements are not specifically regulated by Chilean law. However, parties that wish to enter into an agreement of this nature may use any ofthe business structures set forth by law. Among these structures, the most flexible is the contractual mining company structure, which applies only to mining ventures. In fact, this struc tu re is flexible enough to allow the parties to enter into agreements that they may deem necessary for a specific mining business. This flexibility is due to the fact that a contractual mining cmpany has few mandatory requirements. Therefore, the parties are free to determine any other regulations with respect to their specific busi ness, to the extent that such regulations are not contrary to Chilean law and public order policies. The other two and corporations, are less venture agreement, as tl requirements for their co Besides these structur venture agreement based ' ean law with respect to Constitution and in the ( ments will be recognized extent that they comply w ean law or public orde agreements fulfill the mined on a case-by-case 57 mtures : may entrust the company's rs or a board of directors. omatical1y liquidated when or when they are terminated il1 eventual1y be held by one iers are entitled to agree on :ir needs. !d by Law ion regarding joint venture Ly freely enter into an agree hey intend to undertake. In led by the general principies Constitution and the Com all types of agreements. pIes provided in the Consti t any person has the right to vity, to enter into any act or )ntent ofthese acts or agree 'ary to law and public policy lcally regulated by Chilean r nto an agreement of this lres set forth by law. Among ontractual mining company ventures. In fact, this struc es to enter into agreements cific mining business. This ictual mining company has efote, the parties are free to 5pect to their specific busi are not contrary to Chilean Patricia Nez The other two business structures, limited liability partnerships and corporations, are less flexible mechanisms for structuring ajoint venture agreement, as the law sets forth a number of mandatory requirements for their constitution, existenee, and managemenL Besides these struetures, the parties may freely enter into a joint venture agreement based on the general regulations provided in Chil ean law with respeet to contraet law principies provided in the Constitution and inthe Civil and Commereial Codeso Such agree ments will be recognized as valid and binding under the law, to the extent that they comply with o n ~ r a c t law and do not contravene Chil ean iaw or public order principies. The question as to which agreements fulfill the legal requirements ofChilean law will be deter mined on a-case-by-case basis.