Corporate governance and tax strategies are crucial elements for the success and continuity of a business. This document explores Article 27 of the General Law on Commercial Companies and presents strategies to maximize tax benefits and ensure operational continuity.
Article 27: Corporate Governance
- Shares and Corporate Shares
Article 27 of the General Law on Commercial Companies addresses corporate governance. This article primarily addresses shares and equity interests and the conditions for their transfer and ownership, which directly affect governance and the way in which shareholders exercise control over the company.
- Registry of Shareholders or Partners
The article states that companies must keep a special book in which the names of partners or shareholders and the transfers of their shares or corporate interests are recorded.
- Preemptive Rights
In some companies, when a partner wishes to sell their shares or equity interests, the other partners have the right of first refusal to acquire them before they are offered to third parties. This is important to maintain control and the internal structure of the company.
Restrictions and Protection of Governance
Restrictions on the Transfer of Shares: Depending on the type of company, restrictions may be imposed in the bylaws on the free transfer of shares or corporate interests, which is intended to protect the company's interests.
Protecting Stability in Governance: These rules help protect the company's stability by preventing the entry of unwanted or unrelated partners, ensuring stronger governance and greater decision-making power for the original partners.
Identification of Key Persons
Definition of Key Persons: People whose absence would seriously impact the operation of the business. This includes partners, managers, and key employees.
Importance of Insurance: These people must be insured under a life or endowment policy with the company as the beneficiary.
10-Year Endowment Insurance
Definition: Endowment insurance is an ideal tool for creating a long-term reserve, as in addition to providing death coverage, it guarantees a return of capital if the insured survives the end of the term.
Death Coverage: In the event that a key person dies during the term, the company receives a sum that allows it to cover unforeseen expenses or restructure the organization.
Capital Accumulation: If the insured person survives the expiration of the term, the company recovers the insured capital, which can be used for investments, restructuring, or distribution among partners.
Tax Benefit: Premiums paid for this type of insurance are tax-deductible as long as the company is the beneficiary.
Purchase-Sale Agreement: Cross-Purchase
Definition: Each partner purchases an endowment policy on the lives of the other partners, and in the event of death, the surviving partners use the insurance proceeds to purchase the deceased's shares.
Benefits: This ensures that the company's ownership remains in the hands of the remaining partners, preventing the entry of unwanted heirs or third parties.
Purchase Agreement: Entity Purchase
Definition: The company acquires the life insurance policy for its partners.
Process: Upon the death of a partner, the firm uses the endowment insurance funds to purchase the deceased partner's interest and maintain controlling interest.
Tax Benefit: If the company is the beneficiary of the policy, the premiums paid may be deductible under many tax regimes, generating immediate tax savings.
In Case of Death: In the event of the death of the insured person, the insured sum is generally not considered taxable income for the company, providing tax-free liquidity.
Long Term Benefit: Since this is an endowment insurance policy, if the person survives the end of the contract, the accumulated capital received by the company may be tax-exempt, depending on local legislation.
Orderly Transition: Ensures an orderly transition in the event of the death of key partners or executives, avoiding disputes over ownership or management of the company.
Strategic Use of Funds: Ensures an orderly transition in the event of the death of key partners or executives, avoiding disputes over ownership or management of the company.
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