mtures

cal and technical renovation

: with the EU requirements,
1 providing indirect support
.x and cus toms mechanisms,
in economy through adver
~ i a n producers. An effective
stitutions aimed atsupport
tive - both Bulgarian and
F
onomy where joint ventures
'positive change.
Chile
Patricia Nez
Nez, Muoz y Ca Ltda, Abogados
Santiago, Chile
Introduction
Chile is a civil law country. Legal regulations in connection with
legal matters are set forth in statutes, including codes, specific laws,
decrees, and written regulations in general, with the specific purpose
of addressing and regulating different legal aspects.
However, under Chilean law, joint ventures are not specifical1y
regulated by law. Therefore, parties interested in entering into such
agreements may basically choose one oftwo ways:
(1) Adapt the specific agreement that they intend to execute in accor
dance with any of the business structures provided by law; or
(2) Enter into an agreement not specifically ruled by law.
Forms of Business Organization
In General
Chilean law provides different business structures. However, practical
experience shows that the most appropriate forms ofbusiness organiza
tion to carry out a joint venture in Chile are limited liability partnerships,
corporations, and contractual mining companies. The latter business
forms are specifically provided by the law for mining business.
Limited Liability Partnership
A limited liability partnership is a business structure that guarantees lim
ited liability to its partners.
1
In fact, the partners of a limited liability
- [ Limited Iiability partnerships are govemed by Law Number 3918, published in the
Offical Gazette on 14 March 1923. This structure also is govemed bythe provisions on
collective companies, set forth in the Chilean Cornmercial Cade, Article 348 bis, and by
the rules on company agreements, provided in the Civil Cade, Article 2053 bis.
52 International Joint Ventures
partnership are liable only for the amount of their respective
contributions; they are not personally responsible for debts incurred
by the partnership.
Generally, the primary difference between a limted liability part
nership and a corporation (discussed under the section "Corporation"
below) is the importance of each partner 's identity in relation to that
form ofthe association. While a limited liability partnership is a legal
entity in which each partner's identity is deemed an essentfal element
ofthe association, a c10sed corporation is an entity in which this e'le
ment is not really significant.
Regarding incorporation requirements, the partners of a limited
liability partnership are not restricted in terms of nationality, domi
cile, or residence. However, foreign partners of a Chilean limited
liability partnership are required to appoint an attorney for tax pur
poses and, in accordance with the current regulation issued by the
Chilean Tax Revenue Service, the appointed attorney must be a resi
dent of Chile or domiciled therein. Incorporation process does not
impose a minimum capital requirement though it is advisablethat the
amount of capital be reasonably related to the company's purpose.
With respect to the management structure, the administration of a
limited liability partnership may be exercised according to several
formulas. Chilean law provides that the management of those part
nerships may be delegated to their respective partners or to third
parties. Accordingly, this type ofpartnership may be managed by all
the partners, a third party, or even a board ofdirectors. In the last case,
the members of the board may be partners of the company or third
parties.
The business profits may be freely allocated by the partners. In the
absence of a special agreement on this matter, the law provides that
profits will be distributed among all the partners, in accordance with
their respective capital contributions.
One relevant feature ofthis business entity is that the partners may
not freely transfer their quota rights; to do so, they requre the other
partners' consent. Moreover, any transfer of quota rights requires an
amendment of the incorporation deed. The amendment must specify
that the other partners express their consent to the original partner's
departure as well as to the new partner's entrance. Without this
amendment, no transfer will be legal1y effective.
Disputes among the partners, disputes between one partner and the
limited liability partnership, and disputes related to the partnership's
liquidation are subject to
may appoint an arbitrator (
the partners do not make
) made by the Chilean court
Corporation
Corporations in Chile may
tion" or a "c1osed corpora
those that offer their stoc
accordingto Artic1e 2 ofth(
legal entity that has any of
(1) It has 500 or more sr
(2) It has ten per cent ofi
imum of 100 shareh
holdings exceed that
persons; and
(3) It is registered witl
whether sueh registr;
AH other corporations are
are governed by stricter rul
matters such as corporate
duties. This differential trE
corporations involve certai
vant in c10sed corporations
However, the following
open and c10sed corporatio
(1) Shareholders' labilit
ration with respect to
capital contributions.
(2) While shareholders n
dence, foreign sharer
for tax purposes, and
domiciled thcrein; an
(3) There are no legal re
though it is advisabl
ably related to the nt
2 Corporations are govemed by L
the Official Gazette on 22 Octo
53 Patricia Nez
ntures
liquidation are subject to arbitration. To this purpose, the partners
ponsible for debts incurred
110unt of their respective
may appoint an arbitrator or arbitrators in the incorporation deed. If
the partners do not make an appointment, the designation will be
reen a limited liability part
made by the Chilean crourts.
:r the section ItCorporation"
s identity in relation to that
Corporation
ability partnership is a legal
leemed an essential' element
Corporations in Chile may adopt the structure of an "open corpora
; an entity in which this ete- '
tion" or a "closed corporation".2 In general, open corporations are
those that offer their stocks for sale on the market. Specifically,
s, the partners of a limited
according to Article 2 ofthe Corporation Act, an open corporation is a
terms of nationality, domi
legal entity that has any of the following characteristics:
rtners of a Chilean limited
(1) It has 500 or more shareholders;
lint an attorney for tax pur- ,
(2) It has ten per cent of its subscribed capital in the hands ofa min
nt regulation issued by the
mum of 100 shareholders, excluding the shareholders whose
lted attorney must be a resi
holdings exceed that percentage, individually or through other
,rporation process does not
persons; and
lOugh it is advisable that the
(3) It is registered with the Securities Registry, regardless of
to the company's purpose.
whether such registration has been freely decided or not.
ture, the administration of a
rcised according to several
AH other corporations are c10sed corporations. Open corporations
management of those part
are governed by stricter rules than closed corporations, especially in
Jective partners or to third
matters such as corporate governance, transparency, and disclosure
'ship may be managed by all
duties. This differential treatment is comprehensible, because open
of directors. In the last case,
corporations involve certain public interest matters that are not rele
ers of the company or third
vant in closed corporations.
However, the following key characteristics are common to both
Jcated by the partners. In the
open and c10sed corporations:
l1atter, the law provides that
(1) Shareholders' liability for responsibility incurred by the corpo
partners, in accordance with
ration with respect to third parties is limited to their respective
capital contributions;
ntity is that the partners may
(2) While shareholders may have any nationality, domicile, or resi
do so, they require the other
dence, foreign shareholders are required to appoint an attorney
:r of quota rights requires an
for tax purposes, and this attorney must be a resident of Chile or
'he amendment must specify
domiciled therein; and
sent to the original partner's
(3) There are no legal requirements imposing a minimum capital,
er's entrance. Without this
though it is advisable that the corporation 's capital be reason
ably related to the intended business.
; between one partner and the
:s related to the partnership's 2 Corporations are govemed by Law Number 18046 (the Corporation Act), publlshed in
the Official Gazette on 22 October 1981.
54 International Joint Ventures 1,
The management of a corporation is entrusted to a board, which is
composed of a certain number of directors: a mnimum ofthree direc
tors in closed corporations, five in open corporations, and seven in
open corporations with assets traded on the Stock Exchange equiva
lent to or exceeding approximately US $52,000,000. The board also
exercises the judicial and extrajudicial representation ofthe corpora
ton, without prejudice to the judicial representation t h ~ t may be
entrusted to general managers, if they are appointed. .
The founding shareholders of a corporation must apppint a board
of directors in the incorporation deed. That board must be unani
mously elected, and will continue in operation until the first
shareholders' meeting is held. During that meeting, the shareholders
may confirm the existent board or elect an entirely e ~ board.
A director's appointment has a statutory duration of three years
when this term is set forth in the corporation bylaws. Ifthe bylaws do
not set forth the term
,
the director's appointment may
.
last only one
year. Once the appointment term expires, shareholders must elect a
new board. In any case, directors are essential1y removable, and they
may be re-elected indefinitely.
In relation to voting rights, the Corporation Act provides that the
primary principIe is the equality ofaH the shares; thus, one share usu
ally represents one vote. ExceptionaHy, the law allows the issue of
privileged shares, and one ofthe privileges ensuing from such shares
may include having preferential voting rights. Shares with special
privileges are called "preferred shares". However, share privileges
are of a limited duration.
With respect to corporation auditing, aH shareholders have the
right to review and inspect the corporation's balance sheet and finan
cial statements. However, this right may be exercised only within
fifteen days prior to a general shareholder's meeting, and it does not
affect the board ofdirectors' prerogative to withhold certain informa
tion, especial1y if such information is deemed essential to pending
transactions, sensitive in the context of the company's interests, or
harmful if it were disclosed.
Surveillance of closed corporations is carried out by account
inspectors or external auditors who are in charge of inspecting and
reviewing the company's accounts, balanc,e sheet, inventories, and
financial statements. However, in open corporations, this surveil
lance task may only be entrusted to external auditors. Account
inspectors and externa! auditors are required to report their opinion to
the shareholders. Open c
controls executed by the e
Insurance.
3
Under Chilean legislati
alIy accepted accounting p:
Securities and Insurance al
accounting standards that (
by the said authority.
Mining Companies
The Mining Code provides
for the mining industry.
4
1
the "contractual mining ca
A legal mining compan:
ing business with a simplt
type of entity acquires legi
more prvate persons or le
or claim for mining right5
body of rules applicable te
tially the company's byla
matters such as the compal
and duties. On the other
focused on those mining bl
corporate structure.
A contractual mining ca
ofincorporaton, must havl
mining properties as a part
ble for the obligations o
respect to third parties, al
pany's maintenance and ex
respective shares.
A contractual mining ce
and assigned.
The shareholders' meeti
pany's management polic)
3 Open corporations that offer tb
subject to a filrther auditing 1
directors.
4 Mining Code, Article 172 bis.
55
ntures
rusted to a board, which is
;: a
corporatlOns', and seven m
he Stock Exchange equiva
52,000,000. The board also
presentation ofthe corpora
representation that may be
e appointed.
ration must appoint a board
That board must be unani
operation until the first
lt meeting, the shareholders
m entirely new board.
:ory duration of three years
ion bylaws. Ifthe bylaws do
,ointment may last only one
s, shareholders must elect a
mtial1y removable, and they
Iration Act provides that the
! shares; thus, one share usu
the law allows the issue of
ensuing from such shares
rights. Shares with special
. However, share privileges
7
",
all shareholders have the
)n's balance sheet and finan
iy be exercised only within
er's meeting, and it does not
to withhold certain informa
ieemed essential to pending
the company's interests, or
, is carried out by account
in charge of inspecting and
ance sheet, inventories, and
n corporations, this surveil
external auditors. Account
lired to report their opinion to
Patricia Nez
the shareholders. Open corporations also are subject to auditing
controls executed by the Chilean Superintendence of Securities and
Insurance.
3
Under Chilean legislation, corporations usual1y abide by gener
ally accepted accounting principIes. The Chlean Superintendence of
Securities and Insurance also has the authority to set forth additional
accounting standards that are mandatory for corporations controlled
by the said authority.
Mining Companies
The Mining Code provides for two specific company types available
for the mining industry.4 These are the "legal mining company" and
the "contractual mining company".
A legal mining company is designed for a less sophisticated min
ing business with a simple and mandatory company structure. Ths
type of entity acquires legal personality by the mere fact that two or
more prvate persons or legal entties jontIy register an application
or claim for mining rights. Chilean law provides a comprehensive
body of rules applicable to a legal mining company, which is essen
tially the company's bylaws. These legally defined rules govern
matters such as the company's management and shareholders' rights
and duties. On the other hand, a contractual mining company s
focused on those mnng businesses that require a more sophisticated
corporate structure. .
A contractual mining company is a stock company that, at the time
ofincorporation, must have at least two shareholders and one or more
mining properties as a part of its patrmony. Shareholders are not lia
ble for the obligations of the contractual mining company with
respect to third parties, although they must contribute to the com
pany's maintenance and exploitation expenses, in proportion to their
respective shares.
A contractual mining company's shares may freely be transferred
and assigned.
The shareholders' meeting decides upon a contractual mining com
pany's management policy. The decisions are adopted by a simple
3 Open corporations that offer the sale ofassets valued at more than US $52,000,000 are
subject to a further auditing mechanism, which consists of a special committee of
directors.
4 Mining Code, Article 172 bis.
56 International Joint Ventures
majority vote. However, the shareholders may entrust the company's
management to one or more administrators or a board of directors.
A contractual mining company is automatically liquidated when
the mining interests are wholly disposed, or when they are terminated
or precluded. In this case, all the shares will eventually be held by one
single individual orentity.
On the basis of this pattern, shareholders are entitled to agree on
the corporate structure that best suits their needs. '
Agreements Not Specifically Ruled by Law
Even though there is no specific regulation regarding joint venture
agreements under Chilean law, parties may freely en ter into an agree
ment to regulate any joint venture that they intend to undertake. In
fact, this kind of agreement will be governed by the general principIes
of contract law provided in the Chilean Constitution and the Com
mercial and Civil Codes, which apply to all types of agreements.
In accordance with the general principIes provided in the Consti
tution and the Codes, it is recognized that any person has the right to
freely undertake any entrepreneurial activity, to en ter into any act or
agreements, and to freely determine the content ofthese acts or agree
ments, to the extent that they are not contrary to law and public policy
principIes.
Conclusion
Joint venture agreements are not specifically regulated by Chilean
law. However, parties that wish to enter into an agreement of this
nature may use any ofthe business structures set forth by law. Among
these structures, the most flexible is the contractual mining company
structure, which applies only to mining ventures. In fact, this struc
tu re is flexible enough to allow the parties to enter into agreements
that they may deem necessary for a specific mining business. This
flexibility is due to the fact that a contractual mining cmpany has
few mandatory requirements. Therefore, the parties are free to
determine any other regulations with respect to their specific busi
ness, to the extent that such regulations are not contrary to Chilean
law and public order policies.
The other two
and corporations, are less
venture agreement, as tl
requirements for their co
Besides these structur
venture agreement based '
ean law with respect to
Constitution and in the (
ments will be recognized
extent that they comply w
ean law or public orde
agreements fulfill the
mined on a case-by-case
57
mtures
: may entrust the company's
rs or a board of directors.
omatical1y liquidated when
or when they are terminated
il1 eventual1y be held by one
iers are entitled to agree on
:ir needs.
!d by Law
ion regarding joint venture
Ly freely enter into an agree
hey intend to undertake. In
led by the general principies
Constitution and the Com
all types of agreements.
pIes provided in the Consti
t any person has the right to
vity, to enter into any act or
)ntent ofthese acts or agree
'ary to law and public policy
lcally regulated by Chilean
r nto an agreement of this
lres set forth by law. Among
ontractual mining company
ventures. In fact, this struc
es to enter into agreements
cific mining business. This
ictual mining company has
efote, the parties are free to
5pect to their specific busi
are not contrary to Chilean
Patricia Nez
The other two business structures, limited liability partnerships
and corporations, are less flexible mechanisms for structuring ajoint
venture agreement, as the law sets forth a number of mandatory
requirements for their constitution, existenee, and managemenL
Besides these struetures, the parties may freely enter into a joint
venture agreement based on the general regulations provided in Chil
ean law with respeet to contraet law principies provided in the
Constitution and inthe Civil and Commereial Codeso Such agree
ments will be recognized as valid and binding under the law, to the
extent that they comply with o n ~ r a c t law and do not contravene Chil
ean iaw or public order principies. The question as to which
agreements fulfill the legal requirements ofChilean law will be deter
mined on a-case-by-case basis.