As mentioned in previous articles, on October 2014 the Argentine Congress has enacted a new Civil and Commercial Code (the “CCC”) that came in effect on August 1, 2015.
We have prepared a series of articles to develop the main issues effecting our clients and friends by the CCC. In this piece, we will discuss the main changes affecting the corporate law regime under the CCC.
1. General Regulations of the Civil and Commercial Code Affecting Companies.
Title II of the CCC refers to Legal Entities, Chapter 1 refers to the general part of legal entities and Section 1 deals with the personality of the legal entities.
The CCC provides for an extensive doctrine of piercing the corporate veil. Article 143 provide that legal entities have different personality than those of its members but Article 144 provides for an extensive version of the doctrine of piercing the corporate veil as it sets forth that when the entity is used for (i) the persecution of purposes different to those of the legal entity, or (ii) to breach the law, the public order or frustrating the rights of any person, then those acts shall be attributed to (a) partners, (b) associates, (c) members, or (d) controllers (direct or indirect), who shall be jointly and severally liable for the damages caused by the entity. We believe this wording of Article 144 of the CCC is too broad planting the seeds for innumerable claims for extended liability to persons that may have had nothing to do with the relevant operations of the entity.
The CCC classifies entities in either public or private. Public entities are the Federal State, the Provinces, the City of Buenos Aires, the municipalities, autarchic entities, foreign states, organizations created by public international law, and the Catholic Church.
The CCC defines as private entities: (i) companies, (ii) civil associations, (iii) simple associations, (iv) foundations, (v) churches, confessions, creeds, communities or religious entities, (vi) mutual entities, (vii) cooperatives, and (viii) building consortiums – this is a creation of the CCC-.
As to the legal pyramid, the CCC provides (Article 150) provides that private entities shall be governed:
• By the special laws (ie, the general corporate law that we will refer to later on), or by the CCC,
• By their bylaws and/or internal regulations, provided that the bylaws shall prevail over the internal regulations, and
• By ancillary laws of special laws.
Foreign private entities (incorporated overseas) shall be governed by the general corporate law.
Title II, Chapter I Section 3 of the CCC provides the general nature of private entities and their functioning. In this sense, the CCC provides that the following are the main attributes of private entities are:
• Name: the name of the entity shall be added with the relevant corporate structure (SA, SRL, etc.) and if the entity is being wounded up, the phrase “in liquidation” shall be added in the end.
The name must be true, new, distinctive with respect to other corporate names, trademarks, fantasy names, brands and/or other forms related to goods or services. The inclusion of names of individuals must be authorized by the relevant individuals which is presumed if the individual is a member of the entity.
• Domicile: The change of jurisdiction must by made by an amendment of the bylaws, but the change of domicile –if not included in the bylaws- can be made by the administration of the entity. Any and all notifications carried out in the registered domicile shall be considered valid and binding upon the entity.
• Assets: Entities must have assets (net worth). The entity in formation can register assets preemptively.
• Duration: The period of existence of private entities is considered unlimited unless it is limited by the law or by the bylaws of the entity.
• Purpose: Private entities must have a purpose that must be precise and determined.
As to the functioning of the so-called private entities – for our purposes, private companies- the CCC provides that:
• The amendments to the bylaws can be carried out as provided in the same bylaws or in the law, provided that its amendments shall only be valid (and have effects) as from the execution of such amendments and not as from the registration of such amendments.
• By laws shall have rules on government, administration and representation of entities. Absence of such rules, the following shall apply:
The CCC provides for the authority of resolutions (of the board or shareholders) being adopted by electronic means (video conference, phone, etc.). Such resolutions shall be consented by all the relevant members. The minute must be signed by the president (implying only applicable to SA) and another administrator, providing how the resolution was adopted and maintaining a record of such resolution.
Self-convened shareholders meetings are accepted (the CCC refers also to members of the “council” – it is unclear to us if this is applicable also to the board of directors), provided that the resolution is unanimous with the presence of all the relevant members.
• Article 159 provides for the fiduciary duties or directors and members of the entity.
• Liability: Liability of the administrators is unlimited, joint and several vis-à-vis the entity, its members and third parties for the damages caused by fault (no willful misconduct) by action or omission.
• When there are obstacles preventing the entity from making decisions, then the president or any of the co-administrators could perform conservatory acts, and there should be a partners’ meeting within ten days as from the execution of such acts.
• Mergers and spin-offs require the unanimous consent of all the members of the entity, unless provided otherwise in the bylaws.
2. Amendments to the Corporate Law as such.
As mentioned earlier, the law that enacts the CCC (26,994) also amend a number of other laws also affected by the CCC like the Argentine Corporate Law (“ACL”) number 19,550.
The first and main introduction of the ACL is the corporation (SA) of only one member. Article 1 of the ACL provides that there will be a company when one or more persons, according to the corporate types provided in the ACL, are obliged to make contribution in order to produce goods or services, participating in the profits and contributing to the losses.
The one-man corporation shall only be applicable to corporations (sociedad anónima) and a one-man corporation cannot have as member another one-man corporation. The main differences between the other corporate types and the one-man corporation are:
• The capital must be totally paid-in when incorporating the company (other companies only require 25% of the capital paid-in when incorporating),
• They must have a board of at least three independent auditors (that must be accountant, lawyers, or companies whose members are accountants or lawyers).
Section 23 of the ACL provides that any of the partners can represent the company showing the bylaws of the company. The limits to the members and managers provided in the bylaws can be invoked between the partners.
In connection with the liabilities the ACL (Section 24), and in contrast with the CCC, the partners of a company are liable vis-à-vis third parties equally and proportionately unless joint liability stems from:
• specific stipulation for joint liability with respect to one or several relationships,
• specific stipulation from the bylaws,
• the common rules of the corporate type chosen and in respect of which certain formal or fundamental requirements were not complied with.
In connection with the government, administration and representation of companies, section 23 provides that any of the members of a company can represent the company vis-à-vis third parties.
In order to purchase registered assets (real estate, trademarks, planes, vehicles, ships, etc.), the company will have to prove its existence and the powers of its representative that must be acquiesced by all the members of the relevant company.
3. Amendments to the Regime of the Public Registry of Commerce.
The CCC and the ACL refer now to the “Public Registry” in contrast with the formerly called “Public Registry of Commerce”. We will refer now the amendments to the regulation of the Public Registry (“PR”).
On July 31st 2015 the PR published its new Resolution 7/2015 (the “Resolution”). The Resolution is a comprehensive text that regulates all the procedures that are carried out by the PR and include all prior individual regulations of the PR adapting such regulation in the Resolution to the amendments to the corporate laws provided in the CCC and the ACL.
The Resolution (and this whole new registration system) will come into effect on November 2 ,2015, however, certain regulations are applicable since August 3, 2015 , such as:
• those relating to registration of trust agreements,
• those relating to one-man corporations,
• the cure procedure for companies not duly incorporated and
• the general system for incorporation, functioning, withdrawal of registration, dissolution, and winding up of civil associations and foundations.
As mentioned, the Resolution brings about the regulations and general resolutions issued in the past decade, thus re-arranges those former resolutions incorporating also certain applicable jurisprudence and the opinion of scholars.
The procedures initiated until November 2, 2015 and until their termination; however, the relevant applicant can request the application of the Resolution, if the relevant applicant believes that the terms of the Resolution are more favorable.
As from November 2, 2015 the Resolution will come into effect for all the procedures filed before the PR.