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Chile Investment and Commercial Law
|Buying a business in Chile|
|Chile Business, Corporate, and Commercial Law|
Buying an existing business is complicated under the best of circumstances, and the basic rules of evaluating a company apply to Chile just as they would anywhere else in the World. We are going to set aside most of those issues for the moment in regards to doing business, and simply focus on the unique consideration for evaluating the worth of a business in Chile.
1. Business Assets in Chile
Beyond typical things like bank account balance, property values, and so on, in Chile we would also add bank accounts and related credit records. Why is this important, because for the small to medium size business in Chile owned by a foreigner, opening a bank account can be one of the more challenging tasks to doing business in Chile without an existing income or credit record in Chile. An established business in Chile should have a checking account (not just a bank account) and related credit facilities and history to go with it. You should investigate when buying an existing business in Chile, if you can acquire full and complete control of the checking account along with the company and this should be done by consulting the bank directly.
2. Business Credit and Debts in Chile
Closely related is examining the credit status of the company and any outstanding debts. Credit status will impact the companies ability to open bank accounts and enter in to certain types of contracts. You should also conduct credit checks on the legal representative and any major partners in the company, as often their credit may impact the companies credit, especially for small companies. Special attention should be paid to any tax debts, or past accounting discrepancies that might cause problems in the future related to the income tax or other taxes of the company. The Chilean IRS essentially has access to all information in Chile, and simply because they did not audit or prosecute for a pass offense yet, does not mean they will not someday. A full forensic audit should be conducted by an outside accounting firm, along with the advice of a Chilean tax attorney or corporate attorney. Contracts with other parties should be examined for any legal liabilities in Chile that may be hiding with people like suppliers or customers.
3. Articles of Incorporation in Chile
The articles of incorporation should be examined in detail to determine if they need to be altered and how much will it costs. Company structures are fairly rigid in Chile, and the articles of incorporation almost always require some sort of alteration for full acquisition to occur by an outside party. For example, an IERL in Chile is often impossible for a foreigner to operate under as it is essentially a one person limited liability company that requires full residency or citizenship to be both the owner and the legal representative. Frequently, such situations will need to be converted to another corporate structure in Chile such as a full Chilean Limited Liability Company (LLC) or a Sociedad Anonima (S.A.) in Chile. Sometimes it is simply easier and quicker to dissolve the corporate structure and create a new one. Thus, the true value of the company might be much less than it first appears.
Special attention should be paid to the issues of legal representatives for foreigners that do not have full legal residence in Chile or can not otherwise directly act as the legal representative of the company. Who is going to be the legal representative of the company after you acquire it?
4. Corporate Powers of Attorney
Powers of attorney in Chile are very powerful. When buying a company in Chile it is important that a full investigation be conducted to determine who in the company has powers of attorney to represent the company in various transactions and have any old powers of attorney been canceled properly. Special attention should be paid to powers of attorney clauses attached to documents such as buy / sale agreements for properties, directly in the articles of incorporation of the company, employment contracts and so on. It is critical that each be traced, and properly canceled if they do exist.
5. Employees and Labor Law in Chile
Existing employees and their roles need to be examined carefully, and as much as possible any past employees that have left the company in recent years. Chile has a complex, and sometimes counter intuitive set of labor laws. It is important that all liabilities related to employees and the status with the labor authorities in Chile be examined to determine if the company has been in compliance with employment contracts, labor codes in Chile, and there are no pending labor disputes before the labor board. Also, any contract labor, including professionals should be closely scrutinized by labor law attorney in Chile to determine if they are in full compliance with both tax and labor code requirements. Often professionals, that in almost all other respect would appear to be standard employees working in and office or business, keeping a regular schedule, using the resources of the company, will in fact be considered self-employed contractors that issue receipts for services to the company. There is a fine line that determines if they are covered under the traditional employee labor laws, or they are full contractors to the company.
These are just a few of the most important things to consider when buying a business in Chile, they are far from an exhaustive list of things that need to be examined. Most important thing when considering acquiring a company in Chile is take your time, acquire outside independent assistance of qualified attorneys in Chile and other experts as needed, and be prepared to walk away if it sounds too good to be true. Many times, under close scrutiny, small to medium size companies in Chile do not in fact provide much value vs. the replacement costs of starting a new business from scratch; this is especially true if the company comes complete with a host of legal and financial liabilities. Incorporating a new company in Chile is sometimes much more cost effective; make sure the assets are really assets first.
Related Topics: Incorporating in Chile , Types of Companies in Chile , Doing Business in Chile