LLM Program in European

and International Business Law

Introduction to
Venezuelan
Corporate Law

Author: Ignacio Herrera-Anchustegui

Prof. Thomas Ratka

November 14th 2010

University of Vienna School of Law

Table of contents
1.- Brief introduction to Venezuelan Corporate and Commercial
Legislation.
2.- Existing company forms in Venezuelan legislation.
3.- Formal requirements towards the formation of a company.
4.- Registration procedure, competent authorities.
5.- Minimum share capital required, both in cash and/or in kind.
6.- Transformation of a company.
7.- Management of a company.
8.- Corporate governance regulations, does it exist?
9.- Venezuelan “national speciality”, the Cooperative and the
Nationalization of companies.
10.- Conclusions

1.- Brief introduction to Venezuelan Commercial and

Corporate Law

Venezuela is a country with legal continental roots. As a former

Spanish colony and having obtained its complete independence in
1824, our country and its legal system is rooted in the Continental
Law approach. In fact, until very recently, due to the globalization,
and more specially, legal globalization, the influence of Common Law
traditions, concepts and figures was almost nonexistent.

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Our current Commercial Code was enacted in 1955 based on previous
Italian, Spanish and French Commercial Codes dating from the XIX
century. This means that Venezuelan Corporate and Commercial
legislation is based on rules dating more than one hundred and fifty
(150) years, which, of course, is troublesome for today’s businesses
and modern requirements.

The current Commercial Code is considered a minor modification of

the Commercial Code of 1919. Among the modified articles the
Corporate Law section was not modified; hence, we can assure that
the current Corporate and Company forms, in a broad sense, can be
traced back to that date. For this reason on this brief essay we will
note the lack of new figures and a very old fashioned regulation that
demands from the modern attorney creativity and, above all,
knowledge of comparative law in order to provide to its client or the
legal community new and adapted business forms for the current
times. Also it is of pivotal importance to stress the fact that in
Venezuela the rules governing Corporative Law are mostly default
rules with the characteristic that parties may modify them to suit their
personal interests with the exception of rules that are considered to
be part of “public order”; i.e.: of primordial importance to the
Venezuelan State or society.

The aforementioned fact allows Venezuelan attorneys to be able to

modify and incorporate different company forms used and regulated
in alien legislations, which, has enabled the usage in practice of
different kinds of companies to suit the interests of investors in our
country.

2.- Existing company forms under the current

Venezuelan Legislation

Venezuelan Commercial Code divides the company forms in two

groups: i) companies of persons, where there is a personal and
individual liability of the members for the wrongdoings of the society;
and ii) companies of capital, wherein the liability of the company
relies, in principle, over the capital and assets of the company and it
is not transferred to the shareholders or members of the company,
with the exception of the lifting of the corporative veil.

Furthermore, our Commercial Code also has an important regulation

of the trader as a natural person; however this once popular way of
conducting businesses is currently not in use due to personal liability
of the businessman and the clear advantages of a company of private
or public capital. Here we will not deal with the individual as a trader
due to the fact that we will focus our attention on the legal means
created by the legislator to provide some protection to the natural
businessman, i.e.: the companies and the different forms that exists.

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2.1.- Corporations of persons

These are the most traditional and ancient corporate forms of

carrying a business. They are basically two types: i) Society in
Collective Name; ii) Society in Commandita.

2.1.1.- The Society in Collective Name is a figure very much similar

to the worldwide known partnership. According to Venezuelan Law, all
members are commonly responsible (solidarity) for the debts and
obligations of the company.i

In this kind of corporative form, the name of the society must contain
all the last names of the members of it. ii Any provision drafted in the
bylaws of the society stating that the personal responsibility of any or
a specific member is limited, it is considered as non binding for any
third party. Furthermore, our legislation states that any partner
having its name in the society’s name is entitled to act in the name of
the company and represent it before third parties. Finally, within
partnerships there is no minimum capital required in order to
establish the company.

2.1.2.- Society in Commandita

The Venezuelan legislation provides two different kinds of Society in

Commandita, i) without shares; ii) with shares. For this kind of
corporations, the partners that are managers of the company are
personally liable for the Commandita’s debts. On the contrary, the
partners that are not managers but mere investors are not personally
liable. Their sole obligation is to provide the funds. According to
Venezuelan law, the name of the partnership “must be the name of
one of several of the personally liable partners”.iii

The literature has stated that regarding the Commandita partnership,

this associative form is considered a corporation of persons in regards
with the directing partners, but a society of capital regarding the
investor partners. This is caused by the different and special
treatment they have in respect with the limitation of their
responsibility. Historically, the Commandita is considered as the
precedent of the Stock Company or Public Limited Company, called in
Venezuela Sociedad Anónima.

2.2.- Capital corporations

The Venezuelan Commercial Code has two main capital company

forms. These are, without a single doubt, the most important forms of
corporations used in investment and business in our country due to
the limitation of personal liability of the investors of societies of
capital.

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2.2.1.- The Sociedad de Responsabilidad Limitada

This company form is the equivalent of the Limited Liability Company,

Private Limited Company or GmbH. In accordance to the Venezuelan
legislation the characteristic that distinguish the SRL from the stock
company is the fact that in this case the investors are not
shareholders but quotaholders. This adds a personal factor to the
investors. As stated in article 317 of the Commercial Code:

“When the bylaws do not state another disposition, the cession of the
societal quotas in limited liability companies will be subject to the
following provisions:
a) The quotaholders will have preference to obtain the quota
subject of cession and they will exercise this right in conformity
with the bylaws.
b) Are void and with no effect for the company the cessions given
to third parties without having being previously informed to
other quotaholders and without the formal consent of the
majority of the quotaholders that represent at least ¾ of the
society’s capital (...).”

From the reading of this article we notice the stress that Venezuelan
legislation adds to the importance of the quotaholders, making, thus,
the limited liability corporation a society of capital with a very
important personal degree. This simply means that is a corporative
form that should be used among related or well known quotaholders.
In this case, the individual characteristics of the quotaholders are,
with no doubt, of pivotal importance to the Venezuelan legislator.

The limited liability company, or SRL, is managed by one or more

administrators elected by the quotaholders. Furthermore, the
Commercial Code states that only the SRLs that have more than Bs.
500, of capital requires the appointment of a Commissioner as the
controller of the actions of the director(s).

Finally, it is important to stress out that the maximum capital that a

SRL may have according to the national legislation is of Bs. 2.000,00,
which is roughly about 700 Euros.

2.2.2.- The Sociedad Anónima

The Venezuelan Commercial Code has a corporative form for larger

business that is the stock company or Public Limited Company,
named in Spanish “Sociedad Anónima”. This figure is derived from the
Commanditas, as we have stated above, and was/is drafted with the
intention to provide to a large number of investors an “insurance”
over their own patrimony, due to the fact that they are not consider
personally liable for the company’s debts.

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We are of the opinion that the Sociedad Anónima is, without doubt,
the most important corporative instrument in order to carry out
business in Venezuela; hence, we will elaborate on the characteristics
of this corporate form.

3.- Formal requirements towards the

formation of a company
The Venezuelan Commercial Code has a very vast catalogue of
regulations for the creation of Sociedades Anónimas; however, as it
was previously stated, these rules will only apply if the parties have
not adopted different regulations in the company’s bylaws. This
basically means that according to Venezuelan Law, parties are
entitled to regulate their company in the manner they consider the
most appropriate, and in case of missing a regulation over a certain
topic or issue, then the generic rules of the Commercial Code will
apply.

In our country it is not required the involvement of a Notary towards

the creation of a Company; however it is indeed required the
registration of the Bylaws before the Commercial Registry.

Commercial Registries are entities of the State that belong to an

Autonomous Service that is part of the Ministry of Interior and Justice.
The Registrar has very wide powers and is entitled to review, correct,
propose amendments and, finally, determine the registration or not of
a company. In practice a process before a Commercial Registry is
tiresome and slow, since it can take approximately one or two months
in order to obtain the final registration of a company.
One important issue to point out is the fact that a public limited
company can not be created by only one person (at least two
shareholders must sign the bylaws); however, after the creation it is
indeed possible that all shares of a company are in the ownership of a
single person.

4.- Registration procedure

As stated above, the Company’s registration procedure is carried out
before the Commercial Registrar, the administrative authority in
charge of registering companies.

The first step towards the creation of a company is performing a

search name, if the searched name is available, then a name´s
reservation must be performed. Once the name has been reserved,
the shareholders have 60 days in order to lodge the bylaws of the
company.

The bylaws must be drafted by an attorney and they must specify,

among other details:
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 a) Name of the company;
b) Business to be performed. In Venezuela is very common the
usage of a “catch all clause” broadening the scope of the
business to be executed by a company to “all legal business
operations within Venezuela”;
c) Domicile of the Company;
d) Structure of the executive organs of the company (Board of
directors; sole director);
e) Shareholders of the company and the amount of share each one
possesses. Also, it must be specified how much of the capital
has been effectively subscribed and paid by the shareholders.
f) Name of the Commissary of the Company, person in charge of
performing audits to the labour carried out by the Director(s).

The Registrar has the right and the duty to review the document and
determine if the same complies with all legal formalities and also to
determine if the capital of the company has been duly paid; whereas
in cash or in kind.

It occurs very often that the Registrars tend to “return” the bylaws
due to minimal mistakes or because they consider the document not
to be in order. Most of the times these modifications ordered by the
Registrar are simply made in order to make the registration process
more tortuous and they lack legal basis. However, failing to comply
instructions tends to make almost impossible the registration of a
company.
Once the company is registered, the director must provide to the
Registrar the Accounting Books of the Company which are the
following:

a) The “daily book” or libro diario;

b) The “catalogue book” or libro de inventario;
c) The “mayor book” or libro mayor;
d) The “share holders book”;
e) The “assembly book”;
f) The “administration book”, only in the case the company is
directed by several individuals.

Lastly, once the company is registered and the books have been duly
sealed by the Commercial Registry, the director(s) must proceed to
publish the Company’s bylaws in a national newspaper. This is
normally done in newspapers that are issued just for this function and
do not normally circulate.

5.- Minimum Share capital

According to Venezuelan Commercial Code, the Sociedad Anónima
does not require a minimum capital to be created; however, in

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practice, the Commercial Registrar demands a minimum of Bs.
10.000, in order to register the company. In this sense, article 54 of
the Law of Registries and Notaries states that “the Commercial
Registrar may reject the registration of a company if the capital of the
same is not sufficient to carry out the desired business, by applying a
rational criterion”.

Also, it is possible to invest in cash or in kind. Article 249 of the

Venezuela Commercial Code states “that all the capital must be
subscribed and at least one fifth of the capital must be effectively
paid. In case the investment is made in kind it is mandatory to obtain
a certificate by a public accountant of the real value of the goods that
have been contributed”.

In Venezuela’s case, the control over the capital is the “strict” part of
constituting a company, due to the fact that control over the balance
sheet of a company is not binding and, therefore, failure to registry
the balance sheets of a company does not allow the registrar to
dissolve the company. Nonetheless, according to article 306 of the
Commercial Code, the directors of the company are obliged to lodge
the balance sheet before the Registrar within fifteen (15) days after it
has been approved by the shareholders.

6.- Transformation of a company

Although the Commercial Code does not contain any provisions
regarding the transformation of a company in practice this occurs. I
had the opportunity to work on the drafting of such a transformation
of a company that was previously a private limited company or S.R.L
into a public limited company or stock company.

Due to the nature of the institutions in Venezuela it is only possible to

transform a S.R.L into a S.A., but not vice versa, this due to the fact
that in a S.R.L. the quotas have a “personal” element that shares do
not have; hence, this factor limits the possibility to transform a S.A.
into a S.R.L. Furthermore, the capital limit of the S.R.L., Bs. 2.000,00,
makes very difficult that a Registrar will accept this transformation,
due to the fact that this amount is very low in order to perform any
activities that are usually carried out by a public limited company or
S.A.

6.1.- Mergers and acquisitions

According to article 343 of the Commercial Code “mergers of several

companies must be approved by each of them”. Furthermore, the
Venezuelan legislation requires the administrators of the merger

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companies to lodge and publish the general shareholder assembly
decision and the company’s balance sheets.

Our law grants a three month period after the publication of the
merger agreement in order for the same to take place. During this
three month period the creditors of the companies may file opposition
to the merger. If no oppositions are lodged, then the merger is
considered to be successful; otherwise the same is interrupted until
the opposition of a creditor is decided by the competent courts.

7.- Management of a company

According to Venezuelan Commercial rules, shareholders are entitled
to design any kind of management of a company. Nonetheless, if the
parties do not specify a kind of management, the general rules apply:

A general meeting of shareholders must be made at least once a year

and the same can be summoned “as many times as it is considered
of importance for the company”.iv

The general meeting of shareholders shall be summoned by the

administrator(s) at least with five (5) days of anticipation and by
press.

According to our legal system, the general meeting of shareholders is

the body capable of approving the most important measures to be
carried out by the company.

At least 3/5 of the shareholders are needed in order to remove a

director or a commissary from its functions if serious doubts exist in
regards with their behaviour and conduct. This action is exercised
before the Courts which will decide the outcome of the situation.

The Director(s) is the executive “power” of the company and, in

accordance to Venezuelan Law; its duty is to exercise the normal and
basic administration acts needed in order to reach the society’s
object. There can be a sole director or, if decided, a board of
directors. The director is obliged to keep the accounting books and is,
as a general rule, the company’s representative. Nonetheless, other
members of the company can also represent it.

7.1.- Control of the directors

In accordance to Venezuelan law the system to control the Directors

is copied from the French and Italian legislation, the “commissaries”.
The commissary is an economist or public accountant that is
responsible for the surveillance of the balance sheet of the company
and the management decision of the directors.

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The commissary must report to the general meeting of shareholders
of its considerations in regards with the performance of the directors.
Despite the existence of this “control figure”, its role is very basic and
they are not empowered to carry out many activities or to be vigilant
over the functioning of the company, which is, no doubt, an issue a
practitioner should deal with when drafting a bylaw for a company in
order to provide them with more power and functions.

7.2.- Tier system

As we have seen, Venezuela adopts a one tier system wherein the

responsibility of controlling the actions of the director(s) relies on the
Commissary. However, the general meeting of shareholders also has
vigilance functions, since this corporative body is considered by our
legislation as the most important of a company.

In our legislation there is no contemplation of a two tier system of

vigilance, as opposed to countries of Germanic influence.
Nonetheless, it is possible to design a two tier system within the
bylaws of a company.

8.- Corporate governance regulations. Does it

exist?
Currently Venezuela does not have any binding legislation in regards
with corporate governance regulations. Nonetheless, in our country
the multinational corporations do apply their corporate governance
regulation in accordance to their international and standardized
practices worldwide.

However, surprisingly, there are some non-governmental

organizations that have done efforts in order to create “moral codes
of conducts” or corporate governance regulations in order to be
applied as soft law by Venezuelan companies. One of these
organizations is the Venezuelan Association of Investors.

Also, the Andean Community of Development or in Spanish,

Comunidad Andina de Fomento, which is a international organization
promoting the development in the Latin American region, has carried
out important efforts to design corporate governance regulations to
be adopted by the companies of the member states.

Finally, we can conclude that in Venezuela there are no binding

regulations on corporative governance, but several guidelines or
corporative codes do exist issued by non-governmental organizations
that are used as references in order to comply with standard
regulations worldwide in the scope of activities carried out by the
companies in our country.

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9.- Venezuela’s “national speciality”, the
Cooperative and the Nationalization of
companies.
9.1.- The Cooperative

The Cooperative is a form of carrying business with a “socialist”

ingredient. It differs in respect with the traditional ways of “capitalist”
concepts in the way the “earnings” are distributed among its
members and how the decisions are taken.

The Venezuelan President in 2001 enacted a group of 32 laws in

accordance to an enabling law or “fast track act” that entitled him to
legislate in very sensitive areas of our Law. Within this group of laws
the Cooperative Law was enacted in a way to “enhance the way to
the Socialism of the XXI Century.”

In accordance to Article 2 of the Cooperative Law, “cooperatives are

open and flexible associations of fact and cooperative law, of Social
and Participative Economy, autonomous, of people that are related by
a process and voluntary agreement, in order to address their needs
and economical, social and cultural common aspirations, to generate
general wellbeing, collective and personal, by means of processes
and corporations of collective property, managed and controlled in a
democratic way”.

Furthermore, the Law mentions the values and principles of the

Venezuelan Cooperative system:

“Cooperatives are based in the values of mutual help, self dedication,

responsibility, democracy, equality, equity and solidarity. Its
members shall promote the ethic values of honesty, transparency,
social responsibility and understanding for the others.”v

“The cooperative principles are the guidelines through which the

cooperatives shall put into practice their values, and they are as
follows: 1) open and voluntary association; 2) democratic
management by their associates; 3) equal economical participation of
their associates; 4) autonomy and independence; 5) education;
training and information; 6) cooperation among cooperatives; 7)
compromises with the community. The cooperatives are also guided
by the principles and criteria of experience and communitarian
processes that are part of our culture and that enshrine the ancestral
tradition of our people.”vi

According to our legislation the members of the Cooperative must

draft some bylaws for it and then proceed to its registration before

11
the competent national authority, the Cooperative Registrar,
becoming a legal person.

Moreover, it is allowed to individual persons and civil law persons to

become members of a cooperative, but the law forbids that
possibility to merchants or commercial persons.

Furthermore, in accordance to our legislation, a cooperative may

perform any kind of economical industry, including even banking!
This has lead to frauds in many small towns by people creating a
“cooperative bank” that is not in control of the National Bank
Authority.

Another important characteristic of the cooperative is that does not

require a minimum capital to be created and, it is possible to
contribute with the own work of the members. To promote the
creation of cooperatives, the government provided them with more
“flexible” and “lighter” tax obligations than commercial institutions;
hence a lot of “traditional merchants” modified their companies into
cooperatives to gain access to these special treatments that were
promoted.
On a final note we must point out the fact that in Venezuela after the
creation of the cooperatives a “boom” occurred due to the very
simple and non expensive process of creating such an institution.
Nonetheless, most of these cooperatives where created in order to
obtain in a non-legal way or by means of fraud credits from banks
owned by the State. This lead to the creation of thousands of “paper
cooperatives” that were used as a simple veil to cover the request of
a loan that was never to be paid.

9.2.- Nationalization of Companies

Venezuela was, until President Chávez government, a country with a

liberal economy that was, somewhat, influenced by a socialist/catholic
tendency. During the 1970s Venezuela’s oil industry was nationalized
as a plan in order to “regain control of the country’s main industries”,
that also included mines, coal and steel manufacturers. By the 1980s
our country faced a very important economic crisis and by mid 1990s
some of the nationalized industries were sold to foreign investors in
order to obtain the so much needed money to sustain the economy
and eliminate thousands of public jobs.

Nonetheless, with the upcoming of President Chávez the role of the

State as an investor and patron has been radically modified. Inspired
in a “socialism of the XXI Century” policy and a strong and
overwhelming State, Chávez began a campaign in order to “re-
nationalize” the country’s most important industries that were and
still are under control of foreign and national investors.

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During the last three years the nationalization has passed from large
portions of unused farmable land to the largest and most important
cement factory, passing by the largest supermarket chains, bottling
companies, oil industries and many more. It is out of question the
interventionist hand of government in these take-overs to “deliver
back to the people their industries stolen by foreign investors”.

The so called legal procedures used by the government in order to

gain control of the largest companies in the country are very varied,
ranging from “deals of common ownership of companies” to the most
radical measure, the nationalization of an industry.

In our legislation exists the Law of Expropriation, which dates from

July 2002. This is the current instrument the State uses to take over of
a company, regardless the nationality of their investors.
The law defines expropriation or nationalization as: “an institution of
Public Law through which the State acts in the benefit of a cause of
public utility or social interest with the end of obtaining the fortuitous
transference of the right property or any other right hold by
particulars to its patrimony by means of a firm judicial decision and
the timely payment of a fair compensation”.vii

The requirements in order to carry out an expropriation are the

followingviii:
1.- Formal act declaring the social interest of the good to be
expropriated;
2.- Declaration that its execution requires the transference,
partially or as a whole, of the property or right.
3.- Measurement of the value of the good or right to be
expropriated.
4.- Payment in due time and in transferable money of the
compensation.

The declaration of the social interest of the good to be expropriated is

a prerogative of the Venezuelan National Assembly. However, article
13 of the Law permits, in cases considered as “essential to the
security and defence of the nation”, the government to issue such a
decree. In practice the concept of defence has been extended to the
point wherein the expropriation of food industries is considered as a
matter of “grocery and food defence”.

The declaration of execution is the act through which the Venezuelan

State declares the fortuitous expropriation of a company. This act, in
accordance to the Law, corresponds to the executive branch of the
Venezuelan State in the following order: i) President; ii) Governor; iii)
Mayor.

There are two possible ways to settle an expropriation dispute:

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 a) The amicable agreement, which basically consist of a
negotiation among parties in order to reach a settlement of the
price to be paid by the Venezuelan State and how this payment
will be carried out.
b) The Judicial manner. This procedure only applies if the parties
are unable to reach an amicable agreement and involves a
complex litigation procedure that is of little interest for
corporative law.

9.2.1.- Of the temporal occupation

Another “way designed by Venezuelan government” to takeover

companies is by means of the temporal occupation measure. This
legal mechanism entitles the government to occupy for a maximum
of six (6) months a good that has been declared of public utility.

In practice this measure has been used by the government in order

either: i) apply pressure over an specific company or a whole
economic sector; or ii) simply as the first step towards a final
expropriation.

9.2.2.- The numbers

According to some studies, around 120 companies have been

expropriated in Venezuela up to 2010. Among the most important
ones we can identify the following:

i) CANTV: the largest telephone company provider.

ii) VENEPAL: the largest paper manufacturer.
iii) ELECTRICIDAD DE CARACAS: the largest energy supplier in the
country.
iv) The whole cement industry sector, as it was declared of
“national interest”.
v) CADA, one of the largest supermarket chains.
vi) SIDOR: the largest and most important coal and aluminum
producer.

In accordance to the government when performing these

expropriations “the companies will be now owned by the Venezuelan
people”. However, the truth is that these companies are solely owned
by the government and most of them are facing important strike
issues or a deficit in the production.

Furthermore, most of the expropriated companies, especially if owned

by national investors, have not being paid by the government. It is
estimated that only 20% of the expropriated companies have been
paid; hence, the government is clearly not complying with their
obligations.

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10.- Conclusions
The Venezuela Corporative Law is outdated and the current
administration and the National Assembly has no interest in modifying
the national rules in order to provide investors and merchants with
new and modern mechanisms to carry out businesses.

Furthermore, we have analyzed, briefly, the “Venezuelan specialties”

noticing the strong emphasis existing in the “socialist economy” and
a larger all controlling State that has taken over the most important
companies in our country.

Unfortunately it is very difficult to predict what will occur in the future

in Venezuela in respect to private property and protection of
investment, much less, to foresee a modification of the current
commercial laws, since for the government this is considered as
“mere capitalism”.

Finally, we would like to point out that it is fundamental for our

country in case a new government takes in power to modify the
commercial rules in order to provide investors with new and modern
company forms. Otherwise, these individuals will have to rely on the
creativity of an experienced lawyer to create a modern and suitable
company for their interest in a more dynamic and interconnected
world than ever.

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i
Article 201 Venezuelan Commercial Code.
ii
Article 227, ejusdem.
iii
Article 235, ejusdem.
iv
Article 276 ejusdem.
v
Article 3 of Venezuelan Law of Cooperatives.
vi
Article 4 ejusdem.
vii
Article 2, Law of Expropriation.
viii
Article 7, Ejusdem.