Colombian Business Structures: What is an SA?

If you’re considering setting up a business in Colombia, one of your first steps is to familiarize yourself with the options for establishing a company in the country.

In this series on Colombian business structures, you’ll learn about each option. Here, you’ll find out how an SA (corporation) works, the key features of this model, and whether it’s the right choice for your operation.

What is an SA?

SA stands for “Sociedad Anónima” in Spanish and describes a public corporation.

Corporations have several shareholders, and their liability is respective to their equity in the company. Shareholders contribute materially, with money or goods, and the size of this contribution determines their stake in profits earned.

As a public corporation, an SA’s shares can be traded on the stock market, meaning that anyone can invest in the company by purchasing shares. This makes it possible for the company to obtain capital from the general public. All shares of the same type have the same price at the outset of the company.

Key features of an SA

The following are central defining aspects of the SA model, some (but not all) of which separate it from the other business structures explored in this series.

The name: Business names in Colombia state the company type at the end. In this case, the abbreviation for the Spanish words “sociedad anónima” (SA) must appear after the company’s name. For example, if you were to found a corporation entitled Technology Exchange, the company name would always have to appear as Technology Exchange SA.

Failing to display a company name appropriately can result in consequences. The administrators can be held jointly and severally liable for operations if this detail is omitted.

Shareholders: An SA must have at least five shareholders, and unlike in other Colombian business structures like SRLs, there is no upper limit. As such, an SA is an ideal business structure for larger operations requiring the financial backing of many shareholders.

Shareholders, alone or combined, cannot hold more than 95% of the company’s total shares.

Capital: A minimum capital amount is required for the formation of an SA.

Duration: As publicly traded companies, SAs can enjoy long, fruitful futures. The company’s operations aren’t dependent on shareholder lifespans; shares get passed down to heirs if a shareholder dies.

Reserve: Colombian law stipulates that SAs must reserve at least 50 percent of their subscribed capital by allocating 10 percent of net profits from each financial period. There is no upper reserve limit.

Dissolution: SAs can be dissolved for several reasons including:

  • The completion of the business objective stated at the outset of its foundation
  • The impossibility of meeting the corporation’s objective
  • Causes outlined in the company’s bylaws
  • A significant loss in assets (to an amount that’s less than half of the share capital or below the legal minimum)

Administration: SAs are required to have a board of directors, and these corporations are directed by that board, the shareholders (who must hold general meetings), and a legal representative.

Taxes: SAs must pay federal income tax and collect sales tax (VAT). Business income tax is currently 35% in Colombia. Other taxes a corporation may be liable for include:

  • Local income tax
  • Excise taxes
  • Customs duties
  • Property taxes
  • Corrective taxes (on operations that generate potentially damaging substances like sugary foods, carbon emissions, or plastic)
  • Capital gains taxes
  • Employee social security and other benefits contributions

Why establish an SA

SAs are an excellent model for large operations that hope to attract public investments (through stock exchange trading).

Other advantages include the low level of shareholder responsibility, the potential for dividends, and the flexible structure (SAs can have a fluctuating number of shareholders). Plus, SAs tend to be considered “serious” enterprises, which can instill trust in potential investors.

This being said, establishing an SA might not be the right choice for smaller operations. Constituting an SA takes time and requires a minimum of five shareholders. So, the establishment can imply more effort than with other types of businesses. What’s more, SAs often have rigid internal structures as these corporations are governed by strict local commerce codes. These codes encourage formality and help SAs run smoothly but can also slow down the approval and implementation of changes within the company.

Business owners wanting to avoid the aforementioned drawbacks might consider more streamlined constitution models, like an SAS or SRL.

How to start an SA

SAs are established through public deeds, which must be signed in the presence of a notary and duly registered with the Colombian Chamber of Commerce.

Alternatively, an SA can be established through a private document if it, at the time of its foundation, has fewer than 10 employees or less than 500 SMLMV (the Colombian monthly minimum wage) in assets.

Other steps in the SA establishment process include acquiring a taxpayer ID with the Colombian tax authority (DIAN) and submitting the corporation’s essential details, like the founders’ names, the name and address of the business, and the type and value of the shares, to the Chamber of Commerce.

Read more on how to correctly establish a business in Colombia here.

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