Summary Company Law Rev AIM

On December 11, 2008, the President of the Dominican Republic enacted the “General Law on Companies and Limited Liability Entities” No. 479-08, which substitutes the Third Title of the Commercial Code of the Dominican Republic. Said Law will enter into force 190 days after its publication, and introduces multiple changes to the current regime. For this reason we have prepared a summary of its 527 articles, with the purpose of providing a general view on the law. This law will revolutionize the current structure over which business is carried out in the Dominican Republic. We recommend that special attention is paid to this situation and to consult any aspects that can affect your organization. .

In the first Chapter of Title I, regarding General Aspects on Commercial Companies, Law 479-08 (hereinafter Company Law) introduces important elements, such as the piercing of the corporate veil when the company’s legal personality is used to commit fraud, resulting in the possibility of directly pursuing the administrators and shareholders responsible for fraud. The legal personality of commercial entities begins with its matriculation registration in the Mercantile Registry, and its social capital can be expressed convertible foreign currency. The Law establishes the following types of commercial entities: 1) Compañía en Nombre Colectivo, defined as those under which the partners respond jointly and unlimitedly for the social obligations; 2) Partnerships; 3) Limited Liability Partnerships; 4) Limited Liability Companies, which can be individual; 5) Accidentales o Compañías en Participación, which are formed by two or more persons to execute specific and temporary commercial projects or ventures; and 6) Sociedades Anónimas, which can be public or private, and are complex companies appropriate for executing large ventures or investments. Chapter II, Title I, the Company Law addresses each type of commercial entity. Of the six categories mentioned, the first three are different from the rest due to the fact that its shareholders or part of them, depending on the company, respond jointly and unlimitedly to the obligations assumed by the company. The Accidentales o Compañías en Nombre Colectivo do not have separate social personality and are incorporated or formed for one or more specific businesses, that has a temporary nature. Third parties contract solely with the representative of the company who is the liable person or party with respect to them, independently from its arrangement with the rest of the shareholders or investors. Finally, the limited liability companies and the Sociedades Anónimas, differentiate themselves from the rest, because the liability assumed by the investors is limited to their respective social contributions. We have limited this summary to the last two companies, which because of their nature are used more frequently in the corporate sector.

1. The limited liability company is a new figure in the Dominican corporate law. The Company Law defines it as “…formed by two or more persons, by means of contributions from all of its shareholders who do not respond personally to the social debts”. As one of its distinctive traits we must mention that the social capital is expressed in social quotas, which cannot be represented by negotiable titles. In order for the social quotas to be assigned to third parties, it is required that the shareholders that represent no less than ¾ of the company’s social quotas express their consent. The company must also provide its consent to compromise the social quotas. The individual companies of limited liability, as their names indicate, are only consist of one shareholder, who necessarily needs to be a physical or natural person. Once the incorporation requirements are met, this type of company has its own individual social personality and patrimony, independent from the person that owns it. The Law also contains rules on the procedure that the creditors of the person must follow in order for their credits to be acknowledged by the new company.


2. Company Law defines as Sociedades Anónimas those “that that exist between two or more persons acting under one social name and are composed exclusively by shareholders whose liability for the losses is limited to their contributions. Its capital will be represented by titles called shares which are essentially negotiable, and must be subscribed and paid in full before they are issued.” The Sociedades Anónimas may be public or private. The first are those that rely on the public savings for their capital, negotiate their shares in the stock market, obtain loans by means of a public issuance of negotiable obligations, or uses massive publicity means in order to negotiate or place negotiable instruments in the stock market. These fall under the supervision of the Security Stock Exchange. (Superintendencia de Valores) We will not address these types of companies in this summary because of their complexity and which deserve a separate study. Below we enumerate the most important innovations introduced by the law with respect to the Sociedades Anónimas:
   
   
   1. The minimum amount of shareholders is two.
   2. In the Sociedades Anónimas of private subscription, the minimum authorized social capital is Thirty Million Dominican Pesos (RD$30,000,000.00). This amount may be adjusted every three years by the Secretary of State of Industry and Commerce in accordance with the Consumer Price Index published by the Central Bank.
   3. The shareholder’s right to information is privileged and upheld by the law, i.e., all shareholders can submit five days before the Assembly and in a written from, questions to be addressed by the Board of Directors, who in return must answer them during the meeting. Also in the period of fifteen days after the Assembly they can request information regarding all the contracts subscribed by the company during that social year, also a certification expressing the annual salary and benefits of the administrators, among other things,. If the administrators or directors refuse to provide the information requested in accordance with the Law, the inquiring shareholder can request it before the corresponding court (Juez de los Referimientos).
   4. The Comptroller must be an Authorized Public Accountant with at least 3 years of experience for the audit of companies and cannot be an employee or administrator of the company, nor can he/she be a founder or a contributor in kind, in general, he/she cannot be a person that receives salary or benefits directly or indirectly from the company.
   5. Establishes the shareholders´ right to preferential subscription of new shares proportionally to the shares that they own.

The Dominican Company Law also regulates the process for mergers and division of a commercial company, which were not contained in the Commercial Code. It also regulates the dissolution and liquidation of companies.

Finally, Title III refers to criminal infractions. With respect to Sociedades Anónimas, the Law establishes prison for up to 3 years and fines, to the persons that provides false declarations acknowledging that they have received payments for subscribed shares, when such payments have not been produced; that knowingly they attribute a superior value to contributions in kind; also for those who negotiate shares that have not been paid in full; among others actions. In general, the Law notably extends the spectrum of penal infractions, sanctioning the acts or omissions that impede or create an obstacle to the “shareholders´ right to information”, which punishes with a fine up to 60 minimum salaries, to the administrator or employee of an anonymous company that did not convene the ordinary assembly in 3 months following the end of the social exercise, or that did not submit to the assembly the audited financial statements or the annual report, among other actions. Moreover, those who do not provide the shareholders with the legally required documents prior to the celebration of the assembly can be pursued before the criminal courts. The Law also establishes the penal responsibilities of the company’s comptroller, instituting a maximum penalty of 3 years of prison and a fine of 60 salaries, to those that provide false information within the realm of their responsibilities.

As a novelty, the company can be criminally responsible, aside from the penal responsibility of the shareholders and administrators, including the temporary or definitive closing of the establishment.

We will provide further summaries containing the most important information’s regarding Public Anonymous companies and other important aspects of the Law.