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International Corporate Finance

International Corporate Finance

posted 12 months ago

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Please summarise the work your firm does and the ways in which you distinguish yourself.

 

Whether in day-to-day business operations, or regarding large, intricate and complex transactions, PAGBAM provides its clients with Corporate Law and Corporate Governance counsel. We advise all kind of companies, from a wide range of businesses, in every step of their corporate life, covering the most diverse of corporate scenarios.

 

Our Corporate Law practice is the core ground over which all major operations develop. Given that nowadays the vast majority of businesses are run through some form of company, we cannot conceive any operation which does not look into those companies, their maintenance and different aspects of corporate life that impact in the businesses’ outcome.

 

The Corporate Law Team provides advice in M&A engagements, rendering alternatives to structure the transactions. Our involvement includes counsel as to complex and innovative corporate organization and incorporation of corporate entities, together with drafting of bylaws, stock purchase agreements and shareholders’ agreements, all customized to each client’s needs and concerns. These may include all kind of mechanisms, such as voting and/or control agreements, put and call options, drag along and tag along provisions, etc.

 

We have extensive experience in all kinds of operations, from incorporation of subsidiaries, vehicle and investment companies, to due diligence processes, mergers, spin-offs, transfers of on-going concerns, winding up processes, and any transitional periods between transactions.

 

Our Corporate Law Team liaises both with foreign companies who look into or have businesses in Argentina, and local companies, whether privately held or publicly listed. PAGBAM assists its international clients in the incorporation of branches and other representations, and guides them through the Argentine corporate law and the carrying out of their operations from abroad. This includes following on their daily operations, providing counsel to local management and to foreign shareholders or main headquarters simultaneously. Our client base includes multinationals that are publicly listed in the most important Stock Exchange Markets, such as the NYSE, the LSE and the SEHK, investment funds and privately held companies with presence in all continents.

 

As for local companies, the Corporate Law Team advises at boards of directors, surveillance committees and shareholders’ meetings’, and draft the corresponding minutes, and ancillary corporate documentation. Additionally, PAGBAM provides counsel on capital stock increases and reductions, mergers, spin-offs, appointment of corporate authorities, granting of POAs and all compulsory filings and registrations with regulatory agencies, including the Public Registry of Commerce, the domestic Securities Commission (Comisión Nacional de Valores) and the Buenos Aires Stock Exchange (Bolsa de Comercio de la Ciudad de Buenos Aires), among others. In whole, we provide assistance on all matters of corporate governance, bookkeeping and record retention.

 

Furthermore, PAGBAM assists its clients in corporate disputes resolution, whether conflictive and litigious board of directors’ or shareholders’ meetings, or disputes which have amounted to a judicial instance.

 

The Corporate Law Team also assists local organizations, such as foundations and NGOs during their incorporation stages, daily activities and regulatory filings and registrations.

 

Please outline the state and scope of corporate legislation in your jurisdiction. How does the legislation differ to that of neighbouring jurisdictions? Are there any unique complexities?

 

In principle foreign investors may carry out business in Argentina without any special restriction or limitation (certain restrictions exist for particular activities or real estate acquisitions in rural areas, security and border zones).

 

Under the Argentine Companies Act No. 19,550 (as amended, the “ACL”) foreign companies may conduct business in Argentina as follows:

 

• by performing isolated acts, in which no registration in Argentina is necessary; or
• by regularly conducting business, in which case they set up a branch or incorporate a local entity (subsidiary).

 

The main investment vehicles used by foreign companies to conduct their business in Argentina are the following: branch; corporation (sociedad anónima) (“SA”); single-shareholder corporation (sociedad anónima unipersonal) (“SAU”); and limited liability companies (sociedad de responsabilidad limitada) (“SRL”).

 

SAs; SRLs & SAUs

 

SAs and SRLs have autonomy and functional organization to operate and they are a distinct entity, independent from the head office, the latter is not responsible for the obligations of the SAs and SRLs.

 

The SRL was mainly used by small and medium-size domestic investors. However, this type of company has become more frequently used in recent years by U.S. investors of any size because SRL are eligible for preferential tax treatment under U.S. federal tax rules as a “look-through” entity.

 

The SA is by far the most widely used form of business organization; it is used by small, large and medium size foreign or local shareholders. Our courts and administrative authorities are quite familiar with this type of business entity and almost all legal issues that may arise during the corporation’s life are resolved by statute or case law.

 

Set forth below is a summary of the main features of SAs, SAUs and SRLs under the ACL:

 

• SAs

 

Organization: SAs are created upon execution of the Deed of Incorporation. Following its execution, SAs may carry on certain activities expressly contemplated by the incorporators. SAs must register their by-laws with the Companies Registry.

 

Corporate name: SAs may choose any name and must include the words “sociedad anónima” or the abbreviation by the initial letters “S.A.”.

 

The chosen name cannot be a name already registered with the Companies Registry, and cannot cause any confusion with another registered corporate name. Companies within the same group may use the same name together with another distinctive element.

 

 

In case the local company’s name is the same as the foreign parent’s name, an authorization from the parent is required.

 

In addition, it is advisable to do a search before the Trademarks Registry in order to assure that such name has not been registered as a trademark by another company so as to preserve intellectual property rights.

 

Capital stock: Represented by registered non-endorsable shares or shares in book-entry form. There is a minimum capital of AR$ 100,000.

 

Argentine law requires capital stock to be totally subscribed and at least 25% of same to be paid in (i.e. AR$ 25,000) at the time of the creation of the company. The balance must be paid in within a 2 year period.

 

Capital contributions may be made in local or foreign currency as well as in property or intangible goods. Likewise, it is possible to make contributions of an intangible technological character, provided that when practicable, a valuation method may be applied to them. With respect to corporations the valuation must be approved by the relevant authority and it will be made at market value, or, if this is not possible, by an expert.

 

Duration: 30 years and extend it at the moment of expiration.

 

Shareholders: At least two shareholders are required.

 

Such shareholders may be Argentine or foreign individuals or legal entities. No prior governmental authorizations are required other than registration of foreign legal entities shareholders under Article 123 of the ACL (please refer to Section below of this Memo).

 

Regarding the percentage of capital stock that may be held by each shareholder, the Companies Registry has established that the minority shareholder should hold at least 5% of the capital stock. Although, for foreign exchange purposes it is advisable that the minority shareholder hold at least 10% of the capital stock.

 

Board of Directors: SAs may have a minimum of one director (in addition, an alternate director will be required if the SA does not have an internal audit committee).

 

The majority of the members of the Board of Directors must be Argentine residents.

 

Chairman of the Board of Directors has broad powers to represent/bind the SA vis-à-vis third parties.

 

Term of office of the Directors will be stated in the Bylaws of the Company and it shall not exceed three financial years.

 

Regular Directors shall hire, jointly, a minimum guarantee of an amount equivalent to sixty per cent (60%) of the total capital stock of the company. The individual amount of the guarantee shall be equal for each director, and can be complied in any of the manners established in the applicable regulations, either bonds, public titles, bank deposits at the name of the Company, banking guarantees or policies. The guarantee shall not be in any case minor than AR$ 10,000, and greater than AR$ 50,000 for each director, and shall be valid for three (3) years as from the date the respective director ceases in its functions.

 

If the Company falls within any of the provisions of Section 299 of the ACL (except subsection 7) the number of Regular Directors cannot be under three.

 

Syndics: The election of syndics (statutory comptrollers) is optional for corporations with capital up to Ar$ 50,000,000. One or more syndics (and an equal number of alternates) must be elected by shareholders where the company has capital stock of Ar$ 50,000,000 or more. If the corporation lists its stock on the stock exchange, or otherwise falls within other particular provisions of Section 299 of the ACL, an odd number of syndics (no fewer than three) must be elected.

 

To be elected as a syndic candidates must be a licensed lawyer or certified public accountant or a civil partnership joint and several liability constituted exclusively by these professionals.

 

Syndics shall be domiciled in the Argentine Republic.

 

Term of office of the Syndics will be stated in the Bylaws of the Company and it shall not exceed three financial years.

 

Corporate and accounting books: SAs must have the following corporate books duly legalized by the Companies Registry:

 

(i) Shareholders’ Meetings Book,
(ii) Board of Directors’ Meetings Book,
(iii) Stock Ledger, and
(iv) Shareholders’ Meetings Attendance Register.

 

SAs must keep an organized accounting. They must keep a Diary and an Inventory and Balance Book. They must prepare financial statements for every fiscal year, which must be submitted to the Companies Registry.

 

Transfer of shares: Shares are freely transferable, unless restricted by the SA by-laws. However, the transfer of the shares can never be prohibited.

 

Any transfer of shares must be notified to the management of the SA, and annotated in the stock ledger of the SA. No need to register the transfer of shares at the Companies Registry (same applies in case of creation of lien on the shares).

 

Distribution of dividends: Dividend distributions require shareholders´ approval. Dividends can be only approved and paid out of retained earnings as stated in the financial statements of the SA, which must be prepared in accordance with Argentine GAAP. Argentine GAAP rules for SAs also apply to SRLs.

 

In the absence of specific rules in the by-laws, dividends are distributed pro rata of the shares held by each shareholder.

 

SAs must allocate at least 5% of its net income to a legal reserve until such reserve equals 20% of the subscribed capital of the SA.

 

• SAUs

 

Organization: Same as SAs

 

Corporate name: SAUs may choose any name and must include the words “sociedad anónima unipersonal” or the abbreviation by the initial letters “S.A.U.”.

 

Except the above mentioned, all other comments made for SAs apply.

 

Capital stock: Represented by registered non-endorsable shares or shares in book-entry form. There is a minimum capital of AR$ 100,000.

 

Argentine law requires capital stock to be totally subscribed and paid in (100%) at the time of the creation of the company.

 

Except the above mentioned, all other comments made for SAs apply.

 

Duration: Same SAs.

 

Shareholders: Only one shareholder is required.

 

Such shareholder may be Argentine or foreign individuals or legal entities. No prior governmental authorizations are required other than registration of foreign legal entities shareholders under Article 123 of the ACL.

 

However, SAU’s shareholders cannot be another company with only one shareholder. This provision does not apply to foreign companies acting as shareholders of local companies.

 

Board of Directors: SAUs may have a minimum of one director.

 

The majority of the members of the Board of Directors must be Argentine residents.

 

Chairman of the Board of Directors has broad powers to represent/bind the SAU vis-à-vis third parties.

 

Term of office of the Directors will be stated in the Bylaws of the Company and it shall not exceed three financial years.

 

Regular Directors shall hire, jointly, a minimum guarantee of an amount equivalent to sixty per cent (60%) of the total capital stock of the company. The individual amount of the guarantee shall be equal for each director, and can be complied in any of the manners established in the applicable regulations, either bonds, public titles, bank deposits at the name of the Company, banking guarantees or policies. The guarantee shall not be in any case minor than AR$ 10,000, and greater than AR$ 50,000 for each director, and shall be valid for three (3) years as from the date the respective director ceases in its functions.

 

Surveillance Committee: The appointment of one regular syndic and one alternate syndic is mandatory.

 

To be elected as a syndic candidates must be a licensed lawyer or certified public accountant or a civil partnership joint and several liability constituted exclusively by these professionals.

 

Syndics shall be domiciled in the Argentine Republic.

 

Term of office of the Syndics will be stated in the Bylaws of the Company and it shall not exceed three financial years.

 

Corporate and accounting books: Same SAs.

 

Transfer of shares: Same SAs.

 

Distribution of dividends: Same SAs.

 

• SRLs

 

Organization: Same SAs (although the Document of Incorporation does not need to be a Public Deed).

 

Corporate name: SRLs may choose any name and must include the words “sociedad de responsabilidad limitada” or the abbreviation by the initial letters “S.R.L.”.

 

Except the above mentioned, all other comments made for SAs apply.

 

Capital stock: Represented by quotas.

 

There is no minimum capital stock required.

 

Except the above mentioned, all other comments made for SAs apply.

 

Duration: Same SAs.

 

Shareholders: Same as in SAs (the holders of capital stock are referred as to quotaholders).

 

Pursuant to the ACL, SRLs can have a maximum of 50 quotaholders.

 

Board of Directors: Instead of a Board of Directors, SRLs have a “management”. The management of an SRL is vested on one or more managers (quotaholders or not).

 

The majority of the managers must be Argentine residents.

 

If there are several managers, each manager may have specific roles. In the absence of specific roles, any of them may represent/bind the SRL.

 

Regular Managers shall hire, jointly, a minimum guarantee of an amount equivalent to sixty per cent (60%) of the total capital stock of the company. The individual amount of the guarantee shall be equal for each manager, and can be complied in any of the manners established in the applicable regulations, either bonds, public titles, bank deposits at the name of the Company, banking guarantees or policies. The guarantee shall not be in any case minor than AR$ 10,000, and greater than AR$ 50,000 for each manager, and shall be valid for three (3) years as from the date the respective manager ceases in its functions.

 

Syndics: Same SAs

 

Corporate and accounting books: SRLs are only required to carry a book to transcribe resolution adopted by the quotaholders and managers.

 

SRLs must also keep an organized accounting. They must keep a Diary and an Inventory and Balance Book. They must prepare financial statements for every fiscal year, which, however, do not need to be submitted to the Companies Registry if the capital amount of the SRL is less than AR$50,000,000.

 

Transfer of quotas: Quotas are freely transferable, unless restricted by the SRL by-laws. However, the transfer of the quotas can never be prohibited.

 

Any transfer of quotas must be notified to the management of the SRL, and registered at the Companies Registry to be valid vis-à-vis third parties (same applies in case of creation of lien on quotas). This is viewed as an important disadvantage compared to SAs (where no action at the Company Registry is required) since it generally takes time to perform these actions (bureaucracy concern).

 

Distribution of dividends: Same SAs.

 

SAs, SAUs and SRLs must be incorporated and registered with the Companies Registry. Prior to the incorporation of a company in Argentina, the foreign companies which will be shareholders need to register themselves before the Companies Registry in accordance with Section 123 of the ACL. Such registration is basically a red tape proceeding whereby certain corporate documents of the foreign shareholders must be filed.

 

Branches in Argentina

 

A branch has certain autonomy and functional organization to operate. Even if it is treated as a distinct entity, independent from the head office, the latter is directly responsible for the obligations of the branch.

 

The branch must keep independent accounting records from the head office. Although the head office and the branch constitute a simple legal entity, there is an effective accounting distinction between them. Further, accounting wise, the branch has a separate net-worth that derives from the obligation of maintaining independent accounting records.

 

From a taxation stand-point, the branch is treated as if it were a separate legal entity. Separate accounting records must be maintained between the branch and the head office in order to determine the tax obligations of Argentine’s source.

 

• Branches

 

Partners / Shareholders: It does not have partners or shareholders.

 

Organization: Registration of the resolution of the parent company approving the opening of the branch and the appointment of the legal representative and legal domicile.

 

Corporate Name: It has to include the words “SUCURSAL” (“BRANCH”)

 

Capital: It must be appointed by the parent company and it is not represented by certificates. It does not have a minimum.

 

Partners Liability: It is a representation of the parent company in the country and the parent company is liable with all its assets. There is no limitation of liability.

 

Corporate Organs: Legal representative. Does not need to be domiciled in Argentina.

 

Management and legal representation: One or more legal representatives. Their faculties must be included in the power of attorney which must be granted together with their appointment. The registered manager is the legal representative vis a vis third parties

 

Syndics: Not applicable

 

Corporate Books duly legalized with the Public Registry of Commerce: Minutes of Corporate Resolutions adopted by the Legal Representative. Accounting books.

 

Financial Statements: Shall be filed with the Public Registry of Commerce

 

Accounting Period: Twelve months. The end of the accounting period shall be determined in the Bylaws.

 

Remittance of profits: Can be made on a cash basis.

 

What does your current workflow look like – and what sort of corporate matters are clients bringing to you in the present climate? Why do you think this is?

 

Clients are concerned with foreign exchange regulations, inflation and high level of governmental intervention in private business and affairs. The foregoing matters usually affect the way in which business are conducted in Argentina.

 

Foreign exchange regulations are modified constantly and affect one way or another the manner in which foreign companies fund their business in Argentina.

 

Governmental intervention translates in more claims and litigious activities with governmental agencies, and high level of inflation and constant devaluation of local currency affect valuation of local enterprises creating tension and uncertainty in business acquisitions.

 

Notwithstanding the choppy macroeconomic seas that affect Argentina, we have seen deal making appetite in the following sectors: technology, media and telecommunications, along with energy and natural resources (especially in the lithium sector).

 

Moreover, in some cases, investments and acquisitions have been performed by foreign companies operating in Argentina that are affected by foreign exchange restrictions hindering the distribution cash to their headquarters and decided to use cash held in the country to performed strategic investments.

 

Nevertheless, growth was much slower than that observed in the region and the world, given that Argentina found itself in a scenario of many political and economic difficulties. If Argentina desires to receive foreign investments in similar proportions to its neighbor countries it will need to narrow the fiscal deficit, tame inflation, bolster central bank reserves, and close the gap between the official and parallel exchange rates.

 

If possible, please provide a recent case study demonstrating your service offering on a matter that proved especially noteworthy or challenging.

 

We have assisted a very important foreign company to close down its operations in Argentina. Such transaction posed numerous difficulties and problems as the company employed thousands of employees in Argentina. We provided advise on many corporate, labour and business matters in a political environment which opposed such closure and created multiple hurdles and legal problems which demanded expertise from all legal areas of our firm.

 

How significant was the impact of COVID-19 on M&A deal activity in your region, and has it now returned to prior levels?

 

The pandemic hit Argentina dramatically. Argentina was facing a deep recession prior to the pandemic. Further, Argentine authorities implemented one of the longest lockdowns in the world during the pandemic. Labour regulations which forbid dismissals of employees were enacted and new foreign exchange restrictions were created on regularly basis. Governmental aid programs were created which resulted in higher inflation rates and increased fiscal deficit.

 

Due to the foregoing, there was actually not much M&A movement in Argentina during the pandemic. There were exits of some international companies, such as the airline Latam, the retail chain Falabella, the airline Norwegian, the mobile phone manufacturer Brightstar and last-mile delivery company Glovo. In most cases, these companies were acquired by local businessmen – there are exceptions, such as Latam and Falabella, which directly closed operations. On the one hand, Argentina offers cheap prices in dollars for those who want to enter, but on the other hand, economic instability, inflation and lack of a long term policy regarding private investment dissuades investors.

 

The electricity distributor Edenor (which supplies a part of the city of Buenos Aires and the northern area of Buenos Aires province) was acquired by a local business group.

 

M&A activity has improved since the pandemic but it has not seen a level of improvement similar to its neighbor countries. The economic and political instability of Argentina is the main reason that is dragging down Argentina.

 

M&A activity in Argentina has been dampened since 2017, when 132 transactions were registered, according to private reports. The country went into a tailspin in 2018 and has not meet prior levels since then. If it desires to reach prior levels of M&A activity, Argentina will need to improve its macroeconomic variables (fiscal deficit, inflation, central bank reserves, unify exchange rates, among others).

 

In your experience, how has recent M&A activity been affected by factors such as inflation, supply chain issues, political uncertainty, security risks and/or energy pricing issues?

 

Argentina needs to improve its macroeconomic variables if it desires to increase its M&A activity. Economic and political uncertainty affect valuation of local enterprises. It is not uncommon to reopen valuation discussion in prior to closing due to inflation, devaluation and foreign exchange matters. Such problems tend to usually delay the term for closing of local transactions.

 

Further, it should be noted that local M&A transactions are most usually denominated in US dollars and that the purchase price is paid abroad of Argentina.

 

Which sectors are currently experiencing the most deal activity? And what do you think are the main drivers of this?

 

The sectors that currently experience the most deal activity are technology, mining (lithium) and oil and gas. These are sectors that maintain the interest of foreign investors.

 

In addition, the areas that show the greatest dynamism are those linked to the export of services, the knowledge industry, software, that is, those that take advantage of the high level of human capital that exists in Argentina, today quite cheap measured in dollars.

 

It should be noted that Argentina has very good entrepreneurs and proof of this is the Argentine unicorns that have emerged in recent years. Everything related to the field of innovation and the application of new technologies both in traditional industries – such as energy and natural resources, agriculture – and new industries – aerospace, blockchain, fintech, biotechnology – has a very interesting future.

 

In recent times, have you worked more with large firms or SMEs (or a mixture of both)? What do you feel are the reasons for this?

 

We have worked with both large firms and SMEs. Usually large firm represent bigger companies while SMEs represent companies which are not as big or big companies making smaller investments.

 

What kind of counsel do you provide to entrepreneurs to ensure that their business operations are secure?

 

We have a strong IP practice group which provides advise to adequately protect all IP property rights, company’ secrets and technology secrets of entrepreneurs. Further we assist entrepreneurs in incorporation and organization matters of start-ups (equity structures, stock fundraising and venture capital investments, joint ventures and strategic alliances, share incentive plans for key employees). We also assist entrepreneurs in their international expansion as well as all other legal matters related with their business.

 

How do you ensure a well-informed global advisory scope for your clients who are based overseas, or have operations in other jurisdictions? For example, are you especially active in network events such as conferences?

 

We do have offices in Santiago de Chile and New York. In addition, we provide regular legal updates to all clients and actively participate in international conferences.

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