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  COMPANIES IN PANAMAForming and operating Panama corporations
INCORPORATION REQUIREMENTS
CORPORATE POWERS
CAPITAL STRUCTURE
CORPORATE MANAGEMENT STRUCTURE
A. Shareholders
B. Board of directors
C. Officers
AMENDMENTS TO THE ARTICLES OF INCORPORATION
PROCEDURE AFTER INCORPORATION
TAXATION
CONTINUATION OF COMPANIES ORGANIZED IN OTHER JURISDICTIONS
GOVERNMENTS DUTIES PAID ON AUTHORIZED CAPITAL AT THE TIME OF INCORPORATION
Basically, the formation and operation of corporations on "Sociedades Anónimas" are matters that are governed by Law Number 32 of 1927 and Decree Law 5 of 1997.
INCORPORATION REQUIREMENTS
Two or more natural o juridical persons of full age, of any nationality even though not domiciled, nor physically present, in the Republic of Panama, may form a corporation for any lawful purpose pursuant to the formalities stipulated therein.
In addition, the referred Law Number 32 of 1927 imposes no restrictions upon the ownership of shares of a Panamanian Corporation by foreign citizens or corporations, nor are there any neither nationality restrictions nor residence requirements imposed upon directors or officers of Panamanian corporations under the said law.
In practice, corporations are formed through nominee incorporators in Panama, who execute the basic instrument for incorporation called Pacto Social, or more commonly known in English as the Articles of Incorporation, before a Notary Public of the Republic of Panama, and who obtain its registration at the Public Registry in Panama, at which time corporate existence begins.
The Articles of Incorporation may be executed anywhere, within or outside the Republic of Panama, in any language, and the same may be executed by means of a public instrument, or in any other form, as long as the signatures appearing thereon are certified by a Notary Public, or by any other public officer authorized to certify at the place of execution thereof. If the Articles of Incorporation have been executed outside of Panama, they must be legalized by a Panamanian consul or by way of Apostille, or in absence thereof, by the consul of a friendly nation and protocolized with a Notary Public in Panama.
Thereafter, the Articles of Incorporation must be registered at the Public Registry in Panama.
The required contents of the Articles of Incorporation are prescribed by Article 2 of Law Number 32 of 1927, and may be summarized as follows:
a. The name and domicile of each of the subscribers of the Articles of Incorporation, i.e., the incorporators.
b. The name of the corporation, which shall not be the same nor similar to that of another existing Panamanian corporation, and which shall include a word, phrase or abbreviation to indicate that it is a corporation and which may be expressed in any language. As a matter of precaution it is always advisable to provide several possible names in order of preference, and thus avoid expenses and delays in communications. The use of words suggesting that the company is engaged in banking, insurance or trust activities is prohibited.
c. The general purpose or purposes for which the corporation is organized, i.e., commercial, shipping, trading, tourism, etc., and which may be ample and general.
d. The proposed capital structure of the corporation, or its authorized capital, including the number and classes of shares, whether with or without par value, whether bearer or nominative shares, and if there are to be shares of different classes, the number of shares in each class, the designations and relative rights, preferences and limitations thereof.
In connection with the above, it should be noted that the amount of the authorized corporate capital and the par value of the shares may be expressed in currency of the Republic of Panama, or in legal currency of any country, or in both.
e. The number of shares that each of the subscribers to the Articles of Incorporation agrees to take. The right is transferred, in blank, to the interested party.
f. The domicile of the corporation, which may be in Panama or elsewhere, as well as the name and domicile of its Resident Agent in Panama, who must be an attorney or an attorney's firm in Panama.
g. The duration of the corporation, which may be perpetual.
h. The full name and address of at least three directors that may be natural persons or corporate entities. If corporate entities are appointed, the articles of incorporation must state the date and place of incorporation and the incorporation number if applicable.
i. Any other lawful clauses which the subscribers may agree. It is usual practice to include the full names of the first officers of the corporation consisting of at least a President, a Secretary and a Treasurer, as this affords a considerable time saving.
If the corporation is to be organized, as is commonly done, through nominee incorporators associated with our office in Panama, the interested party should be able to provide all of the information detailed above, with the exception of details of the subscribers to the Articles of Incorporation.
CORPORATE POWERS
Under Panamanian Law, every corporation has authority to engage in and exercise a general array of powers provided for in Article 19 of Law No. 32 of 1927, as well as those contemplated in the Articles of Incorporation thereof, and subject to limitations imposed by operation of Law and restrictions established in the corresponding Articles of Incorporation.
CAPITAL STRUCTURE
Under Panamanian Law, the Articles of Incorporation must set forth the amount of the corporate capital and the number and par value of shares into which it is divided.
The corporation may issue shares without par value, if the Articles of Incorporation so provide, and if it does the said articles must stipulate:
a. The total amount of shares that the Corporation can issue;
b. The number of shares with par value, if any, and value of each one,
c. The number of shares without par value;
d. One or the other of the following statements:
1. That the corporation's capital shall be at least equal to the total amount represented by the shares with par value, plus a stated amount with respect to each share without par value which is issued and the sums that from time to time may be incorporated into the corporate capital by means of a resolution or resolutions of the board of directors; or,
2. That the corporate capital shall be at least equal to the total amount represented by the shares with par value, plus the value received by the corporation for the issuance of shares without par value, and the amounts that from time to time may be incorporated into the corporate capital by means of a resolution or resolutions of the board of directors.
In addition, if the shares are to be divided into several classes, the Articles of Incorporation should set forth the designations of each class and a statement of the preferences, privileges, voting powers, restrictions and relative rights concerning the shares of each class.
Furthermore, the Articles of Incorporation may impose restrictions for the transfer of shares, but any restriction which in an absolute manner prohibits the transfer of shares is null and void.
Under Panamanian Law, shares may be issued in exchange for money, labor, services or property of any kind, and must be issued pursuant to a resolution of the board of directors. Share certificates may be issued in nominative or registered form, or in bearer form. If nominative, such shares may be issued as fully paid and non-assessable, as partially paid, or even without any payment having been made thereon, and are transferable on the books of the corporation (stock register book). If bearer, such shares may not be issued unless they have been fully paid and non-assessable, and are transferable by delivery thereof.
Under Panamanian Law, share certificates are required to state upon their face the following data:
a. The registration data of the corporation at the Public Registry.
b. The authorized capital of the corporation.
c. The number of shares belonging to the holder thereof.
d. The class of the shares, if there are different classes, as well as any special conditions, designations, preferences, privileges, premiums, advantages and restrictions or requisites that any of the classes of shares may have over the other classes.
e If the shares represented by the certificate are fully paid and non- assessable, this fact shall be expressed in said certificate. If not fully paid and non-assessable, the sum that has in fact been paid shall also be stated in the certificate.
f. If nominative shares, the name of the person to whom the shares are issued.
CORPORATE MANAGEMENT STRUCTURE
A. Shareholders
Generally speaking the management of the affairs of a corporation is vested in the board of directors, and shareholders are attributed few administrative functions per se.
However, under Panamanian Law, the shareholders constitute the supreme power of the corporation, and shareholder action is required in connection with:
a. Amendments to the Articles of Incorporation;
b. Removal of directors;
c. If so provided by the Articles of Incorporation the adoption, amendment, and repeal of By-Laws;
d. Unless otherwise provided for in the Articles of Incorporation, extraordinary corporate matters such as the sale, lease, exchange or disposal of capital assets, including its clientele and privileges, franchises and rights;
e. If so provided by the Articles of Incorporation, the transfer of assets in trust or to pledge or mortgage them to guarantee the liabilities of the corporation;
f. Agreements for the merger or dissolution of the corporation.
g. Issue of guarantees to third party's obligations.
However, other than the above and in absence of provisions to that effect in the Articles of Incorporation or By-Laws, there are no particular requirements for the holding of shareholders' meetings.
In absence of a provision in the Articles of Incorporation or By-Laws, shareholders' meetings must be held within the Republic of Panama. Written notice of time, place and purpose is required to be given to call a meeting of the shareholders of a corporation. Said notice is given in the name of the President, Vice-President, Secretary or Assistant Secretary, or of any person or persons authorized for this purpose by the Articles of Incorporation or By-Laws. Notice of the meeting must be given in the manner contemplated by the Articles of Incorporation or By-Laws, and in default thereof, notice must be given personally or mailed not less than 10 days nor more than 60 days prior to the date of the meeting to the shareholders' registered address; and in the case of bearer shares, by publication in accordance with the provisions of the Articles of Incorporation or the By-Laws.
Shareholders, or their legal representatives, may waive notice of any meeting in writing, and the attendance of all the shareholders at a meeting thereof will operate as an automatic waiver of notice of the meeting.
Under Panamanian Law, resolutions adopted in any meeting in which all shareholders are present, whether personally or by proxy, are valid; and resolutions adopted in a meeting in which there is a quorum, having those shareholders who are absent waived notice, will be valid for all purposes enumerated in the waiver. The quorum requirements for shareholder meetings may be determined by the Articles of Incorporation, and in default thereof, the presence of the majority of the shareholders will constitute a quorum. If a quorum is present, the majority vote of the shares represented will be sufficient to constitute a valid resolution of the shareholders, unless otherwise provided by law or a provision to that effect in the Articles of Incorporation.
Furthermore, unless restricted by the Articles of Incorporation shareholders have the right to be represented by a proxy holder at all shareholders' meetings, who may be appointed by private or public instrument, with or without power to substitute, and who need not be a shareholder of the corporation.
Lastly, the Articles of Incorporation may provide for cumulative voting for the elections of members to the board of directors.
B. Board of directors
Under Panamanian Law, the management and administration of a corporation is vested in a board of directors, composed of at least three natural persons or corporate entities, and subject to what is prescribed by law and provisions to that effect in the Articles of Incorporation. The board of directors has absolute control and management of corporate affairs, including the adoption, amendment and repeal of By-Laws.
A quorum for board of directors' meetings, in the absence of a provision to that effect in the Articles of Incorporation is constituted by the presence of a majority of the members of the board of directors and the resolutions of the majority of directors present at a meeting in which there is the required quorum, are considered as resolutions of the board of directors.
In addition, directors may be removed at any time by the votes, given to that effect, of the holders of the majority of the subscribed shares with voting rights in the election of directors.
In absence of a provision to the contrary in the Articles of Incorporation, it is not necessary that the members of the board of directors be shareholders. Additionally, if expressly authorized by the Articles of Incorporation, it is possible for directors to be represented at meetings of the board of directors through proxy holders, who need not be directors, and who must be appointed by public or private instrument, with or without power to substitute.
C. Officers
Under Panamanian Law, corporations must have at least a President, a Secretary and a Treasurer, who are elected by the board of directors, and in addition, may have all the officers, agents and representatives determined by the board of directors, the Articles of Incorporation or the By-Laws, and who are to be elected in the manner established therein, and all of whom may be replaced at any time by resolution adopted by the majority of the members of the Board of Directors at a meeting thereof, or in any other manner set forth in the Articles of Incorporation or the By-Laws.
If so provided by the Articles of Incorporation or By-Laws, the same person may hold two or more offices, although it is recommended that the President and Secretary be two different persons. Furthermore, in absence of a provision to the contrary in the Articles of Incorporation or the By-Laws, it is not necessary that a person be a member of the Board of Directors or Shareholder to be an officer of the corporation.
AMENDMENTS TO THE ARTICLES OF INCORPORATION
The Articles of Incorporation may be amended in the same form established for the execution of the Articles of Incorporation, including the registration thereof at the Public Registry.
Any amendments agreed prior to the issuance of shares shall be authorized by the incorporators and by all who have agreed to subscribe shares of stock. Upon issuance of shares, any amendments to the Articles of Incorporation shall be subscribed by either:
a. The holders, or their voting rights, or;
b. Pursuant to a resolution adopted by the holders, or their representatives, of the majority of the shares referred to above.
PROCEDURE AFTER INCORPORATION
A. Corporate records and bookkeeping
A Panamanian corporation which does not operate in Panama is not required to file any financial reports or tax returns and may maintain its books of account in any manner it desires in any part of the world.
Panamanian corporations operating in Panama are required to file income tax returns. No other financial reports, with the possible exception of certain statistical reports which may be requested by various government offices, and a municipal tax declaration are required.
All Panamanian corporations are required by law to have a minute book, in which the minutes of all meetings of shareholders and/or directors should be transcribed, and a stock registry which should contain the data relating to the ownership and issuance of share certificates. If shares are issued in bearer form, an entry to that effect should be inserted upon the original issuance thereof. These may kept in book form, electronic means or other mechanisms provided by law to the extent that the operations can be clearly determined and are capable of being printed.
Panamanian corporations which do business in Panama are required to have, as well, a journal, a general ledger and a book of inventories and balances and to keep them pursuant to generally accepted accounting practices in Panama.
All corporate and accounting books must be bound and sealed by the proper authority in Panama.
B. Corporate resolutions
Under Panamanian Law, the resolutions or actions of either the Board of Directors or the Shareholders of the corporation should be recorded in the minutes book of the corporation.
Under certain circumstances, actions taken by either the Board of Directors or the Shareholders of the corporation will have to appear on record at the Public Registry. These circumstances are as follows:
a. All amendments to the Articles of Incorporation or to the By-Laws, if these have been adopted and registered;
b. Any changes in the composition of either the Board of Directors or officers of the corporation; and
c. Agreements to merge or dissolve the corporation.
Decree No. 130 of 1984 establishes the documentary requirements to be observed in respect of such acts or resolutions which should be registered, to wit:
1. The original, or a complete copy of the minutes, certified by the person who has acted as the secretary of the meeting or has presided over it;
2. A textual extract of the minutes, or a certificate of the resolution or adopted agreements whose recording is desired. The extract or certification must at least contain the following data:
a. The date during which the meeting was held.
b. The name of the person who presided over the meeting and the person who served as secretary, and, if they were not the President and Secretary of the company, respectively, a statement of justification why other persons acted as such;
c. If it is a shareholder's meeting, the number of shares represented and its relation with the amount of outstanding stock or that the total number of outstanding shares was represented;
d. If it is a board of directors' meeting, the name of all the directors present personally or by proxy;
e. The form in which notice was given or the reason why it was not given, be it by waiver of notice of the persons who were entitled to receive notice, or by (all) the shareholders or directors being present, and having agreed to hold the meeting;
3. The documents referred to must be certified by the person who acted as secretary of the meeting or who presided over it.
TAXATION
Panamanian corporations pay an annual franchise tax of US$300.00.
As of 2003, said tax is payable in the following manner:
a. No later than June 30 of each year: those corporations which have been incorporated during the months of January to June inclusive.
b. No later than December 31 of each year: those corporations which have been incorporated during the months of July to December inclusive.
Failure to pay the aforementioned tax will result in a penalty of US$50.00 for each year, or fraction thereof, for which payment is overdue and the non registration of documents or issuance of certification by the Public Registry other than those ordered by authorities or requested by third parties seeking protection of their rights. Failure to pay franchise tax for more than one period will cause an additional penalty of US$300.00
Income tax in Panama is levied only upon Net Income derived from operations within the territory of the Republic of Panama. Income obtained from corporations consummated abroad is not income obtained from sources within Panama and, therefore, is not taxable under our laws.
Even if a Panamanian corporation has an office in Panama, employees in Panama and a license to engage in business in Panama, it still does not pay Panama income tax, if the transactions out of which the income arose were consummated outside of the Republic of Panama. No tax liabilities arise even though payment of the merchandise is made from the Republic of Panama, or payment therefore is received in the Republic of Panama or if the sale or purchase corporations are directed from an office situated in the Republic of Panama.
If a Panama corporation engages in business within the Republic of Panama and also outside of the Republic, it is subject to income tax only on that portion of its net income arising out of business carried on within the territory of Panama. Only dividends distributed from income arising from Panama sources are taxable at a flat rate of 10% whether received by corporations or individuals resident or non-resident.
However, dividends distributed from income arising from sources outside of Panama are not taxable. Panama law further provides that a Panama corporation which has, as its only income, dividends or participations from other corporations, Panamanian or foreign, is not subject to Panama income or dividend tax.
GOVERNMENTS DUTIES PAID ON AUTHORIZED CAPITAL AT THE TIME OF INCORPORATION
The registration tax is payable once only, upon the filing of the Articles of Incorporation at the Public Registry Office for registration.
When the shares are without par value, assessment of the registration tax is made by fixing an arbitrary value of US$20.00 for every share without par value. The registration tax corresponding to shares with no par value will not be in any case above US$1,200.00.
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