First in a series of columns by Steven Ferris, a Costa Rican attorney with extensive, direct experience in the Costa Rican judicial system, now in private practice.
Starting a business in Costa Rica probably requires establishing a company, just like anywhere else. This isn’t an especially onerous process, but you should understand some of the basic concepts of how the legal system works before you embark on your new venture.
To begin, there are several types of corporate structures from which to choose. In U.S. terms, these are: 1) a general partnership, 2) a limited partnership, 3) a limited liability company, and 4) a limited company or corporation. The last, called a Sociedad Anόnima, is by far the most commonly used for business purposes. I’ll briefly define each, and then focus on the Sociedad Anόnima.
Sociedad en Nombre Colectivo (General Partnership Enterprise)
These entities are owned by partners who share the liabilities and responsibilities of the enterprise collectively, and their liability for that responsibility is not limited in any way. This renders it a relatively unpopular choice, because the individual owners aren’t shielded. These companies are typically named with the owners’ last names, followed by the word “Compañia.”
Sociedad en Comandita (Limited Partnership Enterprise)
This type of entity is run by a group responsible for the administration and direction of the enterprise, representing the interests of all shareholders. Their responsibilities are similar to those who run a General Partnership, except for the fact that their liability is limited to the original declared value of the enterprise.
Sociedad de Resposibilidad Limitada (Limited Liability Company)
In these companies, the owners’ liability is limited to their original investment, unless specifically defined otherwise by law. Their name must include the words “Sociedad de Responsabilidad Limitada,” or “Limitada,” or the initials “S.R.L.”
Sociedad Anόnima (Limited Company or Corporation)
As the name “Anonymous Society” implies, these companies are owned by various shareholders, not necessarily named. It is the most flexible and widely used business platform. Shareholders are liable only for their share of ownership. This is my focus below.
What’s in a name?
Costa Rican commercial law requires that sociedades anόnimas have a unique name that cannot be confused with any other company’s name, and it must be followed by the phrase “Sociedad Anόnima” or the initials “S.A.” The name can be in any language, as long as the translation of the same into Spanish is included in the firm’s charter. In fact, the meaning of the name has to be specified, or an explanation that the name is simply a flight of the owners’ fantasy.
The company name is approved by, and registered with, the Registro de Marcas de Comercio, thus protecting it from use by others, and insuring its commercial value. Even names that appear slightly similar to those of existing companies will be denied. Uniqueness is a high priority in this process.
Illegal use by third parties of a duly registered name, even if only similar, is punishable by law. Thus, the choice of name is critically important, to avoid misunderstandings, intentional or otherwise, in the future. In some cases, your lawyer may have some defunct companies “on his shelf,” meaning that you can avoid the hassle of starting from scratch by simply assuming ownership of a previously existing company.
Next steps: legally establishing your new company
The basic, minimum requirements to become official are:
- You must have a minimum of two owners, each owning at least one share in the new company.
- The value of the shares must be paid for either up front, or through a documented credit statement approved by the statutes of Costa Rican commercial law.
- The new company must be inscribed and duly certified by a notary public, and its formation must be listed in the official government newspaper La Gaceta, where all the basic tenets of the new company are described and become public knowledge.
A common concern among non-Costa Ricans seeking to form a Costa Rican firm is whether there is any restriction regarding the nationality of the owners of the new firm. The answer is a resounding no. The only caveat is if the owners aren’t legal residents, in which case they must define a local “resident agent,” who must be a lawyer licensed in Costa Rica, whose address will become the company’s official place of business.
In future columns, I’ll go into the requirements that new owners must provide to a notary public to establish a new corporation in more detail. As we move forward, I welcome your comments and suggestions on other topics you would consider helpful.
Steven Ferris is a member of the board of directors of The Tico Times’ parent company.