Improvements in Panama corporation and trust law

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Improvements in Panama corporation and trust law Powered By Docstoc
by Alvaro Aguilar Alfú

Decree Law 5 of 1997 has been enacted by the Executive Branch which contains
changes to the Commercial Code (C.C.) and Law 1 of 1984 on Trusts. The new
legislation has provisions which have the following effects: improve recordkeeping
requirements for Panamanian business associations (corporations, partnerships, etc.)
doing business locally in Panama, and allow more flexible procedures and records for
Panamanian companies and trusts, as well as to update brokerage and pledge provisions.
1. The Decree Law adds provisions to Article 11 of the Commercial Code for
redomiciliation. Foreign corporations seeking to be chartered under Panama Law are
required to record in the Panama's Public Registry a certificate of good standing from
the jurisdiction of origin, legalized copy of the minutes of the meeting approving the
redomiciliation and Articles of Incorporation with amendments conforming to Panama
Law. Once recorded in Panama, the continuation of the corporation under the laws of
Panama shall have effects between the parties or before third parties from the date of its
initial incorporation in the country of origin. The corporation will continue as owner and
holder of all assets, rights and licences, despite the redomiciliation. The recording can
also be conditionally conducted in Panama, having definite redomiciliation subject to the
eventual recordation of the redomiciliation orders by its attorney-in-fact.
2. Panamanian corporations are now allowed to continue under the laws of another
country and redomiciliate abroad, as long as the corporation has no outstanding
corporate franchise flat taxes. This is conducted by recording in Panama the
corresponding corporate agreement to redomiciliate and the certificate of good standing
from the new jurisdiction.
3. Corporate names may be reserved for a term of 30 days through lawyers in
Panama, once the Public Registry confirms their availability (Article 38A C.C.) for
a US$25.00 fee (Article 317 Fiscal Code). Financial statements may also be
recorded at the corporation's option (Article 58A C.C.) duly certified by a Certified
Public Accountant.
4. Acts or contracts may be delivered by telefax or other electronic means, in addition to
telephone, as long as the parties or their representatives have been directly in
communication. This is also applicable to directors, shareholders, partners or
liquidator meetings, being required that minutes be drafted indicating the means
whereby the participants were in communication. Company resolutions are valid
even if they are signed in different places and dates (Article 203
C.C.). Corporations existing before the enactment of this amendment must modify
their Articles of Incorporation accodingly.
5. Pursuant to the new Article 580A (C.C.), general or special powers of attorney
("mandato") are valid from the date they are granted in public deed or private
document with a date confirmed by Notary Public and may be optionally recorded
in the Public Registry. Articles 57 (Section 7) of the Commercial Code and 1776
(Section 7) of the Civil Code that required said recordation have been abrogated.
Revocation of the recorded power of attorney must also be recorded unless it is not
required from the text of the original document. However, Article 1776 (8) of the
Civil Code still requires recording a power of attorney for the sale of real estates
located in Panama.
6. Juridical persons (corporations, partnerships and other business associations
and entities), in addition to individuals, may form a corporation or company of any
kind and act as its shareholders, directors, officers, managers and liquidators
(Article 249 C.C.). This amendment allows the possibility of a Panamanian or
foreign corporation to act as director or officer of another corporation which is
similar to the capacity that corporations from other jurisdictions have (i.e. British
Virgin Islands). However, 3 directors are still required.
7. Corporate assets may be transferred, assigned and disposed of by managers, directors,
attorneys-in-fact, in addition to shareholders and partners as originally provided, unless
the Articles of Incorporation provides otherwise.
1. The requirement of merchants to have accounting books has been expanded to allow
their being carried out not only in ledgers, but also through electronic means or other
mechanisms allowed by law as long as they may be printed (Article 71 and 93
C.C.). The same is applicable to the corporate books for Shares and Minutes
required under Law 32 of 1927 on Corporations. Required books no longer need to
be sealed by a civil judge (Article 76 C.C.abrogated).
2. Accounting books may be conducted in the number, class or manner the merchant
decides, as long as they are according to generally accepted accounting procedures
applied in Panama (Article 72 C.C.). The Code maintains the requirement for Journal
and Ledger books (Article 73 C.C.). Panama companies that operate offshore, may
keep their legally-required company and accounting books outside of Panama.
3. The documents no longer required are the Inventory and Balance Book (Articles 73,
79 and 80 C.C.), the Current Account book for businesses under US$500.00 in assets
(Article 74 C.C.), Cash Book (Article 82 C.C.), as well as all related correspondence
(Article 85 and 93 C.C.), allowing instead auxiliary registers that support the
information in the required books. The auxiliary registers and invoices must be kept
until the expiration of the statute of limitations, which varies until 15 years for taxes
without special term.
4. Under Article 78 (C.C.), companies that operate inside of Panama should keep their
accounting records in Spanish and in legal currency (Balboas or U.S. Dollars). While
English is no longer a required language for accounting books, documents that support
business transactions may be kept in their original language but should be translated at
the holders expense when requested by local authorities.
5. Under the new Article 87 (C.C.), accounting should be kept by an accountant or
Certified Public Accountant, updated within the following 2 months (increased from 1
month) to the corresponding month. This article no longer allows merchants deemed as
knowledgeable in accounting to carry their own accounting and no longer makes an
accountant severally liable for the omissions and infringments related to the accounting
books. However, fines for infringments of this article have been increased from a
maximum of US$50.00 to US$500.00.
6. Fines increased from a maximum of US$100.00 to US$500.00 (for each official
request for books that is disobeyed) are applicable for infringments of Article 93 (C.C.)
on the duty to keep books, and are now expanded to include the omission by legal
representative's of a corporation in keeping and showing accounting registers and
removing books to countries where they are not easily accesible. Fines are increased
from a maximum of US$500.00 to US$5,000.00 (per offense) for infringments of Article
94 (C.C.), now expanded to include the entry of simulated transactions or omitted any of
7. Financial statements have been further regulated in Article 95 (C.C.), allowing their
drafting under generally accepted accounting principles. Starting from 1997, those
statements must include a general balance sheet, statement of results, statement of
shareholders equity, including change in retained earnings and statement of cash-flow.
Statements must be issued withing 120 days of the end of the fiscal year and be kept
available to local authorities.
1. Legal provisions on brokers have been updated to make brokerage contracts subject to
applicable law, local custom and practice, allow the use of single or global certificates
represented by documents, account entries or any form allowed under securities practice,
such as mechanical, manual, electronic, magnetic or other method that
guarantees their truthfulness (Article 144, 144A C.C.), regulating sales by commissions
(Article 149A C.C.) and allowing buy-back in stock exchange for up to a 3 year-term
(Article 149B C.C.).
2. Provisions setting a one-month term for public secutirites operations and prohibiting
commissions for non-authorized broker have been replaced by the requirement of
previous consent by the National Securities Commission for any local or foreign
securities offer from or within Panama (Article 147 C.C.) and allowing representation in
stock exchanges only by authorized stock sellers (Article 148 C.C.).
3. Operations perfected outside of Panama are exempt from the usury restrictions
and maximum annual interest rates (7% for commercial credits, 9% for civil) of
Law 5 of 1933 and Law 5 of 1935.
1. Article 820 (C.C). on sale of pledged personal property has been modified to allow the
pledgee or receiver to transfer the assets with 30 days written previous notice to the
pledgor unless otherwise agreed to. If no method for valuation has been agreed, an
impartial appraisal is required before the sale.
2. An important improvement is that assets located outside of Panama may be pledged in
general form without delivery to the pledgee, pusuant to Article 829A (C.C.). This
general pledge of assets must be executed in public deed or private document
authenticated by the Notary of the place of execution and, if granted abroad, legalized by
consul or apostille. The pledge instrument must be recorded in the Public Registry,
thereby having preferrence over other non-priviledged credits.
TRUSTS (Law 1 of 1984):
1. When the trust deed is executed in a private document, the signature of the trustee or
its attorney-in-fact, in addition to that of the settlor, must be authenticated by a Notary
Public, which under the amendment needs not be from Panama (Article 9). Article 13
continues to require granting of a trust deed before Panamanian Notary when the trust
will act before third parties.
2. Article 35 on the taxation for Panama trusts operating inside Panama has been
rephrased to continue the exemption from income tax gains from investments in
residential, housing, industrial or urban development projects within Panama. Income
from assets, securities and property located outside of Panama continues exempt from
Panama income tax, under the source-income taxation prevailing in Panama.
1. Article 2 (Section "q") of Law 2 of 1991 has been abrogated, thereby allowing sales
made from the Colon Free Zone to foreign countries to earn tax credit certificates

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Description: Improvements in panama corporation and trust law, Alvaro Aguilar, Panama, 1997. Decree Law 5 of 1997 has been enacted by the Executive Branch which contains changes to the Commercial Code (C.C.) and Law 1 of 1984 on Trusts. The new legislation has provisions which have the following effects: improve recordkeeping requirements for Panamanian business associations (corporations, partnerships, etc.) doing business locally in Panama, and allow more flexible procedures and records for Panamanian companies and trusts, as well as to update brokerage and pledge provisions.