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Panama’s answer to the LLC
By admin | June 2, 2008
An SRL, or Sociedad de Responsibilidad Limitada, is a Panamanian structure comparable to a limited liability partnership (UK) or a Limited Liability Corporation (USA). It is less known internationally than the normal Panama S.A. corporation, but can offer some significant advantages in certain cases.
Legal Foundation of Panamanian SRL
SRLs are governed by the Commercial Code and Law No. 24 of 1966, as amended by Decree Law No. 5 of 1997. This latter decree clarified that all partners may be corporate bodies.
There may be anywhere from 2 to 20 partners, individuals or corporate bodies, with no restrictions as to their citizenships or country of residence. These may be nominees. Their Capital must be at least $2,000 and not more than $500,000. Unlike S.A.s, the capital must be defined in PAB rather than USD. For practical purposes, 1 PAB is equal to 1 USD.
The names of the partners must be registered with the Panama Public Registry, additionally specifying the Capital each contributed, which must be at least 50% paid up. Each partner’s civil liability for the Partnership’s debts is limited to the amount subscribed to but unpaid. The use of special purpose corporations to act as partners might be advisable in order to protect the assets of the parent company from creditors of the partnership.
Administrator
The SRL may appoint a third party as administrator, and in this case his/her name must also be registered. No meetings are required if the Partnership has 5 members or less. Otherwise, a meeting must be held at least once a year. There are no requirements for annual returns or filing of any accounts.
The SRL does not automatically have full powers like a corporation. Therefore, the administrators require special authorization from the partners to carry out acts beyond the normal course of business established in the charter, to transfer assets, and to encumber assets to secure debts of the SRL.
Once registered at the Public Registry, the SRL acquires its own legal personality.
Transparency for Foreign Taxation Purposes
The SRL, unlike a corporation, qualifies in certain foreign countries including the USA as a disregarded entity for purposes of avoiding CFC legislation.
A US taxpayer may file Form 8832, and thereby convert certain foreign corporations into a disregarded entity for U.S. tax purposes. If you are the only owner, the income and losses of the entity will be reported on Schedule C of your personal tax return and can therefore reduce your personal income tax is the entity has experienced losses. The election to be treated as a disregarded entity is only available for “eligible entities”. Entities that are not eligible to make the election are listed in IRS Regulation 301.7701-2 and in the instructions to the Form 8832. In Panama, the regular type of corporation (Sociedade Anonima) is NOT an eligible entity and can’t be treated as a disregarded entity. A Panama SRL does however qualify for disregarded entity status.
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