LAW No. 4 of 9 January 2009
Regulating limited liability companies
THE NATIONAL ASSEMBLY DECREES:

 

Chapter I

 

General Provisions

 

Article 1. Limited liability companies shall use a company or business name as agreed by the organizers, in all cases adding the phrase “limited liability company” or the initials “LLC”. The adoption of a name which is similar to that of any other previously registered company, whether it be a limited company or otherwise, shall not be permitted wherever it may result in confusion.

 

Article 2. A name may be reserved for a limited liability company for a period of thirty days from the date on which the reservation is filed at the Public Registry.

 

Article 3. Limited liability companies may engage in any kind of lawful civil or commercial activities.

 

Chapter II

Company Formation

 

Article 4. Two or more natural persons or legal entities may form and manage a limited liability company. The number of members, which shall not be less than two, shall be as provided in the articles of organization.

 

Article 5. A limited liability company shall be incorporated in an officially recorded private document or public deed and shall be registered at the Public Registry. The articles of organization shall set forth: 1. The names and addresses of the subscribers and members. 2. The domicile of the company. 3. The term of duration of the company, which may be for an indeterminate or determinate period of time. 4. The business purpose, which may be wide or narrow in scope. 5. The amount of capital stock which may be issued in any currency; the share or interest into which it has been divided, and the value of thereof. 6. The name or names of the person or persons who shall manage and represent the company, who may or may not be members. 7. The name of one or more officers or general and special attorneys-in-fact, together with their powers. 8. The name of the resident agent who shall be an attorney or a firm of attorneys. 9. Any other lawful agreements that the subscribers may deem pertinent, provided they are not contrary to the provisions of this Law, to morality or to the public order.

 

Article 6. Once the company is registered at the Public Registry it shall have the status of a legal entity.

 

Article 7. A limited liability company may amend its articles of organization in accordance with to the procedure set out in the preceding Articles.

 

Article 8. Capital stock shall be comprised of contributions made by the members in cash, assets or services, and shall be represented by a share or an interest.

 

Article 9. Once the limited liability company has been incorporated, its authorized capital stock may be paid-up in full or in part. Contributions in-kind shall be paid in full. The value of contributions in-kind and services shall be set by the members.

 

Article 10. The authorized capital stock of a limited liability company may be increased or decreased by amendment of the articles of organization. However, capital stock shall not be decreased if upon such decrease, the company’s assets would be less than the sum of its liabilities.

 

Article 11. The following shall be registered at the Public Registry: 1. Amendments to the articles of organization. 2. Any transfer of a membership interest which produces a change in membership. 3. The dissolution of the company. Limited liability companies may issue by-laws which may or may not be registered at the Public Registry, as agreed by the company.

 

Chapter III

The Rights and Obligations of the Members

 

Article 12. Every member shall be entitled to receive a share certificate signed by the manager or by one of the managers containing a record of: 1. The name of the company. 2. The authorized capital stock. 3. Confirmation of registration at the Public Registry. 4. The name of the member who is the certificate holder and who may be a natural person or a legal entity. 5. The value of the member’s share. 6. The place and date of issue of the certificate.

 

Article 13. Every member who has paid his capital share in full shall be entitled to one vote at company meetings in proportion to the value of his share of capital stock.

 

Article 14. Members shall share profits and losses in proportion to their share of capital stock.

 

Article 15. In the event of a capital stock increase, each member shall be entitled to a share on a pro rata basis in accordance with his membership interest.

 

Article 16. If an indivisible capital share is owned by several persons, they shall appoint a joint representative in writing who shall exercise the rights of every holder of a capital share, without prejudice to the fact that the owners shall be jointly liable vis-à-vis the company. In the event of a failure to appoint a joint representative, the company shall treat any of the abovementioned owners as the representative.

 

Article 17. In the event of a transfer of the beneficial interest of a member’s interest, membership shall be retained by the bare owner. The beneficial owner shall be entitled to a share of the profits of the company during the period of beneficial ownership together with the proceeds of any liquidation. The right to vote and other ownership rights shall be retained by the bare owner or by any person designated thereby, subject to an agreement between the bare owner and the beneficial owner.

 

Article 18. Unless otherwise provided in the articles of organization, a member may pledge his membership interest. In the event thereof, the member shall continue to exercise his corporate and ownership rights thereon. The pledge of any member’s interest shall be set forth in a private document or public deed which may or may not be registered at the Public Registry at the option of the member. In any event, the company shall be informed of the constitution and termination of the pledge, as well as of any other agreement between the parties grating special rights to the pledgee.

 

Article 19. If the company resolves to extend its term of duration beyond the limit fixed in the deed of incorporation, to change its business purpose, to increase or decrease its capital stock, to become a different company, or to merge with another company or companies, any member who has not voted in connection with such resolution shall be entitled to withdraw from the company demanding payment therefrom of his share of the fair value of the company assets. Members who are dissatisfied with the abovementioned amendments shall execute their withdrawal in the manner referred to in this article within thirty days from the date on which the corresponding resolution giving notice of their withdrawal to the remaining members has been registered at the Public Registry.

 

Article 20. Any member may also voluntarily withdraw by giving three months advance notice to the remaining members, or within a term, and in accordance with the provisions of the articles of organization or the by-laws. The remaining members and/or the company shall have an option to purchase the interest of the withdrawing member within sixty business days of the notification. The interest of the withdrawing member shall be offered first to the remaining members as provided in the articles of organization or the by-laws.

 

Article 21. Members who have contributed assets shall give good title thereon. If the contributions consist of rights or loans, the person making the contribution shall be liable in all cases for the lawfulness thereof and for the solvency of the debtor.

 

Article 22. No member, on his own behalf or on behalf of any other person, shall engage in any business which is similar to the company’s business, or which may in any way hinder its operation, and shall not take part in any other company engaging in the same business, unless agreed by the members.

 

Article 23. Members shall be excluded from the company pursuant to a company resolution: 1. If they violate the provisions of the foregoing article. 2. If they fail to pay their interest promptly. 3. If they have been declared bankrupt. 4. If the hinder or obstruct company operations in any way. 5. If they are guilty of gross misconduct in connection with their duty of loyalty and duty of care towards the company. The company shall withhold the portion of company assets corresponding to such members without prejudice to its right to pursue any pertinent action against such members for compensation. A member’s exclusion shall be resolved by a majority of the members in a meeting of members expressly convened to deal with the matter.

 

Article 24. Any excluded member who considers that the decision is unfair may appeal to the courts within thirty business days commencing on the date on which he is informed of the resolution, and shall include any claim deemed appropriate which shall be processed in an oral proceeding.

 

Article 25. The financial liability of each member for the obligations of the company shall be limited to the amount they have contributed or have agreed to contribute.

 

Article 26. Each member may assign his share in a private document. The articles of organization may provide that the remaining members shall have a preferential right to purchase the share which is to be assigned. The assignment shall be registered at the Public Registry. In order to become a member the assignee must be accepted by the remaining members.

 

Article 27. In the event of the death of a member, the company may continue with or without his heirs if so provided in the articles of organization. Otherwise, a fair value as assessed by experts shall be calculated and paid for the capital share belonging to the decedent member. In the event of a member’s incapacity, the company may continue to operate with his guardian or conservator, or may pay a fair value for the capital share of the legally disqualified person. In the event of the death or incapacity of an individual, thus providing a reason for the dissolution of a legal entity which is registered as the member, the company may continue to operate in its absence after purchasing its capital share, provided there are two remaining members.

 

Article 28. Any income tax payable shall be paid by the members in proportion to their capital share.

 

Chapter IV

Governing Bodies

Section 1

Meeting of Members

 

Article 29. The members shall meet after written or electronic notice of the meeting is sent to each of the members by the managers. The abovementioned notice shall indicate the date, place and time on which the meeting shall be held as well as the purpose thereof. Prior to holding the meeting, members may provide a written waiver of notice of the meeting.

 

Article 30. The articles of organization may require an annual general meeting of members.

 

Article 31. Special meetings of members may be held as deemed appropriate by the managers or by any one of them, or provided that members representing at least five percent (5%) of the paid-in capital request such meeting in writing. In the latter case, members requesting a special meeting must clearly state the reasons for their request together with any issues which, in their opinion, must be resolved. If the meeting of members so requested is not held by the managers within thirty days, members representing at least five (5%) percent of the paid-in capital shall send the appropriate notice of the meeting.

 

Article 32. During the meeting, any member may be represented by a proxy appointed in a public or private document, with or without a substitution clause.

 

Article 33. In a meeting, the members have the exclusive power to: 1. Amend the articles of organization. 2. Approve or reject the balance sheet, the report of the managers, the profit and loss statement, and the proposed distribution of profits. 3. Take any action against the managers after removing them from office, as well as against any particular members for damages caused to the company as a result of the actions of the managers. 4. Remove the managers, appoint their replacements and establish their remuneration. 5. Order the dissolution, merger or transformation of the company or the transfer of jurisdiction thereof. 6. Adopt any other resolution which may be reserved to it by the articles of organization.

 

Article 34. The meeting of members shall be deemed to be properly constituted after being duly convened once members representing the majority of the paid-in capital are present or represented at the meeting, unless the articles of organization require a special majority.

 

Article 35. Present or absent members may validly adopt written resolutions without having to hold a meeting.

 

Article 36. Member’s resolutions shall be adopted by members representing the majority of the paid-in capital unless the articles of organization require a greater majority. Resolutions adopted in a meeting of members shall be recorded in minutes or in a certificate which shall be signed by the president or secretary of the meeting.

 

Article 37. Any member or manager shall be entitled to protest against any resolutions passed by the company which are contrary to the articles of organization or the law, and may bring a suit to nullify the resolution before the pertinent Circuit Court within thirty days commencing on the date on which the resolution was adopted. Any disputes arising from a limited liability company shall be processed in an oral proceeding.

 

Section 2

Managers

 

Article 38. The company shall be managed by any natural person or persons, or legal entity or entities, appointed to that office in the articles of organization or at a later date, pursuant to a resolution. The appointment of the manager shall enter into effect in relation to the company and its members upon subscribing the articles of organization or during any subsequent act, and in relation to third parties, once the articles of organization or the resolution is recorded in a dated document, or once either one been registered at the Public Registry.

 

Article 39. Managers shall remain in office during the term of their appointment unless they resign or are removed and they shall have a right to be re-elected. Even if the managers have been appointed for an indefinite term, the members may resolve to remove them at any time and to appoint a replacement.

 

Article 40. If there are several managers, resolutions shall be passed by a majority thereof. If the articles of organization so provide, each manager independently of the others may represent the company in judicial or extra-judicial matters. The managers shall require a special power of attorney issued at a meeting of members to undertake any operations which are unrelated to the ordinary course of business of the company, to dispose of company assets, to transfer them into a trust, to pledge or mortgage them, or to issue guarantees as security for third party debts.

 

Article 41. The duties of the managers are: 1. To provide an advance draft of the annual business progress report for the company which shall be submitted to the meeting of members for review. 2. To keep and maintain a register of members and a minute book which shall record the resolutions adopted by the company.

 

Article 42. Managers shall have a right to remuneration as provided by the company for performing their duties.

 

Article 43. Managers, regardless of whether they are members or not, shall be liable vis-à-vis the company, vis-à-vis the members, and vis-à-vis third parties for any damage arising from fault, willful misconduct or negligence, for the infringement of any legal provisions, or for breach of any of the clauses of the articles of organization or resolutions adopted by company and, in general, for the poor performance of their duties. If two or more managers are liable, they shall be jointly and severally liable.

 

 

Chapter V

Dissolution and Liquidation

 

Article 44. Limited liability companies shall be dissolved: 1. As provided in the articles of organization. 2. Pursuant to a resolution of the members. 3. Once their business purpose has been executed or it has been clearly stated that the company cannot continue to operate. 4. Upon expiration of the term of duration provided in the articles of organization, unless an extension is agreed prior to such date, or if the articles of organization provide for an automatic extension for successive time periods. 5. Upon merging with another company or companies if it is not the surviving company. In the event of a merger, no transfer of assets shall be deemed to have taken place for any and all legal purposes. 6. For a reasonable cause pursuant to a court ruling. 7. If the assets of the company are less than half of the capital provided in the articles of organization as a result of losses sustained thereto. However, in such cases, the members may prevent the dissolution if they resolve to contribute the required amount within a period of thirty days, commencing on the date on which this event takes place. 8. Due to a decrease in the members’ numbers to less than two without having found another member within a period of sixty business days.

 

Article 45. Once the company is dissolved, it shall maintain its status as a legal entity for the purposes of its liquidation and therefore, it shall only recover its loans, pay its debts, dispose of its assets, initiate judicial or extra-judicial proceedings, and distribute its net assets after liquidation to the members in proportion to their capital share. Prior to proceeding with the distribution of the proceeds of the liquidation, if any, any sums owed to the company shall be collected, assets shall be sold, and company debts shall be paid.

 

Article 46. The bankruptcy of a limited liability company shall not result in its dissolution unless it is classified as fraudulent, as a result of which it may enter into an arrangement with its creditors in accordance with the applicable legal provisions.

 

Article 47. In the event of dissolution, the managers of the company shall act as liquidators unless the company decides to appoint any other natural person or legal entity prior to or after commencing the liquidation. The corresponding process shall conform to the provisions relating thereto which are contained in the articles of organization or in legal provisions.

 

Article 48. A limited liability company may become any other type of company or may merge with any other type of company pursuant to an agreement entered into in accordance with the provisions of the articles of organization or pursuant to a resolution of the majority of the members holding the capital stock, unless a greater proportion is required under the agreement. Moreover, any type of company may become a limited liability company.

 

Article 49. A limited liability company may merge or become consolidated with any other type of domestic or foreign company pursuant to a resolution of the members by stating the name of the surviving company and the rights of the members under the resulting company. The merger or consolidation shall be registered at the Public Registry and the company’s assets shall not be deemed to be transferred for any and all legal purposes. The resulting company shall be subject to the rights and obligations of the merged or consolidated company.

 

Article 50. Foreign limited liability companies may continue to exist under the jurisdiction of the Republic of Panama in accordance with the procedures of this Law which relate to their formation. Moreover, a limited liability company existing in Panama may continue to operate in another country in accordance with the procedures of that country.

 

 

Chapter VI

Final Provisions

 

Article 51. From the date of the enactment of this Law, limited liability companies which have been incorporated prior to the date of the enactment of this Law shall be subject thereto.

 

Article 52. This Law repeals Law 24 of 1 February 1966.

 

Article 53. This Law shall enter into effect as of the date of its enactment.

 

TO BE NOTIFIED AND COMPLIED WITH. Draft bill 385 of 2007 approved following three debates in the Palace of Justo Arosemena in the city of Panama on the 20th day of the month of November of two thousand and eight.

The President,

(Signed: Illegible signature) Raul E. Rodriguez Arauz

The General Secretary,

(Signed: Illegible signature) Carlos Jose Smith S.

NATIONAL EXECUTIVE BRANCH. PRESIDENCY OF THE REPUBLIC. PANAMA, REPUBLIC OF PANAMA, 9 January 2009.

(Signed: Illegible signature) MARTIN TORRIJOS ESPINO President of the Republic

(Signed: Illegible signature) GISELA ALVAREZ DE PORRAS Minister of Trade and Industry ------------------------------------------------------------------------------------------------------------ The undersigned Certified Translator hereby attests that the foregoing is a true translation of a document in Spanish. Panama, 28 January 2009

 

 

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