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(506) 223-1327       Published Monday, April 10, 2006, in Vol. 6, No. 71          E-mail us    
Jo Stuart
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Main consideration is limiting liability
Investors have a choice in company structure

By Garland M. Baker
Special to A.M. Costa Rica

There are six different types of companies in Costa Rica.  Most people are only familiar with one or two, the most common types like sociedad anónimas and S.R.L.s.  In these times of changing tax regulations everyone, business people as well as individuals, should know the differences between the company structures available under the commercial law.

The most common company structure in Costa Rica is a sociedad anónima, which is equal to a standard corporation in the United States and other parts of the world.

What is a corporation?  By definition, a corporation is a legal entity engaged in a business activity.   A corporation has its own rights, privileges, and liabilities distinct from those of the individuals who own or manage them.  A corporation can acquire assets, enter into contracts, sue or be sued, pay taxes and take tax deductions in its name. Corporations issue shares of stock to individuals who supply ownership capital.  A corporation is a desirable organization for a business entity for many reasons including tax savings, asset and lawsuit protection.  The law considers a corporation to be a separate legal person.

Sociedad anónimas, referred to as S.A.s, have a constitution or corporate charter, four directors, a president, secretary, treasurer and a fiscal, stock certificates representing stockholder ownership and six legal books.

S.A.s are the business structure of choice for selling stock to raise capital for a company.  This is also the weakness of S.A.s.  Stock is too easy to transfer facilitating fraudulent transactions.  Many of the thefts of property in Costa Rica are due to the movement of stock without the rightful owner’s permission. 

The second most popular company structure in Costa Rica is the S.R.L., which stands for sociedad de responsabilidad limitada or society of limited responsibility.  An S.R.L. is similar to a limited liability company in other parts of the world.

Liability is one of the most important considerations in choosing a company structure.  If something goes wrong and a company runs into financial problems, the liability of the problem should stop with the company.

This means ones personal assets are safe because legally a properly formed company is a separate entity in the eyes of the law and solely responsibly for its debts.

S.A.s and S.R.L.s share the benefit in that liability is limited to investment of shareholders.  In some parts of the world, for example the United States, "piercing the corporate veil" is possible to get at shareholders personal assets.   This ordinarily happens in litigation where a company has inadequate assets to cover its liabilities, and a plaintiff alleges that the corporation is actually a sham.  That is, the corporation is not really a distinct individual, but is merely an extension or "alter ego" of its shareholders being used to advance their private interests or to perpetrate a fraud.  "Piercing the corporate veil" in Costa Rica is very difficult to do.

S.R.L.s are easier to administrate and safer than S.A.s.  They have a constitution or charter like a sociedad anónima but do not have directors — only a manager or managers.   The most important aspect to an S.R.L. is shares cannot be transferred by simple endorsement, and any shareholder has the right of first refusal in the case of any share transfer.  Any movement of shares also needs confirmation written in the shareholders’ book.

Even large companies in Costa Rica are changing their corporate structure from a sociedad anónima to sociedad de responsabilidad limitada because of these facts.

Both S.A.s and S.R.L.s need at least two people to form them. However, in some cases, there is only one owner of stock or shares, and this is an impediment.  The trick everyone uses to get around this restriction

is to give one share of a company during setup to a surrogate until the paperwork is done at the Registro Nacional and than transfer the share back to a single owner.

Another form of an S.R.L. is an E.I.R.L., an empresa indiviual de responsabilidad limitada  This is a limited liability company formed by one person.   It works somewhat like a sub-chapter S corporation in the United States where personal tax returns include income and depreciation of the company.

Most people in Costa Rica have no idea what or how E.I.R.L.s work, so it is better to avoid them.

A collective name company is a legal figure originating in Italy.  They are recognized by y compañía, meaning “and company” or y sucesores meaning “and heirs” in their name, for example Baker y Compañía or Baker y Sucesores.  In the past, family groups working together in similar activities use this kind of legal structure.

In this type of company legal liability, including personal liability, is absolute.  All shareholders respond personally in an unlimited way regarding all obligations and liabilities.

Why would someone use this type of business structure?  One reason is to establish credit since company and personal assets work together.

Sociedades en comandita are silent partnerships.  This kind of company has two kinds of shareholders:  Managing partners called comanditados or gestores who take care of the administration and legal representation, and silent partners comanditarios, who contribute the capital investment. These companies are named something like Baker Sociedad en Comandita or Baker S. en C.  This company structure does not protect personal assets, as do S.A.s and S.R.L.s.

The last type of company organization is that of a branch of a foreign company doing business in Costa Rica.  Companies created in other countries need to open a division or branch called a sucursal in this country to carry on business.  It is necessary to register the entity to get a company I.D. card called a cédula juridica. The identification certificate is necessary to do any kind of business in Costa Rica including, but not limited to, opening bank accounts, acquiring property, legal representation in the courts, or participate in other companies in the country etc.

Most people do not know that any company structure in Costa Rica can have a name in any language of the world and capital stock or capital investment represented in any currency.

The rule in Costa Rica is never own anything in a personal name.  It is too dangerous because thieves read the obituaries to find properties of recently deceased persons to steal real estate and other assets.   In addition, owning a business personally risks personal assets because liability is not limited.

Another principle is keeping every property owned in a separate company, and never mix properties with vehicles or employees whenever possible because of liabilities

Garland M. Baker is a 35-year resident and naturalized citizen of Costa Rica who provides multidisciplinary professional services to the international community.  Reach him at info@crexpertise.com.  Lic. Allan Garro provides the legal review.  Reach him at crlaw@licgarro.com.  Baker has undertaken the research leading to these series of articles in conjunction with A.M. Costa Rica.  Find the collection at http://crexpertise.info.  Copyright 2004-2006, use without permission prohibited.

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San José, Costa Rica, Monday, April 10, 2006, Vol. 6, No. 71

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Nation grinds to halt
for Semana Santa

By the A.M. Costa Rica staff

Working hours will be normal through Wednesday this week, even though Tuesday normally would be a national holiday, Juan Santamaría day.

The government has moved the Tuesday holiday to Monday, April 17 so that the Semana Santa break is a long one. Many government offices, such as the courts and the Tribunal Supremo de Elecciones, closed their doors Friday and will not reopen them until Tuesday, April 18.

National banks and Scotia Bank plan to work Monday, Tuesday and Wednesday. Other private banks will work part of Thursday, too, until 3 p.m.

Fuerza Pública officers will make the rounds Wednesday night to make sure that alcohol outlets are closed or alcohol sections are off limits and covered. Even though the biblical Last Supper featured wine on a Thursday night, sale of such liquid is prohibited here.  Most bars in San José are closing. Many bars at beach areas will find a way to serve drinks even if they have to give tourists paper cups. Police usually look the other way.

Supermarkets have to close off their alcohol area, but most will be in business selling foodstuffs. The alcohol ban lasts until Saturday morning. Look for shortened hours Saturday.

Thursday and Friday are legal holidays, but the San Pedro Mall and Multiplaza will be open. In fact, Multiplaza will be open Easter. Multiplaza del Este will be closed Thursday and Friday except for the movies. Most other businesses not involved in tourism will close Thursday and Friday.

The Dirección General de Migración, the immigration department in La Uruca, will be open just Monday and Tuesday. However, immigration agents at border crossings will be working extra to accommodate the crowds of Semana Santa travelers.  The department said it plans to have 11 windows open from 6 a.m. to 10 p.m. at Peñas Blancas alone.

A.M. Costa Rica will be published Monday through Thursday. Good Friday is one of the three weekdays each year when the newspaper is not published.

Bank client robberies
came on inside tip

By the A.M. Costa Rica staff

Bank customers were being targeted for robbery by a teller, according to a court decision last week.

A woman teller was using her cell phone to alert an accomplice when customers withdrew large sums of money in cash.

This happened in 2004 in Banco Promerica in Rohrmoser.

The woman, Hellen Delgado, got 28 years in prison, and the convicted robber, her companion,  Francisco Reyes, got 38 years. Reyes used a gun and shot at least two bank clients in separate incidents, police said.

Villareal surfer is tops
in points this season

By the A.M. Costa Rica staff

Issac Vega of Villareal de Santa Cruz has won the open championship in surfing.

Even though he was eliminated in the quarterfinals at the weekend meet at Playa Hermosa, Vega had accumulated sufficient points for five other events to hold first place.

Luis Vindas of Playa Jacó won the weekend event where 175 surfers participated. Vega accumulated 6,000 points over the seasons. Second was José Montoya, who earned 4,095.

Alajuela bus crash hurts
23 passengers and driver

By the A.M. Costa Rica staff

A bus coming from Alajuela collided with a car about 6:30 a.m. Sunday and then ran into Parque la Sabana where it crashed into trees.

Some 23 persons, including the bus driver, were hurt, said rescue workers. The accident happened as the Stationwagon de Alajuela bus was leaving the Autopista General Canãs at an intersection controlled by a traffic signal at the northeast corner of the park. The car involved was traveling west.

Other accidents took two lives. In San Joaquín de Flores, a 24-year-old man died early Sunday when his pickup collided headon with a tractor-trailer. In San Ramon a motorcycle driver died when his vehicle went off the road and plunged down a step hill.

A Cartago-bound bus also was involved in a crash Sunday but with minimal injuries.

Cable thefts result
in arrest and injury

By the A.M. Costa Rica staff

Police arrested a cable theft suspect in Pavas last week, but in the Provincia de Limón a young man suffered severe burns when he tried to steal cable that was hot.

Cable theft is the new manifestation of crack cocaine addiction. Drug users find that stripping cable can be lucrative. Copper brings 2,200 colons a kilo (some $4.36).

In Pavas, an 18-year-old man, identified by the last names of Gutiérrez Chavarría, was arrested while in possession of 300 meters (almost 1,000 feet) of electrical cable.

The man who suffered burns did so Saturday. He was identified as a 22-year-old man who was trying to steal high tension cable in Matina near Limón.
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San José, Costa Rica, Monday, April 10, 2006, Vol. 6, No. 71


Stone sphere museum moves ahead with inauguration
By the A.M. Costa Rica staff

The country officially will get a new museum April 22, and this one will feature the strange stone spheres of the southern zone.

The so called Museo de Finca 6-11 is in an old schoolmaster's home near Palmar Sur. This is ground zero for the spheres.

The nearby communities of Palmar Norte and Osa also will take part for the formal inauguration. The location is well known as a spot where stone spheres are found, and it even appears on national maps. The site is south of the Rio Grande de Terraba, the principal river in the area.

The Museo Nacional de Costa Rica has been moving ahead with plans for a museum at the site since well before the central government issued a protective decree in 1994. The Delta del Diquís is an archaeological treasure of pre-Columbian inhabitants. Many of their descendants still live in the area.

A number of local and international organizations are supporting the efforts to create the museum because the location and the spheres are considered world heritage material by the United Nations.
The inauguration of the museum is seen as the first step to bring the area to attention of tourists and to provide a summary of the chronology of the delta area from the distant past to the abandonment of the banana plantations in 2002.

Among those scheduled to attend in two weeks are  Guido Sáenz, minister of Cultura, Juventud y Deportes;  Francisco Corrales, the well-known Costa Rican archaeologist who also is director of the Museo Nacional, and Adrián Badilla, another well-known archaeologist.

Scientists believe the stone spheres come from rock formations in the lower Terraba. Some received their first rough finish from water action as they came down the river. The spheres range from a few inches in diameter to giants or some 16 tons. The use to which they were put is not known, but some archaeologists speculate that they were status symbols, and others suggest they were used as astronomical markets.

Stones have been found as far away as on the Isla de Cano in the Pacific.

Although the new museum facilities are modest, officials hope that the area will evolve into one of the country's best known destinations.

There's a lot to be said about having a full belly
Panza llena corazón contento

“Belly full, heart content.” This is a very popular dicho, and a wise one too. One cannot be very contented when he or she is hungry. Many rulers have been violently overthrown because they arrogantly ignored the cries of their people for bread. Just ask Marie Antoinette about that. Oops, almost forgot. She lost her head during the French Revolution didn’t she? Something about substituting cake for bread, as I recall.

You will probably hear this dicho most often in Costa Rica following a hearty meal, but it always reminds me of just how many people there are in this world — and yes, right here in Costa Rica — who don’t get enough to eat each day.

As kids, at my house we had to get up quite early in the morning if we wanted to take a shower, get dressed, and eat breakfast before it was time to leave for school. I was frequently the last to drag myself from my trundle, and, therefore, the last to reach the dining room table for breakfast.

Often I skipped breakfast because I had to rush in order to make it to school on time. My grandmother would prepare a paper bag of food for me to take and eat on the way.

But I did not like to eat on the bus in front of the other kids, so I would wait until I had a moment alone to eat my breakfast. Usually, however, that moment never came or I would simply forget about breakfast altogether, and I’d return home with my paper bag as full of now rather soggy and stale food as it was when my grandmother gave it to me that morning.

Then I would receive a good scolding from her for not eating my breakfast, which always ended with, “Do you know how many boys and girls there are in this sad world that don’t get enough to eat?” or words to that affect.

I never devoted too much thought to this question until I was in forth grade. A new boy came to our school then, and we quickly became inseparable friends. He was very smart and, though very strong in his opinions, usually rather quiet and reserved.

One morning, during recess, I happened to remember my bag of breakfast and decided to eat some of what my grandmother had prepared for me. I offered to share the food with my new friend, and he eagerly accepted.

I was astonished at how ravenously he devoured every morsel. I laughed a little and said that he must come from a big family like I did, and his brothers and sisters probably ate up all the breakfast before he could get any.

way we say it

By Daniel Soto


A shadow of humiliation crossed his face, he stared at the ground and said that no, that was not the case at his house. They simply didn’t have anything for breakfast, only coffee.

When I got home I told my story to my grandmother, and from that moment on, for the next six years, I carried two breakfast bags to school with me each morning.

As fate would have it, on the very day of our graduation from elementary school, I got into a fight with another student who kept pushing and shoving me while we were waiting on line to march into the ceremony. My friend came to my defense, and soon there was a big fracas going on that took several teachers to break up.

My friend and I were taken aside and sternly reprimanded. We were made to sit on the sidelines and told we were not going to be able to graduate with the rest of our class because of our very bad deportment.

As we sat there rejected, and dejected, my friend pulled a paper bag from under his jacket. “I was going to wait until after the ceremony to share this with you,” he said. “But it looks like the ceremony is over for us anyway.”

He opened up the bag and extracted two huge pieces of cake! So, we sat there happily munching our sweet treat and joking between ourselves about our fellow classmates as they marched past us into the auditorium.

Suddenly, our teacher appeared. “Hurry up you two,” she said, “and get on in there with the others before I change my mind and make you sit here as you deserve.”

We jumped up gleefully and ran into the auditorium to graduate with the rest of the class, our school uniforms covered with cake crumbs, our faces smeared with icing, and our hearts brimming with youthful joy: panza llena, corazón contento.

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San José, Costa Rica, Monday, April 10, 2006, Vol. 6, No. 71

Caldera and Costanera Sur work set at $40 million
By José Pablo Ramírez Vindas
of the A.M. Costa Rica staff

The transport ministry is investing about $40 million in the construction and remodeling of the Costanera Sur and in the building of an El Roble-Caldera link.

This project, when completed will provide truckers and others with an alternative to the Interamerican highway that winds through San José and Cartago before heading south.

Truckers will be able to take the Costanera Sur south and hook up with the Interamerican by taking an exit at Dominical.

Since February, the firm Constructora Meco S.A. had been working on the El Roble-Caldera link. This includes 12 kms. (about 7.5 miles) of road and is expected to be finished in October. This is a $4.2 million job, financed in part by the Banco Centroamericano de Integración Economica.

In May, transport officials expect the firm Hernán Solís S.A. to begin construction work on the leveling and drainage of the stretch of the Costanera from Quepos to Barú near Dominical with access to Pérez Zeledón. This is a $17 million job that covers 42 kms. (26 miles). The firm will have two years to complete this phase one effort. The road, which borders the Pacific, is gravel now and badly washed out.

Transport officials estimate that to put down the roadway after the grading and drainage is done for the Costanera will cost some $19 million. That job has yet to be bid.

Part of the money allocated for the job will be for new bridges at Matapalo, Portalón, Hatillo Nuevo
and Hatillo Viejo and also Parrita, Paquita and

A.M. Costa Rica/José Pablo Ramírez Vindas
Workmen level out some asphalt on the El Roble-Caldera link.

Naranjo. These are the rivers where flash flooding erased bridges last year. Residents have been protesting the slowness of the government response to the flooding.

Officials of the Ministerio de Obras Públicas y Transporte took reporters on a tour of the Robles-Caldera work Friday.

Perú has a three-way tight race for runoff candidates
By the A.M. Costa Rica staff
and wire services reports

LIMA, Perú — Preliminary reports show that the presidential election here is a three-way dead heat.

The Oficina Nacional de Procesos Electorales said that Ollanta Humala was leading the crowded field with 27.6 percent of the popular vote.  Lourdes Flores had 26.72 percent, and former president Allan García had 25.7.

Although the results come from a fraction of the total vote, it was clear that no one would recieve the 50 percent necessary for a first-ballot win. The runoff will be in May between the two top finishers, who were expected to be Ms. Flores and Humala. He seeks to nationalize certain private extractive industries.

Humala was expected to fatten his lead as votes come in from rural areas where he is strongest.

A protest erupted at a polling station where the ultra-nationalist former military officer cast his ballot.

Scores of demonstrators chanted "assassin" and hurled debris while security forces scrambled to allow Humala safe passage from the polling station at a Lima university. Riot police were called in to escort the candidate from the locale and help restore order.

Humala has promised to wield a strong hand in fighting corruption, poverty and unemployment. His detractors accuse him of violating human rights during his career and being a dictator in the making, but Humala denies wrongdoing and insists he will adhere to democratic principles.
The protest came moments after outgoing President Alejandro Toledo praised voting as a democratic celebration carried out with absolute transparency.

He said, "There are more than 200 international observers present from the Organization of American States, from the United Nations, from Europe, and Asia. And I ask all Peruvians to vote, to exercise their right and help construct a better Peru."

Elsewhere, the mood was upbeat in an upscale Lima neighborhood where center-right candidate Ms. Flores cast her ballot as supporters roared their approval.

Ms. Flores, who has promised to boost economic opportunity by aiding small businesses, and urged all Peruvians — including her supporters — to vote peacefully and condemned the anti-Humala protest.

She said, "I lament and deplore it. What Peru needs today is a celebration of peace, harmony, democracy and respect for others. And I think these actions are not helpful in any way." Flores, who hopes to become Peru's first female president, added she trusts voters.

Peru has enjoyed four consecutive years of strong economic growth, but poverty rates remain high. Surveys show most Peruvians feel they have benefited little from their country's overall economic improvement, and some analysts see the election as a contest about which candidate most embodies the concept of change.

Pre-election polls showed that the race was tight between Humala, Ms. Flores, and former president Garcia, who says he is ready to lead once again and improve on the record of his previous administration.

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