El Salvador | The Simplified Joint Stock Company: A Business Innovation in El Salvador's Legal Framework
Adán Araujo, Senior Counsel in El Salvador, expert in Corporate Law, shares this article on the Simplified Joint Stock Company (S.A.S.), a legal entity introduced in 2024 that streamlines business formation through simplified procedures, limits shareholder liability, and provides administrative flexibility. This tool is modernizing the legal framework and fostering entrepreneurship in emerging sectors.
The Simplified Joint Stock Company: A Business Innovation in El Salvador's Legal Framework
The inclusion of the Simplified Joint Stock Company, hereinafter referred to as the "S.A.S.", into El Salvador's legal framework through the amendments to the Commercial Code that came into effect in February 2024 represents a milestone in the country's commercial legislation. This corporate model, introduced via Legislative Decree No. 905, stands out for its simplicity and flexibility, making it a key tool for fostering economic growth and encouraging the creation of businesses. In a globalized context where startups and entrepreneurship play a central role, the S.A.S. seeks to facilitate business formalization by reducing bureaucratic barriers and promoting legal efficiency. This type of company not only offers an accessible alternative for local entrepreneurs but also positions El Salvador as a nation committed to modernizing its commercial legal framework.
One of the main innovations of the S.A.S. regulation in El Salvador is the possibility of its incorporation through a unilateral declaration of intent, allowing the company to be established without the need for a public deed. This measure significantly simplifies and reduces the cost and time required to create a company. Article 305-A of the amended Commercial Code stipulates that the S.A.S. is a legal entity that can be incorporated by one or more individuals or legal entities, whose liability is limited to the amount of their contributions.
Additionally, the S.A.S. regime allows for single-member incorporation, meaning one person can own all the shares of the company. This feature is particularly attractive to individual entrepreneurs seeking to formalize their business without the need to partner with other investors. Compared to conducting commercial activities as an individual trader, the S.A.S. offers shareholders greater asset protection by limiting their liability to the amount of their contributions. This advantage strengthens legal certainty and reduces the personal risk faced by entrepreneurs when establishing a company.
Another innovative feature of the S.A.S. in El Salvador is the simplification of the procedures for its incorporation and operation. According to Decree No. 905, the company can be incorporated using electronic forms provided by the Commercial Registry and signed with a certified electronic signature, eliminating the need for the physical presence of shareholders or their representatives during the incorporation process. This advancement not only facilitates the establishment of companies but also reduces costs for startups and improves access to the formal commercial system.
The S.A.S. may maintain its corporate and financial records in electronic format, streamlining administrative procedures. Additionally, when the company's assets are less than twelve thousand U.S. dollars, it may manage its accounting directly without the need for a certified public accountant, and the appointment of an internal or external auditor or a supervisory board is not mandatory for companies classified as micro-entrepreneurs. These provisions relieve small businesses and micro-enterprises of additional costs, allowing them to operate formally until their volume of operations necessitates otherwise.
Despite the advantages offered by the S.A.S., it is important to note that its shares cannot be traded on the stock exchange or issued in the form of electronic account entries. This provision ensures that this type of company is primarily focused on small and medium-sized entrepreneurs, whose main objective is local operations without the need to seek financing through capital markets. This distinction significantly sets it apart from other corporate models that may opt for greater exposure in financial markets.
Legislative Decree No. 905 grants significant flexibility in the structure and governance of the S.A.S. Shareholders have the freedom to define the organizational structure as well as the powers and responsibilities of each corporate body. In the absence of specific rules in the corporate bylaws, the supplementary provisions governing corporations will apply. This ensures that even in the absence of specific internal provisions, the S.A.S. operates on a solid legal foundation.
The S.A.S. model has been widely adopted in countries like Colombia and Mexico, where it has led to greater economic formalization and a notable increase in business creation. In Colombia, for example, the S.A.S. has facilitated the formalization of 54% of the companies established since its implementation in 2008. In Mexico, since its introduction in 2016, it has been extensively utilized by startups and small businesses.
El Salvador's legal framework has drawn inspiration from these models but has introduced local innovations, such as the use of electronic forms provided by the Commercial Registry for the incorporation and management of S.A.S. and the certified electronic signature, further simplifying procedures. However, unlike the legislation of other countries, in El Salvador, the shares issued by the S.A.S., as mentioned earlier, cannot be traded on the stock exchange, reinforcing its nature as a corporate model focused on small and medium-sized enterprises.
One of the key advantages of the S.A.S. is the protection it offers shareholders against the company's debts and obligations. Article 305-A of the amended Commercial Code specifies that shareholders' liability is limited to their contributions, safeguarding their personal assets from any corporate debts. Additionally, it provides that these companies may be established as single-member entities, offering even greater flexibility to entrepreneurs and small business owners.
Another essential feature of the S.A.S. is its simplified dissolution process. According to Legislative Decree No. 905, if an S.A.S. decides to dissolve, the process can be expedited as long as there are no outstanding debts or obligations. This streamlined procedure is particularly beneficial for small business owners who need to close their operations without incurring lengthy and costly liquidation processes.
The implementation of the S.A.S. in El Salvador is an effective response to the demands of the modern business sector. It enables the creation of companies with greater ease, security, and fewer formal requirements, thereby boosting business creation in emerging sectors such as technology and e-commerce. Moreover, by reducing the costs and requirements for entering the formal market, this corporate model contributes to reducing informality in El Salvador's economy, which, in turn, could positively impact tax collection and job creation.
In conclusion, the S.A.S. in El Salvador is an innovative legal instrument that facilitates entrepreneurship, enhances legal certainty for investors, and simplifies company incorporation procedures. For anyone interested in seizing business opportunities in a dynamic and competitive environment, the S.A.S. offers an efficient and accessible option for formalizing commercial activities. Do not hesitate to contact our lawyers in El Salvador, experts in corporate matters, for detailed advice on how to leverage this new legal entity.
The information provided in this article is for informational purposes only and does not constitute legal advice. It does not establish or intend to establish an attorney-client relationship.
The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.