Member Article

Simplified Stock Companies (SAS) have been implemented in El Salvador as a corporate solution aimed at micro-entrepreneurs and informal sector merchants who, due to entry barriers established in various regulatory bodies, were discouraged from forming a traditional corporate vehicle (e.g., Corporation, Limited Partnership, Limited Liability Company, among others) to conduct their business.

 

In pursuit of the objective mentioned above, the reforms to the Commercial Code (C. Com.), which gave rise to the SAS, seek to reduce the administrative burden required for the proper operation of this type of company by establishing special considerations that exempt SAS from complying with certain corporate obligations.

 

Accordingly, regarding commercial and corporate governance obligations, under art. 305-A of the C. Com., SAS shall be governed by:

 

The provisions of their Social Pact.

The provisions outlined in Chapter VIII-BIS.

In the absence of the above, by the provisions for Corporations regulated in commercial legislation.

Consequently, SAS are generally obliged to comply with the same commercial obligations as Corporations, so that the day-to-day operation of SAS, once constituted, will be similar to that of traditional corporate vehicles.

 

Among the exceptions to commercial obligations, SAS may, but is not obliged to, form a Legal Reserve from the profits earned in the fiscal year. While this benefit results in higher profits at the end of a fiscal year by not establishing a legal reserve, it does not take advantage of the deductibility of the legal reserve from Income Tax following the rules of art. 31 of the Income Tax Law.

 

Therefore, the income tax burden will be higher, and consequently, it will be more burdensome for SAS not to establish a legal reserve at the end of the fiscal year. Consequently, this exemption does not constitute a benefit for the reasons stated above.

 

Similarly, like traditional corporate vehicles, they must hold an Annual General Shareholders’ Meeting at which the management body’s annual report, financial statements, and, if applicable, the presentation of the external auditor’s report and the appointment of the external auditor must be reviewed.

 

In the case of SAS, when their assets exceed the classification of a Microenterprise, as defined by the MYPE Law, they will be required to appoint an external auditor for the fiscal year in which they have exceeded the aforementioned classification; otherwise, they will be exempt from such appointment.

 

Regarding the tax obligations of SAS, commercial legislation does not establish any distinction or special treatment in this matter, as to date no reforms (to tax legislation) have been made to grant a preferential tax regime for SAS. Consequently, they are obliged to comply with all current substantive and formal tax obligations, i.e., their tax obligations are the same as those of traditional corporate vehicles.

 

Regarding the accounting records of SAS, art. 305-Z of the C. Com. establishes that those with assets of less than USD 12,000.00 can keep their accounting themselves or through persons of their appointment. However, if their assets are equal to or greater than USD 12,000.00, they must keep their accounting through duly authorized Public Accountants. Although this provision seeks to prevent SAS with insignificant assets from being forced to hire a public accountant, they must still comply with all substantive and formal tax obligations.

 

The legislator still has much work ahead to achieve the objectives set out in the incorporation of SAS into the Salvadoran legal framework; in this sense, for the SAS figure to constitute a truly preferential corporate vehicle for micro-entrepreneurs, whose administrative, commercial, and tax obligations and burdens are considerably lower compared to traditional corporate vehicles, it will be necessary to carry out a comprehensive reform of the Salvadoran legal framework.

 

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