Chile Investment and Commercial Law
Legal Representatives and Incorporating in Chile
Chile Business, Corporate, and Commercial Law

contract-pen-spencerglobalchileIn common law traditions there is often no such things as a legal representative or at least someone with the same level of responsibility does not typically exist. In Chile, a legal representative is a mandatory part of a corporation required by law, the tax authorities, and private institutions such as banks and suppliers. To be the legal representative of a company in Chile, the person must be an adult over 18 years of age and a permanent resident or citizen of Chile. They do not need to be lawyer, accountant, or a partner / shareholder in a company. They can simply be an employee of the company or volunteer third-party. Foreigners can not act as legal representatives of a company even if they own a majority of the company, until they have obtained full permanent residency status in Chile.  A legal representative is someone designated to be the legal face of the company with ultimate signature authority over all official acts the company might undertake.

The Problem of Legal Representatives in Chile

This concentrates a lot of power in to very few hands. The abuse of their position by a legal representatives is a very serious problem in Chile, especially when foreigners may be partners or owners in the company and fail to appreciate the full scope of the powers they have given to the legal representative. We have often encountered cases where legal representatives have taken decided to do things like sell assets in the company, or simply seize control of the entire company. In extreme cases, there was very little legally the owners of the company could do because they gave those unrestricted powers to the legal representative of the company.

The responsibility of the legal representative also cuts the other way. A legal representative assumes certain personal legal liabilities. For example, if a company fails to pay taxes in Chile, the Chilean IRS may bring criminal or civil penalties against a legal representative. In a civil law suit brought against a company, it is the legal representative that is served to appear in court. For all concerned, it is not a duty to be taken lightly.  

So, what can be done about this?

The most important things is that in drafting the articles of incorporation and any related contracts regarding the powers of the legal representative, that the powers given to the legal representative must be properly restricted. For example, in the articles of incorporation, a legal representative could be required to obtain the signature authorizing for the sale of any real estate assets from the partners or shareholders. They could also be restricted in the amount of money they transfer. For example, they would need to request authorization for transfers of over $10,000 US. It is important however that these restrictions not be too strict. The legal representative still needs sufficient authority to act in a timely manner to conduct day to day business on behalf of the company. Thus, careful planning should take in to consideration what powers are essential for the company to function efficiently in regards to the mandate given to the legal representative.

Please feel free to contact us to discuss with one of our attorneys in Chile about your options for handling the problem of legal representatives in Chile when planning to incorporate in Chile.