Article 469 of the Colombian Commercial Code states that “Foreign companies are companies that are established in accordance with the laws of another country and their headquarters are abroad….”. Consequently, there are two premises to be considered a branch office: i) it has been established under the laws of another country, and ii) it has its main headquarters abroad.
Although Colombian law does not provide a definition of a foreign company branch, the Commercial Code provides that if a foreign company wishes to carry out business in Colombia on a permanent basis, it must establish a branch with offices in the country.
In accordance with legal definition of a domestic branch which is applicable to a foreign branch office, the law states that: “—— business establishments opened by a company within or outside its territory to undertake any of the company’s commercial activities, managed by agents with authority to represent the company …”.
Thus, a foreign company branch should be viewed as a business establishment opened by the foreign company in Colombia to carry out permanent activities. The foreign company branch is not an autonomous legal entity different from the parent company, and therefore it does not enjoy independent legal status different than the foreign company.
Furthermore, for a foreign company to begin conducting business in Colombia on a permanent basis, it must establish a branch with offices in the country, as provided in the Commercial Code. Hence, it must be determined whether the activity that a foreign company is going to carry out in the country is a “permanent activity” that requires it to establish a branch.
The Colombian Commercial Code does not define “permanent activity”, and only sets forth broad, some examples of activities which are considered “permanent”:
- Opening commercial establishments or business offices within Colombian territory, even if solely for the purpose of providing technical or consulting services.
- Participation as a contractor in projects or the provision of services
- Participation in any way in activities related to the management or investment of funds obtained from the public (private savings)
- Participation in any of the segments or services of the mining industry
- Obtaining a “concession” from the Colombian Government, the assignment of it or participation in the exploitation of the same in any manner.
- Conducting shareholder, member or boards of directors meetings, or management or administration taking place in Colombian territory.
However, these provisions must be applied to each specific case, according to the circumstances surrounding those activities (i.e. nature, frequency or duration) to determine conclusively whether they are of a permanent or transitory characterization.
Since the establishment of a branch office in Colombia does not create a separate entity and Colombian Law requires that a foreign company´s experience, financial, legal and organizational capacities must be proven through its registration in the Chamber of Commerce, I recommend the creation of a foreign branch office.
In accordance to Colombian Commercial law, the creation of the branch office must be carried out by executing a public deed, in a Notary, in the domicile chosen for the branch with the following documents from the :
- The foundation documents of the foreign company.
- The company´s bylaws
- The Minute of the Board of Directors or the Organ of the foreign company that contains the resolution which contains the decision to create the branch office in Colombia and authorizing its opening. Said minute must contain the following:
- NAME: As such branch does not have a distinct legal existence from its foreign parent company, it is given the same name as its parent, with the addition of the expression “Sucursal Colombia” (Colombia Branch).
- ASSIGNED CAPITAL: Branches are required to have a certain amount capital assigned to them by their home offices which, in essence, serves as a general guarantee for any liabilities incurred in Colombia. In addition, the assigned capital (stated in the branch’s documents of incorporation) must be fully paid-in at the time of the branch’s establishment. The foreign company may also provide its branch with supplementary capital to the assigned capital (balance sheet account for the available assets, foreign currency or services that remain in the current accounts of the home office during the year corresponding to the earnings or contributions). The practical difference between the assigned capital and the supplementary capital is that if the home office decides to increase the capital assigned to the branch, it must amend the opening certificate, have it formalized through a public deed, and register it with the competent Chamber of Commerce. These steps are not necessary for supplementary capital.
- APPOINTMENT OF A GENERAL AGENT AND A STATUTORY AUDITOR: The branch must appoint a general agent to represent the branch, managing the establishment and representing the foreign company in transactions with third parties. The Additionally, the law provides that branches of foreign companies are required to appoint a statutory auditor, who must fulfill the same functions as those appointed by corporations.
Except for the general agent’s authority to make administrative and ordinary course business type decisions, decision-making authority rests with the appropriate corporate body at the home office, in accordance with applicable corporate laws in the home office country of origin.
Special causes for winding-up
Given that the existence of the branch depends on the existence of the home office, the causes for liquidating branches are the same as those for liquidating the home office.
Moreover, branches are subject to the general causes for dissolution of Colombian companies that are compatible with the legal nature of the branch, because of the assimilation that is made between branches and companies.
- Home Office’s certification of good standing
- Certifications issued by the Home Office that prove the authority of their legal representatives
- The notary public will issue copies of the public deed that contain the aforementioned documents.
One of the copies of the public deed must be filed with the Chamber of Commerce located in the branch’s domicile. The Chamber of Commerce is responsible for supervising the registration of the branches in Colombia.
At any person’s request, the Chamber of Commerce will provide certifications that prove the existence and legal representation of the branch, as well as information such as its name, corporate purpose, domicile and assigned capital and its legal representatives and financial auditor’s names.
Finally, the foreign company branch must be registered with the National Tax and Customs Authority (DIAN) by means of filing a Unique Tax Registration Form (RUT) to receive a Tax Identification Number (NIT).
Once these procedures have been completed, the branch may initiate its activities in Colombia.
All profits generated by the branch can be transferred abroad upon compliance with certain reporting requirements established by law with respect to foreign exchange transactions in Colombia