Understanding Corporations: A Guide to Formation, Governance, and Shareholder Rights
1. Definition of a Dealer According to Article 10 of the Commercial Code
Article 10 defines dealers as organizations with the capacity to contract and engage in trade habitually. This implies a continuous repetition of the same activity as their profession. The subject must not only have the ability to enter into contracts but also to enforce them. The definition in the Commercial Code is incomplete as it omits the following:
- Traders act independently, seeking profit.
- Individuals without the capacity to contract (minors) can be considered traders.
- Trading must be a regular professional activity.
A more complete definition would describe a trader as a natural or legal person, national or foreign, who professionally and habitually performs commercial acts for self-profit.
3. Exercise of Trade by a Minor
Emancipated minors, with permission from a guardian and court approval (if the guardian isn’t a parent), can engage in trade. This authorization can be revoked by the court after hearing the minor. The revocation must be documented publicly and doesn’t prejudice third-party rights. Minors cannot act as brokers or trade in partnerships. If their capacity is unclear or concealed through misrepresentation, they are bound by their commercial acts unless they prove bad faith on the other party.
4. Exercise of Trade by a Married Woman
A married woman can engage in trade independently. Her separate property and the marital community under her administration are liable for her actions. With the husband’s express consent, liability can extend to other common property.
5. What are Corporations?
A corporation is a legal entity existing under a trade or corporate name, formed by an agreement between individuals (partners) who combine their efforts and capital for a common economic profit goal.
6. Limited Liability Company: Concept and Analysis
A limited liability company is a corporation with a name, capital foundation, and shares subscribed by shareholders who are liable only up to their contribution amount.
Analysis:
- Sociedad: It exists as a minimum of two individuals.
- Mercantil: As a result of legal personality, the company assumes the status of a trader.
- Capitalista: Capital is the main element.
- Denominación: The company has a name, followed by “SA.”
- Capital fundacional: The initial capital.
- Acciones: Shares represent the entire nominal capital, defining rights and obligations between shareholders and the company.
13. What is Social Capital?
Social capital is the monetary amount or property value contributed by company members. It’s non-refundable and recorded as a balance sheet item, identifying partner rights based on their participation. It also acts as insurance against third parties, establishing a benchmark for the company’s assets and the relationship between partners.
14. What is Capital?
In capital issues, capital refers to the shares incorporated in the company.
15. What is Paid-Up Capital?
Paid-up capital is the nominal value of shares that shareholders have paid, which must have been previously authorized and subscribed.
16. What are Shares?
Shares are titles representing a shareholder’s rights to a portion of a company’s capital. They entitle the shareholder to a proportion of the company’s annual earnings. Shares can be nominative or bearer, ordinary or preferred.
17. Obligations of Shareholders
- Shareholders must fully pay their share subscriptions.
- They are liable for losses and debts, but only up to their contributed amount.
18. Rights of Shareholders
- Right to receive dividends (if agreed upon by the company).
- Right to freely sell their shares.
- Voting rights at shareholder meetings.
- Right to information regarding company management.
19. Corporation Name
The corporation name can be its object or a fantasy name, easily readable, followed by “SA.”
20. Forms of Corporation Incorporation
- Successive or Public Constitution: Promoters draft a bulletin outlining the economic, financial, and legal aspects of the company, including its objective, social capital, shares, and shareholder rights, to attract prospective shareholders.
- Simultaneous or Private Constitution: Promoters meet privately, approve capital subscription and payment, articles of incorporation, and appoint managers and commissioners.
22. Shareholders’ Meeting
The Shareholders’ Meeting is the supreme body of the corporation, composed of shareholders. Its functions include reviewing and approving financial statements and statutes, appointing administrators and commissioners, determining their compensation, approving capital increases or decreases, and approving the purchase and cancellation of company stock (treasury stock).
23. Convening the Shareholders’ Meeting
- How: Through newspaper announcements or letters to shareholders (Articles 277, 279).
- Who: Managers, commissioners, or the court (Articles 277, 310, 29).
- When: Regular meetings require 5 days’ notice; extraordinary meetings require one month’s notice.
- Where: At the corporation’s domicile.
24. Administrators
Administrators, appointed by shareholders for two-year terms (renewable), manage and control the corporation’s operations. Their duties include submitting financial statements, convening shareholder meetings, updating legal books, creating legal reserves, and recruiting line managers. (Articles 242, 243, 244, 259, 263-270)
25. Commissioners
Commissioners, appointed by shareholders, review financial statements, report to the assembly, attend meetings, and ensure that managers fulfill their obligations. They can be managers, accountants, or economists. (Articles 304, 305, 309-311)