Starting a Business in Colombia: Pre-Registration Checklist
The following is intended to complement our video tutorial “Starting a Business in Colombia 101: Pre-Registration Checklist.” Anyone planning to start a business in Colombia should review all the videos and articles in this series prior to starting this process.
Foreign investors should keep certain considerations in mind prior to registering a local business entity in Colombia:
1. DRAFT A SOLID BUSINESS PLAN.
Organizing a solid business plan is particularly important in a place like Colombia. Doing business in Colombia often means having to improvise more than you may be used to and even anticipating way more worst case scenarios than in other markets. A well thought-out business plan specific to how business works in Colombia will be invaluable as you start your business.
2. DETERMINE TOTAL INVESTMENT CAPITAL.
This is something that goes hand in hand with organizing a solid business plan. We emphasize this issue here because the amount of capital you will invest in your business will determine any number of key issues including:
- Registration Fees: The more capital you intend to invest in your business the higher your registration fees.
- Franchise Taxes: The higher your investment amount the higher the fees you will need to pay in order to renew your business license (“matrícula mercantil”) every year.
- Visa Application: How much you invest in your business will also impact whether you can apply for a Company Owner Visa which is currently set at 100 X the local minimum wage.
3. NEGOTIATE KEY BUSINESS TERMS.
If your business will have multiple owners/shareholders, you will need to nail down several key issues before registering your company. These can include:
- Ownership Interests: who gets how many shares and why?
- Owner Contributions: who will contribute:
- physical assets;
- in-kind contributions; and/or
- sweat equity.
- Vested Shares: Will some or all the owners receive vested compensation?
- Employment Agreements: Will some or all the owners be required to execute a formal employment agreement?
- Owner Exits: How will owners be able to leave the company?
There are literally dozens of issues owners/shareholders should discuss before they register a local business entity.
4. DRAFT KEY LEGAL DOCUMENTATION.
Once you clarify main business terms your local business lawyer will need to draft relevant legal documentation. This could include:
- Company Bylaws (“Estatutos”): This is, essentially, the “constitution” of the company. Company Bylaws will outline how the company will operate once it is registered. It will also incorporate a lot of the terms you and your partners agreed to abide by.
- Shareholder Agreement (“Acuerdo de Accionistas”): This is an agreement between the shareholders of the company. It will cover any issues that impact the ownership interests of each shareholder. If it has to do with the shares of the company and how shareholders deal with each other it will likely be outlined in the Shareholder Agreement.
Beyond these two main agreements, the shareholders of the company may want to negotiate and execute additional agreements including, but not limited to:
- Partnership Agreements (or “Contratos de Promesa de Sociedad”);
- Buy-Sell Agreements;
- Confidentiality Agreements (or “Acuerdos de Confidencialidad”); AND
- Indemnification Agreements (or “Acuerdos de Indemnidad”).
5. CHOOSE A LEGAL REPRESENTATIVE.
Of all the decisions you will need to make none may be as consequential as deciding who will serve as the legal representative for your business. The legal representative is, essentially, the day-to-day manager of the company. Only the legal representative can:
- sign legal documentation, binding the company;
- hire and fire employees;
- make general business decisions on behalf of the company; and
- have direct access to the financial accounts of the company, including the corporate bank accounts.
Here are your options when selecting a legal representative for your Colombian business:
- Option 1: You Are the Legal Rep: This option is only viable if (1) you already have a Colombian visa and have an active “cédula” (which is a local government ID) and (2) you are in Colombia on a regular basis so that you can sign all legal documentation for your business when necessary.
- Option 2: A Key Employee is the Legal Rep: If you have an employee you trust to handle this responsibility this can certainly work. Keep in mind that serving as a legal representative creates potential liability risk for that individual so expect your employee to request additional compensation.
- Option 3: Someone You Trust is the Legal Rep: If you don’t have an employee that you can trust you can always appoint someone you know who isn’t necessarily connected to your business.
- Option 4: Your Local Attorney is the Legal Rep: If you cannot serve as a legal representative and cannot locate anyone you trust to serve in this capacity, ask your local law firm to do it. This is often the best way to ensure that you can easily register your local business without having to worry about giving outsized authority to a third party who may turn out to be completely irresponsible.
Appointing employees as legal representatives can often generate potential risks as outlined in our Starting a Business in Colombia: Preliminary Considerations PART 2 article. If you cannot serve as your own main legal representative we recommend that you appoint your local attorney.
Keep in mind that you can always serve as a legal representative of your own business in Colombia, even if you don’t have a visa and “cédula.” You may just have to register a second legal representative in order to be able to manage the local corporate bank account.
6. DECIDE WHICH REGISTRATION STRATEGY IS BEST.
In terms of registration mechanics here are your options:
- Option 1: Execute Documentation in Colombia: If you already have a “cédula” and will serve as legal representative, the simplest and least expensive option is to sign relevant documentation at a local notary when you are physically in Colombia. This strategy also applies if (1) your local attorney/trusted local agent will serve as the legal representative, and (2) they are physically present in Colombia.
- Option 2: Execute Documentation at Foreign Consulate: If you and/or your legal representative are outside of Colombia you will need to coordinate with your local attorney in order to execute documentation at a foreign Colombian consulate. Note that this process will be more expensive as foreign consulates charge extra fees. In addition, keep in mind that documents signed abroad will need to be shipped back to Colombia for use by your local legal service provider.
- Option 3: Local Notary PLUS Foreign Consulate: If you or your legal representative are physically outside of Colombia, you may need to sign at a local notary AND at a foreign Colombian consulate. Discuss logistics with your local legal service provider because this option can get pretty complicated.
- Option 4: Notarize and Apostille Documentation: If you and/or your legal representative are outside of Colombia but cannot get to a foreign consulate ask your local attorney to determine if you can notarize and apostille relevant documentation for use in Colombia.
- Option 5: Local Attorney Registers and then Transfers Company: This is a popular workaround when you need to start your business asap but aren’t in the country to get started. Essentially, your local legal service provider would register the company in their name and then transfer ownership to the actual shareholders afterwards. Make sure you discuss the benefits and downsides of this option with your local attorney as this option may be more expensive than other alternatives.
7. DETERMINE IP PROTECTION STRATEGY.
Another very important decision for your new business is determining whether it makes sense to register any new trademarks (or “marcas”) or even patents. For example, if you have an existing trademark you should ask your foreign attorney to determine whether they can expand protection to the Colombian market. If you don’t have a current trademark, you can always start the process in Colombia by applying to the Superintendence of Industry and Commerce and expand from there. Whatever you do, you should invest in an initial trademark analysis in order to determine whether your desired trademark is actually available for registration. The same advice would apply to patents and other intellectual property rights, though the actual mechanics and governmental entities involved will vary.
8. CONFIRM REGULATORY REQUIREMENTS.
If you are going to start a company in Colombia you should know what types of licenses, permits and other regulatory obligations will apply to your business. For this reason we always recommend that clients conduct a comprehensive regulatory analysis that, at a minimum, identifies:
- the specific licenses and permits required for your business;
- the specific public/private entities that issue those licenses and permits;
- any registration fees assessed by these entities; and
- any fees and additional expenses that may be assessed on an ongoing basis.
Make sure your local attorney outlines these issues clearly. You don’t want to start a business only to realize that maintaining relevant permits is either just too expensive or too cumbersome.
9. CONFIRM ZONING ANALYSIS.
Apart from local permits and licenses you will also want to make sure that your business is zoned correctly. This is much more relevant for brick and mortar businesses that rely on foot traffic to secure sales. Make sure your local attorney conducts a comprehensive zoning analysis for your business BEFORE you register your company. This analysis will necessarily involve interacting with local government agencies including the local “curaduría” and “planeación” offices. You don’t want to open a business, possibly invest a significant amount of money and effort, only to realize you can’t open that business in that specific location.