Starting a Business in Colombia: Putting It All Together
Alan Gongora, Esq. (NY)
Michelle Gil, Esq. (COL).
If you have reviewed our prior articles in this series, you should now have a pretty solid understanding of the business registration process in Colombia. As a reminder, here are links to our prior articles:
- Starting a Business in Colombia: Preliminary Considerations PART 1
- Starting a Business in Colombia: Preliminary Considerations PART 2
- Starting a Business in Colombia: Pre-Registration Checklist
- Starting a Business in Colombia: Registering Your Business
The focus of this article is to synthesize all the concepts, observations and recommendations outlined in our prior articles into a comprehensive, step-by-step summary of how to start a business in Colombia. Remember that the actual mechanics and chronology may vary quite a bit depending on (1) the attorney you use; (2) the actual industry; and (3) the specific strategy involved. Bottom line, we consider the following to be the least risky way to start a business in Colombia.
STEP 1: NAIL DOWN MISCELLANEOUS PRE-REGISTRATION ISSUES
There are several important threshold issues foreign investors need to consider before they can begin to structure their new business in Colombia. These can include:
- deciding between a Solo Proprietorship vs a business entity; and
- deciding if getting a visa based on their investment in the business is a key requirement.
STEP 2: DRAFT A SOLID BUSINESS PLAN
Drafting a solid business plan is even more important in a place like Colombia. You want to make sure that it anticipates any number of Colombian-specific scenarios and is flexible enough so that your business can pivot as necessary along the way. Note that, by definition, a solid business plan would outline responses to each of the steps outlined in this article.
STEP 3: ORGANIZE TAX ANALYSIS
Foreign investors interested in starting a business in Colombia should conduct a comprehensive tax analysis in order to determine the most tax-efficient way to structure their operations. This analysis should focus on the best ways to book profits locally, as well as how individual shareholders can properly repatriate those profits back to their home countries in a tax-efficient manner.
STEP 4: CHOOSE IDEAL BUSINESS STRUCTURE/FORM
As explained in our “Starting a Business in Colombia: Preliminary Considerations PART 1” article, there are a variety of business structures that you can use to register your business in Colombia. However, with some exceptions, most investors in Colombia will eventually choose the S.A.S. structure to register their businesses for any number of legal and strategic reasons.
STEP 5: DETERMINE HOW TO MAINTAN CONTROL
It is essential that foreign investors choose the right decision-making mechanism that makes sense for their business while also focusing on implementing proper oversight over the local Legal Representative. This can include organizing a local subsidiary of a foreign company, managing the business via a board of directors, and even voting their shares in the local business entity.
STEP 6: DETERMINE TOTAL INVESTMENT CAPITAL
This is a key step because the amount of capital will impact everything, from registration fees to whether you can apply for a visa based on your investment.
STEP 7: NEGOTIATE KEY BUSINESS TERMS
If you are starting a business with other partners, it is important that all parties discuss and agree how to manage any number of key issues in connection with the new business. This includes everything from how to allocate contributions and profits to what happens if a partner wants to exit the business. Failure to do this from the start could create friction between the partners and could lead to some very nasty outcomes.
STEP 8: DRAFT KEY LEGAL DOCUMENTS
Once the partners have decided on key business terms your local business attorney should draft legal documentation consistent with those terms. This could include company bylaws and a shareholder agreement, though your local business attorney may recommend additional legal documentation depending on your own specific business structure.
STEP 9: CHOOSE A LEGAL REPRESENTATIVE
As mentioned in our Starting a Business: Preliminary Considerations: PART 2 article, choosing a Legal Representative may be one of the most consequential business decisions foreign investors will make. If you will be the sole legal representative, make sure you have a valid visa and a “cédula” so you can avoid any issues with financial institutions. If you will be granting legal representative authority to a third party, make sure you trust that person because they will have direct access to your financial accounts.
STEP 10: CHOOSE REGISTRATION STRATEGY
Given the often complex logistics involved in registering a company in Colombia, it is important that you nail down how, exactly, your company will be registered with your local legal service provider. As explained in our Starting a Business in Colombia: Pre-Registration Checklist article, this process could involve:
- signing documentation at a local notary in Colombia;
- signing documentation at a foreign consulate;
- notarizing and apostilling documentation; and/or
- the transfer of ownership of the new local business entity from your local legal service provider to the company’s shareholders.
STEP 11: DETERMINE IP PROTECTION STRATEGY
You definitely want to nail down whether you will need to apply for any trademarks or patents in connection with your business. You would want to do this prior to registering your business because this may affect how much capital you will need to get your business off the ground. In addition, it may take a while for any applications to be approved so you will want to prep this process ASAP.
STEP 12: CONFIRM REGULATORY REQUIREMENTS
Before you start a business in a foreign country you definitely need to understand what kind of regulatory requirements will apply to your business. This includes reviewing whether your business requires specific permits/licenses given the industry involved and whether it will be zoned properly. Again, you definitely want to do this prior to the registration phase because this may affect the amount of capital required to start your business and your annual operating budget.
STEP 13: REGISTER YOUR BUSINESS
Here we refer back to the process outlined in the Starting a Business in Colombia: Pre-Registration Checklist article in this series. Remember that the actual process can vary quite a bit depending on the location of the entities involved and your own specific business structure.