Commercial companies.
I'm frequently asked what type of company would be most suitable for a particular business venture. At first glance, this seems like a very easy question to answer. However, multiple factors must be considered in order to provide appropriate advice in each case.
Through the implementation of Law 479-08 and its subsequent modifications, in the Dominican Republic, we have a wide range of options to formalize a company and choose a type of company suitable to our purpose.
In this brief article, we will explore the different types of business entities recognized by our legislation. We will also mention a type of company that is not considered a business entity, but which has its own legal personality and can carry out all lawful commercial activities.
However, I believe that before listing the different types of business companies, we must define the concept of a company.
What is a commercial company?
In accordance with Article 2 of Law 479-08, “A commercial company exists when two or more natural or legal persons agree to contribute assets in order to carry out commercial acts or exploit an organized commercial activity, in order to participate in the profits and bear the losses that they produce.”
According to this definition, for a commercial company to exist, it is essential that at least two people, who may be individuals or legal entities, agree to contribute assets. These contributions must be intended for carrying out commercial acts or for operating an organized commercial activity.
In my view, the most distinctive aspect of a business entity is its purpose of sharing in the profits and bearing the losses generated by the venture. This characteristic distinguishes a company formed for commercial purposes from the activity of a lender, since the lender provides the money in exchange for interest, but is not willing to bear the losses. In other words, the borrowing entrepreneur must repay the loan regardless of the project's success or failure.
Similarly, non-profit associations differ from commercial companies in the fundamental fact that they have not been conceived for the purpose of receiving profit from the earnings generated by the association's operations.
Now let's look at the types of business entities it contemplates. Law No. 479-08, General Law of Commercial Companies and Individual Limited Liability Companies.
Types of Commercial Companies
Article 3 of the aforementioned Law recognizes that the following types of commercial companies will exist:
- General partnerships;
- Limited partnerships;
- Limited partnerships by shares;
- Limited liability companies;
- Public limited companies;
- Simplified joint-stock companies (SAS)
Furthermore, the legislation recognizes the accidental or joint venture company, which may not have its own legal personality.
It is worth noting that Law No. 479-08 regulates Individual Limited Liability Companies (EIRL), which is not a company, since it is constituted with only one person and as we have seen before, for a commercial company to exist, the participation of two or more people is necessary.
General partnerships;
The general partnership[Yo] It is one that exists under a company name and in which all partners have the status of merchants and are subsidiarily, unlimitedly and jointly liable for the company's obligations[ii].
The company's creditors may only pursue payment of company debts against a partner after having put the company in default by extrajudicial act.
The general partnership will operate its business under a company name consisting of the name of one or more associates followed by the words "and company" or its abbreviation if the names of all the partners are not included.
Limited partnerships;
The limited partnership[iii] It is the one that exists under a corporate name and is made up of one or more general partners who are subsidiarily, unlimitedly and jointly liable for the company's obligations, and one or more limited partners who are only obligated to pay their contributions.
The company name shall be formed with the names of one or more general partners, followed by the words “and Company” or other equivalent terms, when the names of all the general partners are not included. The words “Limited Partnership” or its abbreviation “LP” shall always be added to the company name.”
It is important to note that the names of limited partners cannot be included in the company name. A limited partner whose name appears in the company name will be liable for the company's obligations as if they were a general partner.
Limited partnerships by shares;
The limited partnership by shares[iv] It is composed of one or more general partners who will have the status of merchants and will be jointly and severally liable for the company's debts, and limited partners, who will have the status of shareholders and will only bear losses in proportion to their contributions. Its share capital will be divided into shares. The number of limited partners may not be less than three (3).
As can be seen, in this type of company, some of the partners (general partners) are jointly and severally liable for the company's debts. The general partners must be merchants.
Limited liability companies (LLCs);
The limited liability company[v] It is formed by two or more people, under a corporate name, through contributions from all partners, who are not personally liable for corporate debts and whose responsibility for losses is limited to their contributions.
The company name may be freely chosen. It must be preceded or followed, immediately and legibly, by the words "Limited Liability Company" or the initials, LLC. In the absence of one of these latter indications, the partners will be jointly and severally liable to third parties.
The share capital of limited liability companies will be divided into equal and indivisible parts called share quotas, which may not be represented by negotiable securities.
To establish this type of business entity, a minimum of two (2) partners and a maximum of fifty (50) partners are required. It is the most common type of business entity in the Dominican Republic as of June 26, 2022.
Public limited companies (SA);
The public limited company[vi] It is the type of company that exists between two or more people under a corporate name and is composed exclusively of partners whose liability for losses is limited to their contributions. Its capital will be represented by essentially negotiable securities called shares, which must be fully subscribed and paid for before issuance.
Public limited companies can be of two types:
Public Limited Company.
These are corporations that use public savings to form or increase their authorized share capital, or list their shares on the stock exchange, or contract loans through the public issuance of negotiable bonds, or use mass media or advertising to place or trade any type of instrument in the securities market, and will be subject to the supervision of the Securities Superintendency in their formation and organization process, in acts related to the modification of their corporate statutes, in changes to share capital; likewise, in the issuance of negotiable securities, transformation, merger, division, dissolution and liquidation.
Private Limited Company:
Those public limited companies not included in the statements provided for in article 157 will be considered privately subscribed.
Simplified joint-stock companies (SAS)
The Simplified Joint-Stock Company[vii] (SAS) may be formed by two or more persons, who will only be liable for the amount of their respective contributions, and which will have legal personality. Its corporate name will include the words "Sociedad Anónima Simplificada" or the acronym SAS. To opt for this type of company, the articles of association must expressly state their adherence to these rules.
The bylaws will establish the amount of authorized capital, which may never be less than three million Dominican pesos (RD$3,000,000.00) or its equivalent in freely convertible foreign currency. Likewise, the bylaws will establish the amount of subscribed and paid-in capital, which may never be less than ten percent (10%) of the authorized capital.
The joint venture or partnership
Joint ventures or partnerships[viii] These partnerships constitute a contract whereby two (2) or more persons who are merchants enter into an agreement for one or more specific and temporary commercial transactions, which one of them shall execute in their own name and on their own credit, with the obligation to render accounts and divide the profits or losses with the other participants in the agreed proportion. These partnerships shall not have legal personality and shall lack a name, assets, and registered office. They shall not be subject to formal requirements or registration and may be proven by any means.
Accidental or joint venture companies shall operate, be dissolved and liquidated, in the absence of special provisions, in accordance with the provisions of general partnerships insofar as they do not contradict the provisions of this Section.
We have seen the different types of companies contemplated by the General Law on Commercial Companies and Individual Limited Liability Companies. Now let's see what an EIRL is.
The sole proprietorship with limited liability (EIRL)
The sole proprietorship with limited liability[ix] It belongs to a natural person and is an entity with its own legal personality, capable of holding rights and obligations, which form an independent and separate patrimony from the other assets of the natural person who owns said company. It may carry out all kinds of civil and commercial operations, provide services, and engage in industrial and commercial activities.
Legal entities cannot establish or acquire companies of this type. A sole proprietorship with limited liability may be transformed into a corporation.
The individual limited liability company will be constituted by means of an act granted by its founder, who, in addition to being its owner, will have the legal conditions required to be a merchant and will state, in said act, the contributions he makes for the establishment of that company.
Conclusion:
Thank you for reading this short and simple article. In future installments, we will discuss each of these types of companies and the requirements for their formation in greater detail.
We will also see several tutorials that will give us more clarity on this exciting topic.
- If you want to formalize a company in the National District, you can do so on the portal of the Santo Domingo Chamber of Commerce
- If you want to formalize a company in the Santo Domingo Province, you can do so on the portal of the Chamber of Commerce of the Province of Santo Domingo
- If you want to formalize a company at the Single Window for Formalization, you can do so on the portal of Formalize
You can download Law No. 479-08 at this link:
[Yo] Articles 59-74, Law No. 479-08
[ii] Article 59, Law No. 479-08
[iii] Articles 75-88, Law No. 479-08
[iv] Articles 141-148, Law No. 479-08
[v] Articles 89-140, Law No. 479-08
[vi] Articles 154-369, Law No. 479-08
[vii] Articles 369-1 – 369-10, Law No. 479-08.
[viii] Articles 149-153, Law No. 479-08
[ix] Articles 450-466, Law No. 479-08
