What’s the best way to frustrate property pirates?

Why do foreigners get hoodwinked and bamboozled out of their stuff in Costa Rica? Or, any place else in the world for that matter.

Usually, because people tend to be too trusting. Or lack knowledge. Why do attorneys get a bad rap? Because knowledge is power. Some legal professionals use their know-how to steal. And then they know how to weasel out of the crime.

When an expat comes to this country to buy a property for retirement or investment, he or she faces the need to make many decisions. One on the top of the list is whether to use a company to hold the assets purchased or to hold them in a personal name. There are positive tax implications for doing the latter, but most believe they are outweighed by security and liability concerns.

Thieves love properties held personally because when someone dies they get a dishonest notary to forge a signature and, voila, the asset is transferred to someone else. Dead people cannot fight for their rights. Heirs have a hard time proving fraud in court.  Physical stock certificates of sociedades anónimas are easy to forge too. This is probably the second most common way to steal property in this country.

There are many different types of company structures in Costa Rica. However, only two are used in common practice: Sociedades anónimas or S.A.s; and, Sociedades de responsabilidad limitada, abbreviated as S.R.L.s.  These company types pay Law 9024 taxes each year along with income and sales taxes, if they are in business.

Here is a refresher course on their use and an update regarding changes.

A sociedad anónima is similar to a standard corporation in the United States and other parts of the world. This type of entity has a corporate charter and four directors: 1. president; 2. secretary; 3. treasurer; and, 4. fiscal. Stock certificates are usually issued representing stockholder ownership, but they are not mandatory.  The company also must have an attorney as a registered legal agent if the principal has a foreign address.

In the past, three legal and three accounting books were issued for a sociedad anónima by the tax department. This is not true today. Three are authorized by the national registry: stockholders, general assembly, and board of director’s minute books. The legal professional creating the entity usually prepares these items for a new company. The paper accounting books of the past are no longer required because the country’s tax department has modernized. Accounting still must be up-to-date in an accounting system, paper or digital.

S.R.L.s, are the second most popular structure. They are taxed on profits just like a sociedad anónima in Costa Rica. This is not true elsewhere. Taxes vary by country.  They also pay Law 9024 income and sales taxes if they are in business just like sociedades anónimas do.

They are easier to administrate and safer than S.A.s.  They have a constitution or charter like a sociedad anónima but do not have directors, only a manager or managers. Only two books are authorized by the national registry: Cuotas and,  assembly minute books.

The most important aspect to an S.R.L. is shares cannot be transferred by simple endorsement, and any shareholder has the right of first refusal in the case of any share transfer.  Any movement of shares also needs confirmation written in the shareholders’ book.

Liability is one of the most important considerations in choosing a company structure.  If something goes wrong and a company runs into financial problems, the liability created should stop with the company.

This means one’s personal assets are safe because legally a properly formed company is a separate entity in the eyes of the law and solely responsible for its debts.

Many use S.R.L.s to hold assets, but they are used for doing business too. Even large

Why do foreigners get hoodwinked and bamboozled out of their stuff in Costa Rica? Or, any place else in the world for that matter.

Usually, because people tend to be too trusting. Or lack knowledge. Why do attorneys get a bad rap? Because knowledge is power. Some legal professionals use their know-how to steal. And then they know how to weasel out of the crime.

When an expat comes to this country to buy a property for retirement or investment, he or she faces the need to make many decisions. One on the top of the list is whether to use a company to hold the assets purchased or to hold them in a personal name. There are positive tax implications for doing the latter, but most believe they are outweighed by security and liability concerns.

Thieves love properties held personally because when someone dies they get a dishonest notary to forge a signature and, voila, the asset is transferred to someone else. Dead people cannot fight for their rights. Heirs have a hard time proving fraud in court.  Physical stock certificates of sociedades anónimas are easy to forge too. This is probably the second most common way to steal property in this country.

There are many different types of company structures in Costa Rica. However, only two are used in common practice: Sociedades anónimas or S.A.s; and, Sociedades de responsabilidad limitada, abbreviated as S.R.L.s.  These company types pay Law 9024 taxes each year along with income and sales taxes, if they are in business.

Here is a refresher course on their use and an update regarding changes.

A sociedad anónima is similar to a standard corporation in the United States and other parts of the world. This type of entity has a corporate charter and four directors: 1. president; 2. secretary; 3. treasurer; and, 4. fiscal. Stock certificates are usually issued representing stockholder ownership, but they are not mandatory.  The company also must have an attorney as a registered legal agent if the principal has a foreign address.

In the past, three legal and three accounting books were issued for a sociedad anónima by the tax department. This is not true today. Three are authorized by the national registry: stockholders, general assembly, and board of director’s minute books. The legal professional creating the entity usually prepares these items for a new company. The paper accounting books of the past are no longer required because the country’s tax department has modernized. Accounting still must be up-to-date in an accounting system, paper or digital.

S.R.L.s, are the second most popular structure. They are taxed on profits just like a sociedad anónima in Costa Rica. This is not true elsewhere. Taxes vary by country.  They also pay Law 9024 income and sales taxes if they are in business just like sociedades anónimas do.

They are easier to administrate and safer than S.A.s.  They have a constitution or charter like a sociedad anónima but do not have directors, only a manager or managers. Only two books are authorized by the national registry: Cuotas and,  assembly minute books.

The most important aspect to an S.R.L. is shares cannot be transferred by simple endorsement, and any shareholder has the right of first refusal in the case of any share transfer.  Any movement of shares also needs confirmation written in the shareholders’ book.

Liability is one of the most important considerations in choosing a company structure.  If something goes wrong and a company runs into financial problems, the liability created should stop with the company.

This means one’s personal assets are safe because legally a properly formed company is a separate entity in the eyes of the law and solely responsible for its debts.

Many use S.R.L.s to hold assets, but they are used for doing business too. Even large protectassets091514companies in Costa Rica are changing their corporate structure from a sociedad anónima to sociedad de responsabilidad limitada because they are easier to administrate.

Allan Garro of Garro Law, a legal expert, found another company form, and it is raising interest in the legal community. It was hidden for years in the civil code, the sociedad civil. It is much like a sociedad de responsabilidad limitada with one big difference. It does not pay Law 9024 taxes each year. So it is a perfect vehicle for asset ownership. Even though they can be used for doing business, it is not recommended to use them for such. If a company gets into financial problems, a third party can petition the court to dissolve the company to cover its debts.

What is the best use for each of the company structures discussed here?

Sociedaded anónimas are best for business entities when there are many stockholders, and a board of directors manages it for them. That is why a special legal book is issued to these organizations. Directors write their minutes and decisions in the board of director’s book for shareholder scrutiny. Shareholders write their minutes in the general assembly book.

It is still common practice for attorneys to create S.A.s for property holdings with one or two stockholders. This is not recommended because the individuals are always asking their friends and strangers to be on the board.

Sociedades de responsabilidad limitada are great vehicles to hold assets. They have no board and are relatively easy to manage.  This is not a good structure for many shareholders. Approval to get things passed in assembly meetings is more restrictive than S.A.s. However, it is bad news they must pay Law 9024 taxes, even if not doing business.

The best of all to hold property are sociedades civiles. They do not pay the new tax on companies. They are easy to setup, administrate, and protect against liability and fraud.

This is the key for most expats, fraud. What company structure works the best? They all do if they are managed correctly. The key elements:

1. Know who has powers of attorney;

2. Know exactly what the charter of the company says;

3. Have the shareholder books in a safe place held by honest people; and, most importantly,

4. Have a succession plan, which includes a will, trust or contingent power of attorney for an executor to manage life’s eventualities.

Garland M. Baker, a certified international property specialist, is a 44-year resident and naturalized citizen of Costa Rica. His firm’s team provides multidisciplinary professional services to the country’s international community.  Reach him at info@crexpertise.com.  Baker has undertaken the research leading to these series of articles in conjunction with A.M. Costa Rica.  Find the collection at http://crexpertise.info, a free reprint is available at the end of each article.  Copyright2014. Use without permission prohibited

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