What Type of Company to Open in Panama? Corporation vs. Limited Liability Company

The choice between a Corporation (S.A.) and a Limited Liability Company (LLC or S.R.L.) largely depends on the type of business you plan to run and your corporate objectives. Here's a breakdown of the most critical aspects:

• Ownership Structure: In a Corporation, the company is divided into shares, and the shareholders are the owners. Meanwhile, an LLC is formed by partners who contribute capital and directly participate in decision-making.
• Privacy: Corporations offer greater anonymity because shareholder names are not required to be registered in the Public Registry. In contrast, LLCs must register the names of their partners.
• Ease of Management: LLCs are generally easier to manage compared to Corporations, as the latter requires a formal board of directors.

Panama’s legal framework outlines notable differences between partners in an LLC and shareholders in a Corporation:

• Partners in an LLC: Must be listed directly in the articles of incorporation. Typically, LLCs have a maximum of 20 partners.
• Shareholders in a Corporation: There is no limit on the number of shareholders. Additionally, bearer shares can be issued, an ideal benefit if privacy is a priority.

Regardless of the option you choose, both partners and shareholders have limited liability corresponding to the capital they have contributed, protecting their personal assets.

The minimum share capital varies depending on the type of company you decide to open:

• Capital in an LLC: Established by the articles of incorporation and usually lower compared to a Corporation.
• Capital in a Corporation: While there is no legal minimum amount, many businesses set a higher initial share capital for credibility and flexibility purposes.

In Corporations, capital can be divided into numerous shares, which allows access to a greater number of investors. On the other hand, an LLC offers flexibility in managing initial contributions made by partners.

When it comes to administrative management, significant differences exist:

• Directors in a Corporation: A board of directors with at least three members is required. These individuals do not necessarily have to reside in Panama.
• Administrators in an LLC: Management can consist of one or more individuals, depending on the articles of incorporation.

It is important to keep in mind that Corporations typically involve more bureaucracy compared to LLCs, which offer a more streamlined administrative model.

Both S.A. and S.R.L. must establish a social pact at the time of their constitution:

• Social Pact in an S.R.L.: It regulates relationships between partners, including rights and obligations.
• Social Pact in an S.A.: It determines the structure of the directory, types of actions and decision-making.

As for their validity, both structures can be constituted without a time limit, although social pacts may include specific clauses related to their duration.