Find out the steps to forming a Limited Liability Company (LLC) in Ecuador. In Ecuador, this legal entity structure is known as Compañía de Responsabilidad Limitada.
Over the last few years, Ecuador has become more attractive to foreign executives expanding into the region. Its strong stable economy due to decreasing corruption, the Ecuadorian government has become more stable, natural resources of the country, use of US dollars and many other factors. Therefore, knowing what type of company to start is important.
As a foreign company looking for new business opportunities in Ecuador, consider forming a Limited Liability Company. In general, forming an LLC in Ecuador is much easier to set up than many other types of legal entities, and it offers more flexibility and defense for the vulnerability of the company.
Forming an LLC in Ecuador: Compañía de responsabilidad limitada (Cía. Ltda)
The Compañía de Responsabilidad Limitada (Cía. Ltda) is the equivalent entity to an LLC in Ecuador. This is a business structure whereby the owners of the business are not personally accountable for the company’s liabilities or debts.
The LLC in Ecuador is similar to the characteristics of a regular corporation, but the way of taxation is very different. LLCs do not pay taxes, instead of paying taxes their profits and losses are listed on a personal tax list returns of owners. If fraud is recognized or the company is not fully compliant with the legal reporting requirements, the creditors could potentially go after its members. In Ecuador, an LLC could be set up with 1 director and a minimum of 3 shareholders, of any nationality and not more than 15 members.
Key benefits of an LLC in Ecuador:
- Pass-through taxation.
- No restrictions on the number of members allowed.
- Members have flexibility in structuring the company management.
- It does not require as much annual paperwork or have as many formalities as corporations.
- Owners are not personally responsible for business debts and liabilities.
Steps to forming an LLC in Ecuador
1. Appoint a legal representative
Choose a reliable expert to be your legal representative in Ecuador. Your legal representative will act on behalf of the LLC in all legal aspects, creating and signing your company’s bylaws. This gives your legal representative the power to make legal decisions for your company, and support the company formation process.
If the document is in a language other than Spanish, the legal representative should provide a correct official translation before submitting it. The person appointed as a legal representative must act in the best interests of the company and is mandated by Ecuadorian law to do so. Furthermore, you should define your business’ purpose and economic activities. Before you register your company, make sure to reserve your name as this will ease the process of registration to ensure there is no copyright or trademark. Moreover, the shareholders must deposit a minimum of US$400 before the company’s registration
2. Register the company
It is important to know to register your company with the appropriate authorities. You have to reserve the company name in Ecuador at the Superintendent of Companies. In order to obtain the company’s unique identification number, you will need to go to the Superintendent of Companies to pay the annual registration fee. For this registration you will need the following documents:
- Address of the company.
- The name of the legal representative.
- A certified copy of the public deed of the constitution of the company.
If you want to register these matters could be of importance:
- A public notary is necessary for notarising the documents.
- Make sure you find a lawyer that is able to constitute and sign the documents.
- Prepare the minutes of incorporation, which include the contract, articles of incorporations, company’s bylaws, and the formation of capital.
3. Obtain a tax identification number
Once you have registered your LLC in Ecuador, you’ll need to obtain a tax identification number. Business owners must apply for the Fiscal Code (Registro Único de Contribuyentes – RUC) at the Servicio de Rentas Internas (SRI). This will take approximately 24 hours.
After this, you have to sign up online for Social Security at the Ecuadorian Institute of Social Security, and obtain a passbook to use the online platform for more information.
Businesses in Ecuador need a “tasa de habilitacion,” also known as an enabling fee. To obtain this, you must pay the commercial patent at the Municipio de Quito.
This patent is a tax for companies that conduct in a commercial or industrial activity. Companies must pay this tax every year. The amount will depend on the size of the company and in which sector it operates.
4. Opening a corporate bank account and depositing minimum share capital to activate
In order to correctly form an LLC in Ecuador, the shareholders must deposit a minimum of US$400 before the company’s registration. All the assets of the LLC that are worth US$1000 must be appointed to an auditor and submit annual audited financial statements to the authorities.
Contact Biz Latin Hub for forming your LLC in Ecuador
When forming your LLC in Ecuador, you’ll want to partner with local legal experts who can assist you in this process. It is crucial to find a trusted provider who can act as your legal representation in Ecuador as needed.
At Biz Latin Hub, we have vast experience with helping foreign companies to enter the Ecuadorian market. Our team of experienced corporate lawyers and accountants offer a full suite of bilingual market entry and back-office services for businesses entering Ecuador. This includes commercial and legal representation, company formation, accounting, and employment support. Contact us today for personalized advice on how to get started.
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