Argentina

• Author: Marcelo Bombau - Pablo Ferraro-Mila
• Pages: 1-35

1

Argentina

Marcelo Bombau

M. & M. Bomchil*

Pablo Ferraro-Mila

Gonzales & Ferraro-Mila

CHAPTER 1

COUNTRY OVERVIEW

Argentina is the eighth largest country in the world and the second largest country

in Latin America in terms of surface area, covering some 1.5 million square miles,

with a population of approximately 41 million. It is organized as a federal repub-

lic with a democratic political system and a government consisting of an executive

branch headed by the president, a legislative branch, a nd a judiciar y. The president is

elected by direct vote and m ay serve a max imum of two consecutive four-year terms.

Argentine Congress is composed of two houses, the Senate and the Chamber

of Deputies, and has exclusive power to enact laws concerning federal legislation—

including international and interprovincial trade, im migration and citizenship, and

patents and trademarks—and to enact the civil, commercial, criminal, mining,

labor, and social security codes, which are applicable nationwide.

The judicial system is divided into federal and provincial courts, with each

system having lower courts, courts of appeals, and supreme courts. The supreme

judicial power of Argentina is vested in the Supreme Court of Justice.

Each of the 23 provinces enacts its own constitution, elects its own governor

and legislators, and appoints its own judges to the provincial courts.

* Contributors to this chap ter: J. Felipe Arlía Goyeneche (Brons & Salas); Alejandro Polet to

(Estudio Beccar Varela); Pablo Crescimb eni (Curutchet—Odriozola); Juan Del Sel (Fontan

Balestra & Asociados); Ignacio Acedo (Go nzalez & Ferraro-Mila); Marcelo Den Toom

(M. & M. Bomchil); Hernán Slem enson (Marval, O’Farrell & Mairal); Gustavo Cedrone

(Mitrani, Caballero, O jam & Ruiz Moreno); Jorge Ortiz (Ortíz & Asociados); Diego Se rrano

Redonnet (Perez Alati, Grondo na, Benites, Arntsen & Martinez de Hoz); Roberto B auzá

(Rattagan, Macchiavello, A rocena & Peña Robirosa); Hernán Camarero (Richards, Cardi nal,

Tützer, Zabala & Zaefferer); Julio César R ivera Jr. and Santiago Michel (Rivera & Asociados);

Alexia Rosenthal (Tanoira Ca ssagne Abogados); Gerardo Viramonte Jr. (Viramonte &

Asociados); and Vanesa Balda (Vitale , Manoff & Feilbogen).

2 Chapter 1

ESTABLISHING A BUSINESS PRESENCE

Permanent Structures

To conduct business on a permanent basis, a foreign company can either (i)incor-

porate or participate in a local entity or (ii)qualify a representative or a branch.

Foreign companies wishing to participate in local companies must file and reg-

ister with the Public Registry of Commerce (PRC) (i)a copy of their articles of

incorporation and bylaws, (ii)proof that they validly exist according to the laws of

the country where they were formed, and (iii)the corporate resolution appointing

legal representatives and establishing a local domicile. They shall also (i)inform if

they are subject to business prohibitions or restrictions in their place of origin and

(ii)demonstrate that, outside of Argentina, they either (a) have one or more agen-

cies, branches, or permanent representations; (b) hold a participation in companies

that qualifies as noncurrent assets; or (c) own fixed assets in their country of ori-

gin. In case a foreign company was incorporated for the sole purpose of being a

vehicle for investing in other companies, compliance of the above requisites by its

controlling entity suffices.

Suitable Corporate Forms

Commercial activities in Argentina are usually carried out through one of the fol-

lowing: the corporation (sociedad anónima or SA), the limited liability company

(sociedad de responsabilidad limitada or SRL), or the branch of a foreign com-

pany. The first two are the most common, since they limit the liability of the par-

ent company to the extent of its interest in the local company. Applicable rules are

comprised in the Argentine Commercial Companies Act (ACCA) 19,550, which

is applied nationwide. Provincial laws set forth rules for registration and other

requirements.

The structure and rules for SAs and SRLs are quite similar although the latter

has slightly less operational costs. Certain activities, such as banking and insur-

ance, require that the company be incorporated as an SA. The minimum stock

capital required for SAs is equivalent to some USD 12,500. There is no minimum

requirement for SRLs. However, the stock capital needs to be consistent with the

corporate purpose. SAs and SRLs can be managed and represented by one or more

individuals, in which case decisions shall be adopted by a majority vote. The board

shall hold meetings at least quarterly, and the majority of directors need to be

Argentine residents (there being no nationality requirements). The directors must

also register with the tax and social security authorities.

Resolutions on matters that go beyond day-to-day decisions are to be decided

by the stockholders and, unless a unanimous meeting and vote are expected, all

others need to be summoned. SA sto ckholders shall be notified by means of a notice

in the Official Gazette within a specific time frame. Companies under permanent

governmental supervision as well as specific situations also require notices in a

Argentina 3

nationwide newspaper. The summoning rules for SRLs are more flexible. There

are certain specific statutory quorum and majority requirements depending on the

kind of meeting (ordinary or extraordinary).

Wholly Owned Entities

ACCA rules require at least two stockholders. According to the regulations and

policies in force in the city of Buenos Aires, the minority holder shall own no less

than 5 percent of the stock capital. If stockholders are foreigners, they shall own

no less than 10 percent to avoid the mandatory deposit (encaje) established by the

Central Bank. The two stockholders may belong to the same group; thus, ulti-

mately, the local company may be a wholly owned entity.

Joint Ventures

The ACCA provides for contractual joint ventures, which are not granted legal

personality and thus do not have a legal existence separate from their members.

These agreements need to be registered with the local PRC in order to have effects

vis-à-vis third parties and must contain term of duration, name, domicile, liability

of each of the members, and the details on the decision-making process, among

other specifications.

Investments in Mergers with Existing Entities

There are basically two ways of participating in or acquiring a local business:

(i)purchase of shares: the continuity of the legal entity entails risks associated with

hidden liabilities, particularly tax and social security ones, and (ii)asset purchase:

this option provides reasonable protection against hidden liabilities if executed

through the Transfer of Going Concer ns Act and federal and provincial tax regula-

tions. This alternative is more expensive than a “share” deal.

Merger processes are quite common in Argentina. Subject to compliance with

certain fiscal requirements, corporate reorganizations (mergers included) can be

carried out in a tax-free fashion. Corporate reorganizations encompass a number

of agreements, valuations, and stages and must be registered with the PRC.

Agency/Reseller/Franchising/Distribution Networks

Agency, distribution, and franchising agreements lack specific regulation by law

in Argentina. Thus, their main characteristics and those of other distribution net-

works (commercial agents, licenses, etc.) have been shaped by doctrine and case

law. As such, the parties can, in principle, freely regulate their relationship.

• In an agency agreement, the principal entrusts the agent with the promotion

and marketing of the former’s business. T he agent sponsors a principal busi-

ness and receives a commission from the sales of the products or services.

The agent can either simply intermediate in the sale of goods by marketing