A NEW POLICY AGENDA FOR LATIN AMERICAN COMPANY LAW:Reshaping the Closely-Held Entity Landscape

FRANCISCO REYES VILLAMIZARDecember 7, 2011

Comparative Corporate Governance Distinguished Lecture Series

Wake Forest UniversitySchool of Law

CONTENTS

1. Corporate Governance Reforms in Last Decade

2. Reasons for change in Policy Agenda

3. Model Act on Simplified Stock Corporations

4. The Colombian SAS (2008)5. Empirical Evidence on SAS6. General Features of SAS7. Conclusions

CONTENTS

1. Corporate Governance Reforms in Last Decade

2. Reasons for change in Policy Agenda

3. Model Act on Simplified Stock Corporations

4. The Colombian SAS (2008)5. Empirical Evidence on SAS6. General Features of SAS7. Conclusions

Source: Global Investor Opinion Survey: Key findings, Mckinsey and Company, July 200 [Online] www.mckinsey.com/globalinvestoropinionsurvey2002.pdf

Benefits of Corporate Governance according to surveys

CORPORATE GOVERNANCE REFORMS

Ownership Concentration in Latin America

ECONOMATICA and 20 F ADR Filings quoted by Lefort and Walker, The Effect of Corporate Governance Practices on Company Market Valuation and Payout Policy in Chile, Pontificia Universidad Católica de Chile, at 4, March 2005 http://www.iadb.org/res/publications/pubfiles/pubR-515.pdf.at 53.

CONCENTRATED VERSUS DISPERSED OWNERSHIP

EVOLUTION OF LISTED FIRMS IN LAT. AM.

CONTENTS

1. Corporate Governance Reforms in Last Decade

2. Reasons for change in Policy Agenda

3. Model Act on Simplified Stock Corporations

4. The Colombian SAS (2008)5. Empirical Evidence on SAS6. General Features of SAS7. Conclusions

USEFULNESS OF COMPANY LAW OVERHAUL

• Obsolescence of Company Law in the region

• High “Transaction Costs”

• Importance of FDI

• Lack of a multi-purpose versatile business entity

• Excessive emphasis on the development of securities laws

▫ México – Commercial Code (1.889) Law of Business Associations -

LSM (1934)

▫ Brazil – Law of Corporations (6.404 of 1976)

▫ Argentina – Law of Business Associations (19.550 – 1972)

RESISTANCE TO LEGISLATIVE CHANGE

1. Limited Liability

2. Flexible internal structure

3. Reduction of formalities for incorporation

4. Transparent tax structure

5. Broad contractual freedom

USEFULNESS OF HYBRID FORMSUSEFULNESS OF HYBRID FORMS

CONTENTS

1. Corporate Governance Reforms in Last Decade

2. Reasons for change in Policy Agenda

3. Model Act on Simplified Stock Corporations

4. The Colombian SAS (2008)5. Empirical Evidence on SAS6. General Features of SAS7. Conclusions

1. OAS Legal Committee (April 2011)

2. Proposal of a separate statute introducing a new type of company

3. Model Act contains substantive and procedural provisions

4. Ex ante mandatory rules are generally reduced or replaced by ex post standards

MODEL ACT ON SIMPLIFIED STOCK MODEL ACT ON SIMPLIFIED STOCK CORPORATIONSCORPORATIONS

SASINSPIRING MODELS

•Simplified Stock Corporation (Colombia)

•Limited Liability Partnership, LLC, Closely held corp. (USA)

•Société par Actions Simplifiée (France)

CONTENTS

1. Corporate Governance Reforms in Last Decade

2. Reasons for change in Policy Agenda

3. Model Act on Simplified Stock Corporations

4. The Colombian SAS (2008)5. Empirical Evidence on SAS6. General Features of SAS7. Conclusions

COLOMBIAN SAS

Law 1258 of 2008

Introduced a new hybrid business form with all the features of a modern corporation law statute

CONTENTS

1. Corporate Governance Reforms in Last Decade

2. Reasons for change in Policy Agenda

3. Model Act on Simplified Stock Corporations

4. The Colombian SAS (2008)5. Empirical Evidence on SAS6. General Features of SAS7. Conclusions

Data for 2008-2011

Year Number SAS

% New Business

2008 (Dec) 160 7.4%

2009 17,740 50.5%

2010 37,371 77.9%

2011 (through Oct) 45,505 90.7%

Newspaper editorialFebruary 3rd, 2011

“The SAS is a legalRevolution…”.

CONTENTS

1. Corporate Governance Reforms in Last Decade

2. Reasons for change in Policy Agenda

3. Model Act on Simplified Stock Corporations

4. The Colombian SAS (2008)5. Empirical Evidence on SAS6. General Features of SAS7. Conclusions

E-INCORPORATION(in one hour)

E-INCORPORATION STEPS1.Tax ID

2. Minutes

3. Payment

4. Digital signature issuance

5. Signing Document

6. Registration

E-INCORPORATION – TAX ID

E-INCORPORATION – NAME CHECK

E-INCORPORATION – MODEL BYLAWS

GENERAL FEATURES OF SAS

1. Single-member or Multi-member Entity2. Simplification of Incorporation Process3. Commercial Nature4. Full-fledged Limited Liability5. Broad Contractual Freedom6. Flexible Capital Structure7. Ex-Post Standards 8. Specialized Conflict Resolution Mechanisms9. Unlimited Life Span and Unrestricted Purpose Clause10. Freedom to Define Organic Structure11. Flexible Rules on Capitalization12. Modern Rules on Transferability of Shares13. New Corporate Restructuring Mechanisms14. Simplified Rules for Dissolution and Liquidation

CONTENTS

1. Corporate Governance Reforms in Last Decade

2. Reasons for change in Policy Agenda

3. Model Act on Simplified Stock Corporations

4. The Colombian SAS (2008)5. Empirical Evidence on SAS6. General Features of SAS7. Conclusions

CONCLUSIONS•Advantages:▫Reduction of

informality▫Access to credit

by SMEs▫Relevance for

groups of companies

▫Foster innovation, economic growth

•Implementation presupposes:▫Breaking up path

dependence▫Support from

pressure groups▫“efficient minded”

lawmakers▫Overcome legal

elites / traditions

Many Thanks

francisco.reyes@law.lsu.edu