Explanation of the standard text contained in the deed of incorporation for the two most widely used companies in Costa Rica: the Sociedad Anónima (S.A.) and the Sociedad de Responsabilidad Limitada, and their main differences.

I. Sociedad Anónima: The “Sociedad Anónima” is similar to a stock corporation. It is established by granting an incorporation writ that usually includes the following points:

1. Incorporators. It establishes the persons that are forming the corporation. Full name, personal identification number (passport number, in case of foreign citizens), marital status, title, domicile, and exact address shall be included. A foreign company can appear as one of the incorporators.

2. Name. Establishes the name that the company will have. Also specifying other terminology or logos that the company may use in letterhead, publications, etc. Terms in foreign languages are not generally accepted. However, if one of the incorporators has a name in other language, this name could be used, by attaching two letters at the end: “S. A.” which means “Sociedad Anónima”.

3. Objective. Establishes the activity that the company will have. Usually very broad, covering most of eventual fields of its intended activity. If you do not to have special requirements, we shall supply the text.

4. Term. It establishes the planed duration of the company in number of years. It can also be extended at any time. Commonly this term is 99 years.

5. Domicile. Where the company has its headquarters. It has to be a precise address, usually in San José , but it can also be able to perform activities in all of Costa Rica , and abroad.

6. Capital. Establishes the company’s capital stock. Indicating the total amount subscribed and paid in capital, how it is divided and paid, number and type of shares. In cases of capital subscribed in cash (as opposed to capital subscribed in kind), it has to be deposited initially in an escrow account at a local bank. If it is done through a Certificate of Deposit, this deposit in escrow is not required.

7. Shares. The shares, or certificates of shares, have to be registered, indicating the name of the owner.

8. Inventories and Balances. These are made at the close of every fiscal year (September the 30th). Costa Rica follows generally accepted accounting practices.

9. Meetings. The Shareholders should hold an annual ordinary meeting within three months following the end of the fiscal year. The meeting can take place anywhere in Costa Rica , or in other places if so agreed in the writ. Occasionally, shareholders can meet as per request of the President of the Board.

The ordinary procedure in order to summon ordinary or extraordinary meetings is by making a publication in the official journal “La Gaceta”, with an optional announcement in one of the major newspapers of San José . Otherwise, it can be done in any other form stipulated in the writ of incorporation and with the number of days in advance therein provided for. If the total of the shareholders are represented in the meeting and they so resolve, this previous meeting announcement is not necessary. This resolution should be recorded in the corresponding minutes, and they need to be signed by all of them.

For ordinary meetings convened by the first summon, quorum will exist with the presence of one-half of the shares with right to vote, and any resolutions enacted is valid when taken with votes representing more than half of those in the meeting. Quorum in extraordinary meetings convened by the first summon is formed when at least three-quarters of the shares are present, and any resolutions enacted is valid when taken by votes representing more than half of the total company shares. Ordinary or extraordinary meetings that meet after a second summon will be validly constituted with any number of represented shares, and the resolutions must be taken by more than half of the represented shares.

10. Duties of the General Shareholders Assembly: a) to elect and remove the managers and the Controller, and fill their temporary or definitive vacancies; b) to set the general management policies; c) to approve the annual expenditures budget; d) to study the financial records including Profit and Loss Statement, and the Balance Sheet; e) to distribute profits, if so decided, or authorize the Board to do so; f) to merge the company with other companies; g) to prematurely dissolve the company; h) to appoint liquidators; i) to discuss and amend the Articles of Incorporation of the company; j) other duties specifically assigned by law or by the writ of incorporation.

11. Administration. A Board of Directors does the company management. It is composed of three or more members, whom may be shareholders or not. The basic board of directors is composed of President, Secretary and Treasurer. There must be a minimum of three directors: President, Secretary and Treasurer. The representation of the company is given to the President, and can be given to any other person by means of power of attorney. The Directors may also be empowered to grant powers, substitute theirs, fully or in part, with out loosing their power.

12. Duties of the Board of Directors. To appoint managers, give power of attorney, designate agents or representatives, to establish company management policies; to prepare the Balance Sheet, and the Profit and Loss Statement. The Board may delegate most of its authority to the President. The Board meets ordinarily once a month and extraordinarily whenever called by the President. The meetings may be held in the domicile of the company or, if specified in the writ of incorporation, in other places within the country or abroad. Quorum will exist when at least half of the members are present. The resolutions are valid when taken by the majority of the members present. In the case of an equal number of votes, the President of the meeting decides with double vote.

The Secretary shall include in the meeting minutes where the meeting is held, the names of those who attend and the resolutions taken. The minutes are signed by the President and the Secretary or whomever take their places. Resolutions by consent without the actual presence of the Directors are not allowed.

13. Management. The company may appoint one or more Managers and/or Assistant Managers, etc. Hierarchically they will be the President’s subordinates, but legally, if the company so selects, they may have the same faculties and duties, and without prejudice to the President’s power, they may have as ample power as him.

14. Dissolution of the Company. The company shall be dissolved by at the end of the established term, or by any of the following causes: Impossibility of fulfilling its purpose, the definitive loss of 50% of its capital, or by agreement of the Shareholders. Once the dissolution of the company is agreed, the general meeting appoints one or several liquidators and determines their duties.

15. Resident Agent. The company may appoint at least one Resident Agent, who has to be a lawyer.

16. Statutory Examiner (In Spanish “Fiscal”). The statutory examiner may or may not be a shareholder. They cannot hold any position at the Board of Directors, nor may have any power of representation from the company.

17. Reserve Fund: 5% of the profits have to be separated and deposited in a reserve fund each year, until reaching 20% of the subscribed and paid capital (registered stock capital).

II. Compañía Limitada:

The Limited Liability Company “Compañía Limitada” is similar to the Sociedad Anónima in most aspects. It is established by granting an incorporation writ that usually includes the following points:

1. Incorporators. Full name, personal identification number (passport number, in case of foreign citizens), marital status, activity, domicile, and exact address.

2. Name. Also specifying other terminology or logos that the company may use in letterhead, publications, etc.

3. Objective. The same as the Sociedad Anónima.

4 Term. Also specified in number of years. It can also be extended at any time.

5. Domicile. The same as the Sociedad Anónima.

6. Capital. Basically the same as in the Sociedad Anónima. The shares are called “quotas”.

7. Quotas. The quotas, or certificates covering more than one, usually bear the signature of the Manager.

8. Inventories and Balances. Also made at the close of every fiscal year (September the 30th). Costa Rica follows generally accepted accounting practices.

9. Meetings. The quotaholders should hold an annual ordinary meeting within three months following the end of the fiscal year. The meeting can take place somewhere in Costa Rica , or in other places if so agreed in the writ. At the very least the following points are discussed in the annual meeting: a) a report on the results of the fiscal year presented by the Management; b) the eventual distribution of profits; c) the appointment or removal of managers, as the case may be. Extraordinarily, the meeting meets whenever convened by the Manager, following similar procedures as in the case of the Anónima. Any number of quotaholders assisting forms the quorum.

10. Statutory Examiner. (In Spanish “Fiscal”). There is no statutory examiner in the case of the Limitada.

III. Differences:

 The main differences between the Sociedad Anonima and the Limitada are:

• Representation: In the S.A. at least 3 boards of director members are needed, while in the Limitada only 1 manager is necessary.
• Stock transfer: while in the S.A. every owner of share capital is entitled to sell his shares at his sole discretion, in the Limitada, in order to sell his quota, the acceptance of all the rest of quotaholders is required.
• Statutory Examiner: Only the S.A. has a Statutory Examiner.