Law 222 of 1995: the company law reform

Why Law 222 matters to an SAS

The SAS Law is short and points back to general company law. Its Article 27 applies the managers’ liability rules of this Law to the legal representative and directors of an SAS, its Article 30 imports the withdrawal right, and the rules on groups, financial statements and the Superintendence apply to every commercial company. In practice the duties in Art. 23 and the liability in Art. 24 are the standard against which any Colombian director is judged.

Directors’ duties and conflicts

Art. 23 combines a general standard — good faith, loyalty and the diligence of a prudent businessman — with specific duties. Item 7 is the one that catches groups: a manager may not take part in competing activities or in acts involving a conflict of interest without the authorisation of the members’ meeting, after full disclosure, and the authorisation may be given only if the act does not harm the company. Intra-group contracts signed by a legal representative who also serves the parent are the usual risk. Liability is joint and several, fault is presumed in the cases listed in Art. 24, and clauses limiting it are treated as unwritten. A legal entity acting as manager is liable together with its own representative.

Groups and registration of control

Control is defined broadly (Art. 26, Art. 27): more than 50% of the capital, enough votes to decide in the meeting or to appoint the majority of the board, or dominant influence through a contract or otherwise. A foreign parent that controls a Colombian company must register the control situation, or the business group, in the Commercial Registry within 30 days (Art. 30); otherwise the Superintendence declares it and may fine. The parent must prepare consolidated statements (Art. 35), and the subordinate may not hold shares in its parent (Art. 32).

Reorganisations

Demergers can be by transfer of part of the net assets to existing or new companies, or by dissolution of the demerging company (Art. 3). The plan is approved by the meeting, published, and creditors have thirty days to demand guarantees unless assets are at least twice external liabilities (Art. 6). Outvoted members whose position is worsened can withdraw (Art. 12). The Superintendence of Companies must authorise mergers and demergers of companies under its supervision (Art. 84).

Profit distribution

Art. 240 restates Article 155 of the Commercial Code: unless the by-laws require more, distributing profits needs 78% of the shares represented, and if that majority is not reached at least 50% of net profits must be distributed. Article 38 of the SAS Law disapplies this rule for SAS unless their by-laws provide otherwise, which is one more reason foreign groups prefer the SAS.