Tips on company law: Adequate term of duration of a foreign branch / company / consortium

Hi, everyone:

With this post, I'm going to explain other insights on topics relevant for a foreign company that wants to incorporate in Colombia a branch office, this time, regarding the ideal term of duration of the foreign branch, company or consortium.

For didactic purposes, we are going to assume the same foreign (French) company interested in establishing in Colombia with the intention to participate in public bidding. In that order, the hypothetical client asks the following: 

The duration of the public contract will be, at least, fifty-two (52) months. So, perhaps, the duration of the establishment must be fixed to six (6) or seven (7) years?

Yes, it is perfectly possible to do that.

Let us take the opportunity to make some precisions about this subject.

1)      No matter if the foreign client plans to go alone or associated with another juridical person in a consortium, the foreign company needs to be incorporated in our country, in order to sign contracts (not only the public contract but every other contracts needed to operate), and in general, to be subject of legal rights and obligations, if the corporation has the intention of establishing a permanent business in Colombia.

That is to say, as obvious as it sounds: in order to do business on a permanent basis in our country, the company has to “exist” as a juridical person, proving this situation via the business register in the Chamber of Commerce (Registro Único Empresarial y Social, RUES), and other registers set by Colombian authorities (Registro Único Tributario, RUT; Registro de Información Tributaria, RIT; Registro Único de Proponentes, RUP).

2)      The most suitable way to do that, preserving his record as a preexistent juridical person is to open a branch, as explained in the previous post of this series.

The aforementioned explanation, because the incorporation of a new domestic company (being the hypothetical foreign company one of its partners), doesn’t seem to be a suitable option, because the foreign company (in this case, the partner of the new domestic company, that is to say, a juridical person created under Colombian laws and domiciled in our country) losses all his record of experience in front of the public entity for the purposes of public bidding.

In other words, the fundamental reason to propose the opening of a branch of your company in our country is to preserve the head office’s experience as a contractor when taking part in to the public bidding.

3)      Although it’s true that some domestic companies can have an indefinite term of duration (the simplified share corporation, SAS; Num. 4, Section 5, Act 1258 of 2008), and foreign companies can be incorporated in their countries of origin with no limit in their term of duration (maybe this is the case of the foreign company in France, taking account of the close similarities existent between French and Colombia SAS), Colombian business law demands that the foreign branch must have a finite term of duration (Num. 4, Section 472, Code of Commerce):

“According to article 472, the resolution or act by which the company agrees in accordance with the law of its main domicile to establish permanent business in Colombia, must state “The term of duration of its business in the country and the causes for the termination of them”, therefore it’s clear that necessarily it must be stated by the protocol in the notary of the place chosen for its domicile in the country, all the items foreseen in the resolution of incorporation, including the term of duration of the branch in the country; that’s the reason why it’s not possible to establish that its duration will be undetermined.” (Superintendence of Companies, Official letter 220 – 32455, August 1, 2001)

4)      If the foreseen term of duration of the public contract (without extensions) will be at least fifty-two (52) months; the term of duration stated in the resolution of incorporation (that will be stipulated in the notary’s public deed that, in turn, will be registered in the local Chamber of Commerce), must be at least, of the same of the contract and one (1) additional year as required by public contract law (Section 6, Act 80 of 1993).

Fifty-two (52) months are roughly four and a half (4 ½) years; plus one (1) additional year; five and a half (5 ½) years. So, in rounded years, six (6) or seven (7) years is a sensible estimation for the foreseen branch’s term of duration.

5)      Apart from the mandatory prohibition of Section 6, Act 80 of 1993; there are no legal sanctions or punishments when extending or reducing the term of duration stated in the act or resolution of incorporation of the branch. So, the foreign company is in total liberty to establish this matter, according to its particular needs.

6)      Without the prejudice of the previous statement, we suggest to state a term of duration of ten (10) years in the resolution of incorporation, because it brings more confidence, not only to the public entity but also in other potential counterparties during the foreign company’s presence in Colombia (providers, contractors, employees, tenants, leaseholders, etc.).

And also, because it reduces costs when taking the decision to dissolve and liquidate the branch when needed (official translations, notarization, etc.), if the term of duration is long enough to anticipate potential extensions of the public contract, a situation that always arises in practice in these kinds of business.

Thanks a lot to everyone, and we'll see you soon in a new post.


Camilo García Sarmiento