Panama, August 27, 2020.
Morgan & Morgan is pleased to announce that our firm has been shortlisted for two awards in the Women in Business Law Americas Awards 2020 organized by Euromoney Legal Media Group. The awards recognize firms and women lawyers across a spectrum of practice areas, jurisdictions, and sectors, providing a snapshot of the most advanced teams working in the legal profession today.

Morgan & Morgan is shortlisted in the following awards: 

Pro Bono – Latin America

Talent Management – Latin America

In addition, our attorney Mayte Sanchez Gonzalez is finalist in the following category: 

Best in Commercial Arbitration

The awards winners will be announced on September 17, 2020. 

More information on this recognition is available here.

27 de agosto de 2020

Desde el año pasado, la Dirección General de Ingresos, mediante decretos ejecutivos y resoluciones reglamentarias dispuso los lineamientos para la utilización y aplicación de los créditos del Impuesto de Traslado de Bienes Materiales y Servicios (ITBMS) generados producto de las retenciones practicadas por los agentes de retención de este impuesto, en el caso de los consorcios o sociedades accidentales. Hasta mayo de este año, se permitía la cesión a otros dos contribuyentes de dichos créditos, los cuales podían ser aplicados solamente en dos períodos fiscales.

Recientemente, mediante la Resolución No. 201-5006 de 17 de agosto de 2020, se amplía el marco de aplicación de los créditos y además de los consorcios o sociedades accidentales, se reconocerá también a las sociedades regulares en los siguientes términos:

“Este crédito sólo será reconocido a las personas jurídicas regulares y sociedades sin personería jurídica, que por sus características actúen como agente de retención o como retenido y presenten una solicitud donde comprueben fehacientemente que se mantienen operativamente inactivos o que haya culminado la obra o proyecto para el cual fueron creados por lo que se les hace difícil poder recuperar y aplicar este crédito.”

Como mencionamos anteriormente, la utilización de los créditos fiscales de ITBMS sólo se permitía durante dos períodos fiscales; sin embargo, la Resolución No. 201-5006 que comentamos permite que sea aplicado por períodos subsiguientes en los siguientes términos:

“Informar a los contribuyentes que el crédito fiscal del ITBMS que se generó como consecuencia de la retención de los agentes de retención de este impuesto, podrá ser aplicado en el período fiscal en que se reconoce y períodos subsiguientes.”

El resto del procedimiento de reconocimiento y aplicación de dichos créditos se mantiene de la siguiente manera:

  • El contribuyente deberá estar al día con el pago de todas sus obligaciones tributarias para solicitar este reconocimiento del crédito.
  • El crédito reconocido podrá ser aplicado a dos contribuyentes obligados del ITBMS, para el pago de una deuda por este impuesto, por cada periodo fiscal, previo acuerdo entre las partes. Para esto deberá presentar formal solicitud ante la Dirección General de Ingresos, señalando las generales de los contribuyentes a quienes desea ser aplicado dicho crédito, el porcentaje que le será cedido, el porcentaje que se aplicará y el período a aplicar.
  • El crédito reconocido no podrá sr utilizado en un porcentaje mayor al cincuenta por ciento (50%) por período fiscal. 

Nos mantenemos a su disposición para aclarar lo que estimen prudente. Favor contactarnos en [email protected] o directamente a:

Amanda Barraza de Wong
Asociada Senior, Morgan & Morgan
[email protected] 

Angélica Ortiz
Asociada, Morgan & Morgan
[email protected]

Panama: The Shipping Law Review

Panama, August 24, 2020.

Juan David Morgan Jr., partner and head of the Shipping and Admiralty Litigation practice of Morgan & Morgan, was part of the experts of the seventh edition of The Shipping Law Review. This publication highlights the leading jurisdictions and critical features of regulations concerning the handling of maritime disputes.

The online Panama chapter is available here.

Or a PDF version is available to download here.

At the beginning of a startup’s life, the use of financial resources in the most efficient way is of vital importance. It is for this reason that the incentives that a country can provide to an entrepreneur and his newly formed company can potentially determine how and how much that company will grow.

In previous articles in this Startup Series, we summarized the advantages of incorporating a startup under Panamanian law, and briefly mentioned some of the incentives that exist in our legislation. In this new edition, we will expand on some of the applicable special regimes, so that founders can be generally aware of the most relevant incentives for his or her field.

Panama is the ideal jurisdiction to develop all kinds of entrepreneurial initiatives due to its wide array of special commercial regimes and its state-of-the-art logistics facilities. From Panama, activities that have effects outside of Panama, such as the distribution of products at the regional level or assembly of products destined to be exported, can be carried out. These activities have specific tax rules, which are covered by special trade and fiscal regimes. With this in mind, and considering that a startup depends on exponential growth in a short period of time, understanding the different incentives and regimes available can boost the business from its early stages.
In addition to the tax advantages provided by the Principle of Territoriality, which we have already discussed, there are a number of special regimes in Panama that, although not expressly created for startups or entrepreneurial businesses, are designed in a manner that could be used to stimulate the economic activities in which the startup is involved. Undoubtedly, amongst the special regimes that could be applicable to startups are the incentives for companies dedicated to research and innovation in scientific, technological, humanistic and cultural fields that are located within the City of Knowledge Foundation complex.

  • For innovative companies located within the City of Knowledge Technopark, there are important tax incentives such as: the exemption from import tax on the machines, equipment, furniture, vehicles, devices and supplies necessary for the development of said companies; exemption from the Tax on Transfers of Movable Personal Property and Services (“ITBMS”) on machinery, equipment, vehicles, devices and supplies that are acquired and necessary for the development of said companies; and exemption from any tax, duties, or encumbrance imposed on the remittance of money abroad when such remittance or transfer of funds is carried out for some purpose of the companies.

There are also special regimes that provide incentives to industrial manufacturing, agro-industrial, and marine resource transformation companies. Companies engaged in these activities may obtain an Industrial Development Certificate by filing a request to the Ministry of Commerce and Industries in which, among other things, they must describe the activity of the company and the product or products that are currently being manufactured. The certificate confers benefits to its holders, such as the reimbursement of 35% of all disbursements made for research and development of new and improved processes, product features or the creation of new products. Additionally, the losses suffered by the companies holding the aforementioned certificate during a fiscal period will be deductible throughout the following five fiscal periods, at the rate of 20% per year. It is important to mention that companies will not be able to take advantage of the benefits conferred by this law if, among other things, they already enjoy other tax benefits, or if they are located in special zones, free zones, fuel free zones or any other zones that are established in the future by special laws.

Other important incentives that deserve mention are those afforded to companies established within the Panama-Pacific Area, which will enjoy exemption from import tax on all types of merchandise, equipment, service, products and other goods introduced to the Panama-Pacific Area, exemption from ITBMS, exemption from export and re-export tax, among others. Companies established within Free Zones, tourism companies and investors in tourism companies; and headquarters of multinational companies are also afforded with exemptions and tax benefits that a startup could take advantage of, if applicable. Lastly, Panamanian legislation grants incentives to multinational companies that establish their base of operations for Latin America in Panama (these head offices are known as the Multinational Headquarters or “SEM” for its name in Spanish), such as exemptions from income tax for services provided to entities domiciled abroad that do not generate taxable income in Panama and exemption from sales tax for services rendered to entities domiciled abroad that do not generate taxable income in Panama, among others (for more information on the SEM special regime, click here).

It is important to highlight that, as a commitment to reinforcing international tax transparency, Panama has been part of the Base Erosion and Profit Shifting (BEPS) initiative since 2016, and that regimes such as SEM and Panama-Pacific comply with such substantive rules aimed at ensuring consistency, transparency and belonging in all its activities.

Equally relevant for startups, are incentives for micro, small and medium-sized enterprises (MSMEs). The law under which these incentives are granted defines MSMEs as follows:

  • Micro-enterprise: One that generates gross revenue or annual turnover up to the sum of US$ 150,000.00.
  • Small-sized enterprise: One that generates gross revenue or annual turnover between $ 150,000.01 and US $ 1,000,000.00.
  • Medium-sized enterprise: One that generates gross revenue or annual turnover between US $ 1,000,000.01 and US $ 2,500,000.00.

Startups wishing to benefit from this regime must submit a request to be listed in the Business Registry of the Authority for Micro, Small and Medium-sized Enterprises (AMPYME). Such request must provide, among other things, a suitable income statement or letter from an accountant certifying the company’s annual turnover (recently constituted companies are exempted from this requirement). Thereafter, the MSME must register with the General Revenue Office (DGI, for its name in Spanish) for its special regime to be incorporated into its taxpayer profile. Once the company is registered, it will be exempt from paying income tax for the first 2 fiscal years, counted from the date in which the MSME was registered in AMPYME. Note that, as a temporary measure aimed at mitigating the effects of the COVID-19 crisis, the income tax exemption afforded to MSMEs has been extended to cover the first 3 fiscal years, counted from the date in which the MSME was registered in AMPYME. In addition, such enterprises may participate in AMPYME’s Business Development Program, gain access to the Seed Capital Fund Competitive Program and the PROFIPYME Financing Program, the Microcredit Financing Fund for Small and Medium-sized enterprises, and will be given priority in public bids in which there is a tie between two companies.

All that said, it is clear that Panama offers a significant number of special regimes and tax benefits. These regimes may well be taken advantage of by a founder who wishes to establish his or her company in Panama and grow his or her startup in a short period of time. Given the need for a startup to achieve scale quickly, having the government’s support and incentives is beneficial and could be a component that a potential investor takes into account when investing in a startup. Finally, each business must be evaluated so as to determine whether the incentives mentioned herein are applicable. We are at your service for any queries you may have on these issues.

For more information on these topics, please contact:

Tax-related inquiries:

Amanda Barraza
Tel: 265-7777 ext. 7636
Email: [email protected]


Angelica Ortiz
Tel: 507-265-7777 ext. 1651
E-mail: [email protected]

Corporate-related inquiries:

Kharla Aizpurúa O.
Tel: 265-7777 ext. 7652
Email: [email protected]


Miguel Arias M.
Tel: 507-265-7777 ext. 7687
E-mail: [email protected]

Please not that, currently there exists a draft law seeking to modify this regime. We will comment on said changes in the event that it becomes law.

Informe de Sostenibilidad 2019

On July 22, 2020, the National Assembly approved, after a third debate, Draft Law No. 83 (the “Draft Law”), which regulates limited liability entrepreneurship companies (the “LLECs”) in Panama, and is now awaiting the signature (or veto) of the President of the Republic.

The Draft Law’s object is to “streamline and simplify constitution procedures” of these special legal entities, so as to reduce the costs and the bureaucracy that usually prevail in the path towards entrepreneurship, as well as to “promote job creation through a new form of business.” It is clear that this Draft Law is a great step towards the formalization of many businesses, furthermore, it is an additional incentive for Panamanians to start a business and contribute to the development of the local economy. However, it is necessary to evaluate whether this Draft Law, if signed by the President, will effectively contribute to the creation of an entrepreneurship “hub” in Panama, and if the entity is an attractive one for a startup.

As we have mentioned in the past, startups are characterized by rapid and exponential growth, and require large capital injections in a short span of time in order to finance their operations, achieve the necessary scalability to penetrate international markets and become true disruptors. It is for this reason that, as a premise, we pose that startups, by nature, should not be considered analogous to a micro, small and medium enterprise (MSME), given that they that grow rapidly and require a lot of capital, unlike MSMEs that grow gradually for extended periods of time and capital injection will depend on their scale over time. Within the applicable regulations, startups should not be defined based on the same criteria used to define MSMEs, because this would be an inadequate definition of what a startup is and of its potential. We underscore then, that according to Article 25 of the Draft Law, LLECs have revenue limits based on the definitions of micro and small companies, and that, if a company generates gross revenues above those limits, it would lose its status as an LLEC. This is inconvenient for a startup given its exponential growth. If a startup quickly gains scalability, its gross revenues can be very high from the beginning, however, high gross revenues do not necessarily mean that a startup is turning a profit. Measuring the status of a startup based on its gross revenues (which is effectively treating a startup as if it were a MSME) gives a false perception that the company is not, in effect, a fast-growing company. In the recommendations that emerged from a 2016 study published by the Organization for Economic Co-operation and Development (“OECD”) and entitled “Startup Latin America: Building Innovative Future” (hereinafter the “OECD Study”),   reference is made to, for example, countries like Chile and Mexico, leaders in the promotion of startups in Latin America, who opted to define a startup based on their performance (growth potential), innovative potential, global target market and capacity to meet the specific needs of a country or region.

In its Article 5, the Draft Law stipulates that LLECs may only be composed of members who are natural persons, effectively limiting the type of person that can invest in these companies. Although it is true that at the beginning of a startup’s life, the founders will likely be natural persons, it is possible that a startup would want to invite a capitalist partner to join the company (often, in addition to providing capital, these partners have vast experience and can serve as mentors or advisors). It is possible that these potential capitalist partners will wish to invest, for various reasons, through their own legal entities; so, this limitation on who can be members must be taken into account when considering the type of legal entity under which the startup will be organized. In addition, since private companies often have the ability to contribute seed capital to a startup, encouraging the private sector to devote part of its resources to invest in startups and encourage local entrepreneurial culture is key to creating a robust startup industry. On this, the aforementioned OECD Study commented that:

“[…] Commercial banks, development banks and investment funds could boost the region’s entrepreneurial ecosystems. The region still needs to channel more private capital towards productive investment, but for this to happen, countries will need to reform legislation to foster private investment, while investors will need to change their mindsets.”

Additionally, Article 7 dictates that “one to five persons […] residents of the Republic of Panama” may constitute an LLEC. From this, it is not clear whether only the persons who constitute the LLEC are required to be residents of Panama, or whether the LLECs are reserved for Panamanian residents, meaning that there can be no foreign members in LLECs. If the latter is true, then the effort to attract foreign investors and entrepreneurs to Panama would be frustrated and would further reduce the pool of capitalist partners that may invest in LLECs. According to a 2019 Forbes’ publication, 50 of the 91 billion dollar startups in the United States of America, which have a combined value of US $ 248 billion, were founded by immigrants. Hence, if Panama seeks to become an entrepreneurship hub, closing its doors to foreign ventures that turn to other countries in the region due to the limitations imposed by the laws in their jurisdictions does not contribute towards achieving this goal.

An important aspect of a startup is that relationships between shareholders and investors are extremely complicated and ever-changing. Allowing an LLEC to be created without seeking advice of an attorney can be good from the point of view of streamlining the process, but for a startup it can result in future complications, in the event that there is friction between shareholders or investors. This is why a startup’s articles of incorporation must have clear rules on, for example, shareholder rights and sale restrictions. In the absence of these, the shareholders of a startup must execute a shareholders’ agreement, so that corporate governance rules, as well as any other aspects of the company that they wish to regulate (such as capital commitments and dilution of shareholding) are duly agreed upon. Under the Draft Law, LLECs may be constituted through the filing of a “standard statute,” a model of which will even be provided by the PanamaEmprende portal. An entrepreneur is rarely thinking about the legal consequences of incorporating a company or the rules under which that company will be governed. That’s why it is important to seek legal counsel to which the entrepreneur can explain his or her needs and concerns, so that the attorney may produce documents that meet those expectations and better manage the problems that may arise in the future.

Amongst the most common methods in which a startup raises capital to finance its operations is through the sale of its shares; so, the shareholding structure of a startup will undergo various changes throughout its life. Additionally, often the shares sold in different financing series have different rights and obligations from those owned by founding shareholders (such as preferential liquidation rights and conversion rights), which provides an additional incentive for an investor to contribute capital to the startup. Under the Draft Law, LLECs, which have a structure similar to that of limited liability companies (“LLCs”), must keep “all the information regarding changes to their structure or their administrators and/or members” up to date. Thus, information regarding the members is not private and transfers or sales of participating quotas must be recorded in the Public Registry; a process which may be cumbersome and would add an additional layer of complexity to financing rounds, a fundamental phase of any startup. Additionally, nothing in the Draft Law seems to indicate that LLECs can issue participating quotas of different classes, which means that in a financing round, only participating quotas with the same rights, obligations and restrictions as the rest of the partners could be offered to new investors (same situation as with SRLs). Encouraging private investment in startups is an essential component of the development of these businesses, and shares of different classes with, for example, preferred liquidation rights, are part of the allure of investing in a startup. The Draft Law significantly limits the chance to attract capital to the LLECs.

It is thus clear that the corporation, which is widely known to both Panamanian and foreign investors, is the preferred legal entity for a startup since it allows transfers to be made through private documents, the shareholding structure does not have to be recorded in the Public Registry and the issuance of shares of different classes is allowed.

Finally, the treatment that would be granted to LLECs in government bidding proceedings by way of Article 36 could be prone to abuse. Under said article, individuals or legal entities that participate in public bids for better value and include one or more LLECs in their proposals will enjoy “an additional score of 5%”. This preferential treatment may cause consortia to include LLECs in their bids just to get the benefit of the additional score, and not because SERL truly contributes something to the consortium. Likewise, it is not clear how this benefit is administered — that is, whether it applies to both price scoring and technical scoring, or only the latter. This confusion may result in legal challenges to bid proceedings, which would have a counterproductive effect.

It is worth mentioning that, in principle, a law that encourages entrepreneurship and the creation of companies in an easy, dynamic way and under a streamlined process is a good step in favor of the startup industry. In fact, the OECD Study mentions several of the components contained in the Draft Law as important components for the promotion of startups, such as the simplification of the incorporation procedure, the promotion of entrepreneurial culture and implementation of strategies aimed at improving entrepreneurial-related education. However, for Panama to become a true hub of innovation and startups, there are several other aspects to be considered, such as the promotion and facilitation of investment, removal of entry barriers to certain industries such as financial and retail, the introduction of new financing methods such as crowdfunding and the provision of instruments that expedite such forms of financing.  We are at your service for any queries you may on have on these matters.

For more information, please contact:

Inocencio Galindo
Tel: 265-7777 ext. 7734
Email: [email protected]
Miguel Arias M.
Tel: 507-265-7777 ext. 7687
E-mail: [email protected]

El día de hoy fue aprobado en Tercer Debate el Proyecto de Ley No. 354 que establece medidas importantes que aplicarán de forma temporal a las empresas que cerraron total o parcialmente durante el Estado de Emergencia y a los trabajadores suspendidos.

A continuación, los puntos más importantes que fueron aprobados:

  • Se extienden hasta el 31 de diciembre de 2020 las suspensiones de los contratos de trabajo. Estas prórrogas se realizarán de mes a mes, y no aplicará la figura del silencio administrativo. Se requiere aprobación expresa del MITRADEL.
  • El empleador podrá reiniciar progresivamente sus labores reintegrando gradualmente a sus trabajadores.
  • Se prohíbe la contratación de nuevos trabajadores en igual o similar posición a la de un trabajador suspendido. No obstante, sólo se permitirá la contratación de nuevos trabajadores si se requiere nuevos puestos de trabajo, lo que deberá ser informado al sindicato, o a los trabajadores, donde no exista organización sindical.
  • El reintegro gradual no puede ser utilizado discriminatoriamente en perjuicio de los trabajadores. Si se comprueba, la multa oscilará entre $500 y $1,000 por cada trabajador discriminado.
  • El empleador que ha reactivado su operación podrá establecer turnos distintos a los vigentes, las veces que lo considere necesario, informando a los trabajadores con 48 horas de anticipación.
  • Los trabajadores que en la 2ª. partida no tienen derecho al 13° mes, por razón de la suspensión, tendrán derecho a recibir un bono determinado por el Ejecutivo, pagado a través del Ministerio de Economía y Finanzas.
  • Para los mutuos acuerdos, el empleador entregará al trabajador la propuesta escrita para que la responda en 2 días hábiles. Si se firma el mutuo acuerdo sin el cumplimiento de este plazo, el trabajador podrá demandar la nulidad del acuerdo, y solicitar el reintegro ante los juzgados seccionales de trabajo.Se presume cierta la afirmación del trabajador de que no se le otorgó el término de 2 días para responder.
  • La terminación de la relación laboral por mutuo consentimiento, despido o por decisión unilateral del empleador dentro de los 3 meses siguientes al reintegro, obliga a la cancelación inmediata, en un solo pago, del total de las prestaciones o derechos.
  • El cálculo de la prima de antigüedad y la indemnización para los trabajadores con contratos suspendidos o con reducción de jornada, se calculará de acuerdo a los salarios que recibía durante los 6 meses anteriores al Estado de Emergencia.
  • Se suspende el cómputo del tiempo correspondiente al fuero de maternidad durante el período de suspensión, cuando ésta sea por causas de fuerza mayor o caso fortuito o incapacidad económica para la prosecución de las actividades.
  • El tiempo restante del fuero se reactivará tan pronto se reintegre la trabajadora.
  • Esta ley empezará a regir a partir de su promulgación.

Para consultas por favor escríbanos a [email protected]

Panama, July 29, 2020.

Morgan & Morgan is pleased to announce that, for the fifth consecutive year, the firm´s Private Wealth Law practice group earned top ranking (Band 1) in the 2020 Chambers Hight Net Worth Guide, a publication aimed at the international private wealth market and a key reference point of the world´s leading firms in terms of service excellence and reputation.

This is a big player in the Panamanian market, capable of dealing with complex tax matters. They are excellent at resolving problems with a practical and effective approach.”, a market commentator says to Chambers.

Three of Morgan & Morgan partners were also distinguished with top rankings in the guide:

Roberto Lewis Morgan, head of the practice with a depth of expertise in wealth preservation and distribution matters, including private foundations and corporate vehicles. A client comments to Chambers that he “gets things moving within the firm” and is “receptive to clients.”

Raul Castro, partner and advisor to the Panamanian government regarding international tax matters, CRS and FATCA implementation. One market insider says to Chambers Castro “is absolutely outstanding,” explaining: “He is the go-to person when you have something complex in Panama or the BVI. He has a very practical approach towards client needs.”

Luis Manzanares, partner and with substantial experience in wealth preservation matters, including tax and succession planning advice on investment funds, trusts and private interest foundations. “A savvy lawyer with huge international experience,” says one client to Chambers.

Morgan & Morgan has a seasoned team of lawyers with vast experience in traditional wealth protection and management structures such as discretionary and non-discretionary trusts, private interest foundations and corporations. More than five years ago, the firm started a new practice led by a group of young lawyers with vast knowledge in modern structures tailored for HNW individuals and families.

More information on this recognition is available here.

Panama, 24 July 2020.

By means of Rule JD-01-2020, published in the Official Gazette No. 29076 of 24 July 2020, the Superintendence of Non-Financial Regulated Persons (SNFR) has established a set of rules and obligations imposed to attorneys and accountants whenever they incur in any of the regulated activities under Law 23 of 2015, which relates to prevention of money laundering, financing of arms of mass destruction and financing of terrorism.

Below, we summarize the relevant matters of this new regulation:

Access to Clients’ information

Art. 3 of Rule JD-01-2020 establishes that attorneys and accountants regulated by the SNFR incurring in any of the regulated activities, shall, at the requirement of SNFR, deliver a list of clients classified in qualitative and quantitative terms, based on risk parameters. With respect to clients that has terminated its commercial relation, shall be included in the list indicating an explanation of the cause of termination of the commercial relation.

During the supervision, all documents relating to the relation of each client (e.g. Contracts, agreements, etc.) shall be furnished, as well as the documentation related to the due diligence and control measures applied.

Due Diligence Measures

Art. 6 and 7 of Rule JD-01-2020 establishes the enhanced due diligence requirements applicable to natural or legal persons, that shall be requested by attorneys and accountants in the scenarios set forth under Law 23 of 2015, in which  such measure is required in light of the high risk cases.

This new regulation also establishes a list of clients that may be subject to a simplified due diligence measures in virtue of the regulated activities exercised by attorneys and accountants, which is something that was not previously regulated.

Directors and Representatives

Attorneys and accountants shall, at requirement, disclose to the SNFR the identity of the persons designated or offered as nominees to its clients.

Rule JD-01-2020 derogated and left without effect Resolution JD-14-2015 and its amendments, that were the original regulation applicable to the regulated activities of attorneys and accountants.

For further information or advice on the matters described above please contact:


Pablo Epifanio
Senior Associate, Morgan & Morgan
[email protected]

The creation of a startup

An entrepreneur has a lot to consider when starting a new business. Who will be part of the team? Who will manage the company? How will decision-making be handled? Without a doubt, from the legal standpoint, among the first questions that an entrepreneur must ask him or herself is: What type of entity should I incorporate? Although this question may seem strictly legal, the type of entity that is chosen has important consequences for the administration of the startup and for the relations between the partners and/or shareholders, among other things.

Imagine two people (hereinafter, the “Entrepreneurs”) have been developing a business idea they believe to be marketable. The Entrepreneurs are willing to invest capital and effort to develop the idea, but they are unsure about how to structure the entity under which the business will be handled. To this end, the Entrepreneurs request the advice of a lawyer to advise them on such structure.

The lawyer explains to the Entrepreneurs the importance of organizing the company as a separate legal person, given that this way the company will have its own legal personality, separate and distinct for all its acts and contracts, from that of the Entrepreneurs. If, for example, the entrepreneurs start their business without a duly organized corporation, there are circumstances under which it may be considered that  they have constituted a “de facto” partnership, which would mean that the Entrepreneurs are jointly and severally for the contracts that the partnership enters into, as well as any other obligations assumed by the partnership. That is, the Entrepreneurs could end up being personally liable for the debts incurred by the partnership, without any type of limit. The Entrepreneurs explain to the lawyer that, given the potential for rapid growth that they expect their startup will have, they wish to establish a company in which they can designate the everyday decision-making power to a limited number of people, however, the Entrepreneurs, as shareholders, want to maintain control over certain major decisions. In addition, they do not rule out that there might be some interest on the part of investors, who will want to finance the Startup’s operations through the purchase of shares in the company, as long as there is a difference between the shareholding of these new investors, and the Entrepreneurs, who would be the original founders and shareholders.

The ideal type of entity for this startup would be a Corporation (Sociedad Anónima) (hereinafter, “Startup, S.A.”). The incorporation process is simple; for the corporation to acquire its own legal personality, two or more persons, regardless of their nationality or domicile, must execute the Articles of Incorporation before a local Notary Public and record it in the Public Registry.

Hence, below are some of the characteristics that Startup, S.A. will encompass:

Startup, S.A.”

Articles of Incorporation


The Articles of Incorporation regulate the relationship between the shareholders of the corporation, and commonly establish the parameters under which, for example, the members of the board of directors of the corporation will be chosen, the restrictions on the transfer or sale of shares, the powers of the shareholders’ assembly and board of directors, among others.

To incorporate Startup, S.A., its Articles of Incorporation must contain:

  • Name and address of persons executing said articles before a Notary Public (the “Subscribers”).
  • Name of the corporation.
  • Description of the activity it will carry out, which may be a generic description;
  • Authorized capital, number and nominal value of the shares.
  • Classes of shares, number of each class, special rights of each class.
  • Number of shares of each Subscriber.
  • Registered office of the corporation and resident agent.
  • Duration of the corporation (which can be perpetual).
  • Number of directors (not less than three).



Startup, S.A.’s authorized capital must be made up of shares (represented in share certificates).

On this particular case, since, for the moment, there are only two shareholders, it is not necessary to issue more than one class of shares (unless the Entrepreneurs consider this is warranted). Once the value and number of shares that will be issued has been determined, the Entrepreneurs will invest their capital and Startup, S.A. will issue share certificates and annotate such issuance in the corporation’s share registry. For purposes of a startup, it is important that the Entrepreneurs keep a capitalization table (“Cap Table”) in which a log of the share issuance is kept (including preferential shares with conversion rights, employee share options, and loans with rights to shares in the event of non-payment), to better understand what is the effect of capital infusions in funding series (such as dilution of the Entrepreneurs participation).

Also note that capital contributions can be both in money and in services, as long as the service has a value equal to or greater than the shares that are being issued in exchange for said service.

It is important to emphasize that the Articles of Incorporation can be modified by the shareholders if they so agree, therefore, what the Articles of Incorporation initially provide will not necessarily be so for the entire life of the corporation. By means of a shareholders’ meeting it is possible, for example, to increase the number of shares in the corporation, and even authorize different classes of shares with different designations, preferences, privileges, voting rights, restrictions or requirements, all of which will be relevant when investors start showing up.

The issuance of different types of shares is a common methodology for raising capital. Thus, specific classes of shares are issued in each of the financing rounds, and the investor receives certain benefits and special incentives that motivate the investor to participate in the particular financing round. In addition, it is a common way for founders to retain control of the corporation.

Control and administration of the corporation


The Board of Directors of a corporation is the entity responsible for the administration of the business. The Directors’ decisions must be taken together and adopted by majority in order to be valid. The Articles of Incorporation will generally provide for the election of the directors, the period during which they will hold the position and how will they be chosen.

Directors have absolute power over the corporation, as long as said power does not conflict with the rights of the shareholders, which, according to Panama’s Commercial Code, are the “supreme power” of the corporation. By law, there are certain acts over which only the shareholders have control, such as: modifying the Articles of Incorporation, deciding on the merger of the corporation with another, among others. However, the Articles of Incorporation may grant additional powers to the shareholders.

Having said all this, for Startup , SA, the Board Directors shall have the power to make decisions on behalf of the corporation, and will also determine the policies, guidelines and directives under which corporation will be governed, and will delegated their implementation to a “general manager”, who will manage the day to day operations of the corporation. To ensure that control over the corporation is maintained, the initial directors of the corporation will be the two Entrepreneurs, plus one additional person, given that by law it must have at least three directors. Also note that it is neither necessary nor mandatory for the directors of the corporation to also be shareholders.

Once new investors are allowed into the corporation, these investors may require that they be issued shares with voting rights and be given a seat on the board of directors, in order to have control and oversight of their investment.

Sales of Shares


The entrepreneurs can sell their shares if they so desire, always subject to the stipulations of the Articles of Incorporation. It is common to establish in the Articles of Incorporation that the shareholders of a corporation must offer their shares to existing shareholders before offering them to third parties (this is known as a right of first refusal), however it is not a requirement.

If there is no restriction, the shares of a corporation can be freely traded through private documents, without the need to register the transfer in the Public Registry. If, for example, the Articles of Incorporation contain a restriction on the transfer of shares (such as the right of first refusal, among others), such procedure must be followed to sell the shares. If there is no such right, shareholders are free to sell or dispose of their shares as they wish, without consent of other shareholders or the Board.

In the case of Startup, S.A., it is preferable not to include restrictions on the transfer or sale of shares, since one of the ways in which the corporation will be raising capital will be through the sale of shares. The terms and conditions under which new shares and new classes of shares will be issued may be determined at the time of their issuance.

Relationships between Shareholders

Having said all of the above, nothing prevents the shareholders of a corporation from signing a shareholders’ agreement so as to expand on the rules governing the relationships of the shareholders.

In this case, the Entrepreneurs would sign a shareholders’ agreement, to which all future shareholders of the same class of shares as the Entrepreneurs would be obliged to adhere to. This agreement would establish, among others, things such as:

  • Limitation of selling or disposing of the shares of the corporation for a determined period of time.
  • A right of first refusal.
  • The rules under which the business must be conducted.
  • The types of shareholders who will have the right to choose the Board of Directors.
  • The qualifications that a director must have to be approved.
  • The obligation to contribute capital if necessary.


Additionally, when facing a capital injection by a new investor, the shares that are sold to the investor or investors, may include special rights and obligations, depending on what is negotiated. In these events, the most important aspects to negotiate are economics and control, given that the Entrepreneurs will want to keep control of Startup, S.A. and avoid dilution of their economic participation; and the new investors will want to have some control over their investment and make sure it provides a return at some point in the future. Capital raising issues will be covered in other articles in the Startup Series.

After incorporation of Startup, S.A., the Entrepreneurs will need to take certain steps in order to operate and protect their business, and make sure that it is attractive for future third party investments:



  • Operations Notice to enable the corporation to carry out trade in Panama.


  • Obtaining the Unique Taxpayer Registry (RUC) and Tax Identification Number (NIT) in the Office of General Revenue (DGI).


  • Obtaining permits applicable to the operation carried out by Startup, S.A.


  • Opening of bank accounts.


  • Prepare drafts of employment contracts, for when personnel are hired.


  • Trademark registration at the General Office for the Registration of Industrial Property (DIGERPI).


  • Confidentiality agreements for Entrepreneurs, employees and contractors.


  • Website terms and conditions, if available.


  • Keep the financial accounting of the corporation, or hire a service to carry it out.


For more information on these matters, please contact:


Kharla Aizpurúa O.
Tel: 265-7777 ext. 7652
Email: [email protected]


Miguel Arias M.
Tel: 507-265-7777 ext. 7687
E-mail: [email protected]