In this guide we have collected important additional legal background for the corporate environment in Peru. Before reading this, you should have a good understanding of the "Company & Corporation Types in Peru" that is the second part of our Business & Investment Guide.
In Peru no specific rules have been established to authorize percentages for foreign or domestic investment participations. However, the Peruvian Companies Act (PCA) establishes various requirements and conditions for the incorporation of a corporation or partnership. Within the main requirements established by the PCA, every corporation or partnership shall have at least two shareholders and/or partners. Such requirement is not applicable for branches since they are only recognized by their head office corporate development.
It is important to note shareholders, directors and managers do not have to fulfill the condition of being Peruvian nationals or residents of Peru; however, Peruvian regulation notes that all representatives for procedures before the Tax Authority must be Peruvian or have a Residence Card. In addition, all newly appointed directors shall formally accept their appointment to carry out the registration at the Peruvian Public Registry (SUNARP).
When incorporating a company in Peru, it is required for the enterprise to have capital stock (no minimum amount is specified) which must be deposited in a bank account before the incorporation of the company. It should be noted that some banks and financial entities usually request a minimum amount of PEN 1,000 (USD 307) for opening a bank account.
Shares are nominative and different classes are allowed, though bearer shares are prohibited. However, all shares must have the same face value, which cannot be zero. In addition, shares can be issued once they have been fully subscribed and paid-up at least in 25 percent.
Depending on the share classes, shares can be issued with or without voting rights or even have a preferential right for obtaining dividends. Bylaws of the company may establish share classes, limitations and conditions on the transfer of shares, but may not prohibit them. A company may not grant loans or guarantees on its own shares, not even for the acquisition of the latter, under responsibility of the Board of Directors or the General Manager (in case there is no Board of Directors).
The management of a company is formed by the Board of Directors and General Manager. Both corporate bodies oversee the company’s day to day operations. Furthermore, shareholders exercise the control of a company through the General Shareholders Meeting and are entitled to take any corporate act such as capital increases, corporate reorganizations, appointment of proxies, or any other action necessary to fulfill the corporate purpose of the company.
Within the first three months of the year, shareholders must hold an annual mandatory shareholders meeting, in which matters such as the financial statements of the previous fiscal year, the distribution of dividends and the appointment of the Board of Directors are approved.
Likewise, a shareholders meeting must be held to execute an increase or reduction of capital stock and bylaws amendment, which should be decided by majority of shareholders. All shareholders representing no less than two-thirds of the subscribed shares with voting rights must be present or represented by proxy in the first summon, and no less than three-fifths in a second summon, to meet the required quorum. No agreed resolution will be valid if the required representation of shareholders is not present at either of these two meetings.
Certain supervised entities, such as banks and insurance companies are required to publish their balance sheets and profit and loss statements in the Peruvian Official Gazette El Peruano, as well as a second daily newspaper. The PCA establishes that all companies must have corporate books to register of all the resolutions taken by their governing bodies. The corporate books are used for General Shareholders’ Meetings resolutions, Board of Directors resolutions (if applicable), and Shares Registry.
Distribution of Dividends
The rules for dividend distribution are as follows:
- Dividends are only to be paid based on profits or free reserves and provided the company’s net worth is not lower than the paid-up share capital.
- Unless otherwise stated in the bylaws or agreed on by the General Shareholders Meeting, all shares of the corporation (even if not fully paid-in) have the same right to dividends, regardless of when they were issued or paid.
- Distribution of dividends in advance is valid, except for corporations that have an explicit legal prohibition.
Annual audits by independent public accountants are mandatory in the following circumstances:
- For banks, insurance companies and, in general, entities listed on the Lima Stock Exchange Market.
• When established in the company’s bylaws.
- When specifically requested by shareholders representing not less than 10 percent of the company’s subscribed shares with voting rights.
- In a closed corporation, when it is requested by shareholders representing at least 50 percent of subscribed shares with voting rights.
- When the company qualifies as an open corporation.
- If the entity has either assets or revenue equal to or more than 3,000 Peruvian Tax Units in one year.
Financial Reporting Procedures
The Business Corporations Act (LGS) establishes that the financial statements of companies established in Peru must follow the Peruvian Generally Accepted Accounting Principles, as well as other provisions on the matter. The Peruvian Accounting Standards Board (CNC) has established that the Peruvian Generally Accepted Accounting Principles are essentially the International Financial Reporting Standards which include the IFRS, IFRIC, and IAS, and the specific provisions approved for particular businesses (banks, insurance companies, etc.).
The United States Generally Accepted Accounting Principles are applicable on a supplementary basis.
The Peruvian Accounting Standards Board (CNC) is responsible for issuing the Chart of Accounts for companies and the methodology applied to private businesses and government entities.
The Peruvian Accounting Standards Board (CNC) adheres to the standards approved by the International Accounting Standards Board, which are explicitly approved by the CNC and published in El Peruano Official Gazette, indicating the date of adoption thereof, which may differ from the date on which they are internationally approved.
Companies that issue debt or shares in the capital market are subject to the regulations of the Peruvian Securities and Exchange Commission (SMV). The companies supervised by this entity are required to issue their financial statements in accordance with the IFRS, as issued by the International Accounting Standards Board.
The annual financial information for companies supervised by the SMV must be audited and include the previous year for comparative purposes. The quarterly information does not need to be audited. This audit shall be performed in accordance with the provisions of the International Auditing and Assurance Standards issued by the International Federation of Accountants (IFAC).
On April 4, 2016, the Constitutional Court declared as unconstitutional the obligation of companies not registered with the Public Registry of the Stock Market to submit their audited financial statements. This obligation was in force since June 2011.
Dissolution and Liquidation of a Company
In the event of the dissolution of the company, the resolution must be approved by the General Shareholders Meeting and published three consecutive times in the Peruvian Official Gazette El Peruano, as well as a second daily newspaper. The registration of the resolution at SUNARP must be carried out within ten days following the last publication. A liquidator must be appointed in the resolution.
Once the resolution has been registered in SUNARP, a company will enter into a liquidation process. During this process, the liquidator oversees executing the company’s assets to cancel its liabilities, due to the fact the administrative extinction process will only be possible if the company has no liabilities.
It is important to note a company is obliged to enter into a liquidation process if it incurs in losses that exceed two-thirds of its paid-in capital. In case the company continues to operate, it will be deemed as an “irregular” company and its shareholders, directors and managers assume personal and unlimited responsibility for all obligations incurred.
Bankruptcy System Law is also applicable, provided the creditors or the debtor request the beginning of a bankruptcy process at the Antitrust and Intellectual Property Institute (INDECOPI).