A NEW POLICY AGENDA FOR LATIN AMERICAN COMPANY LAW: Reshaping the Closely-Held Entity Landscape FRANCISCO REYES VILLAMIZAR December 7, 2011 Comparative Corporate Governance Distinguished Lecture Series Wake Forest University School of Law

CONTENTS 1.Corporate Governance Reforms in Last Decade 2.Reasons for change in Policy Agenda 3.Model Act on Simplified Stock Corporations 4.The Colombian SAS (2008) 5.Empirical Evidence on SAS 6.General Features of SAS 7.Conclusions

CONTENTS 1.Corporate Governance Reforms in Last Decade 2.Reasons for change in Policy Agenda 3.Model Act on Simplified Stock Corporations 4.The Colombian SAS (2008) 5.Empirical Evidence on SAS 6.General Features of SAS 7.Conclusions

Source: Global Investor Opinion Survey: Key findings, Mckinsey and Company, July200 [Online] Benefits of Corporate Governance according to surveys CORPORATE GOVERNANCE REFORMS

Ownership Concentration in Latin America ECONOMATICA and 20 F ADR Filings quoted by Lefort and Walker, The Effect of Corporate Governance Practices on Company Market Valuation and Payout Policy in Chile, Pontificia Universidad Católica de Chile, at 4, March CONCENTRATED VERSUS DISPERSED OWNERSHIP

EVOLUTION OF LISTED FIRMS IN LAT. AM.

CONTENTS 1.Corporate Governance Reforms in Last Decade 2.Reasons for change in Policy Agenda 3.Model Act on Simplified Stock Corporations 4.The Colombian SAS (2008) 5.Empirical Evidence on SAS 6.General Features of SAS 7.Conclusions

USEFULNESS OF COMPANY LAW OVERHAUL Obsolescence of Company Law in the region High “Transaction Costs” Importance of FDI Lack of a multi-purpose versatile business entity Excessive emphasis on the development of securities laws

▫ México – Commercial Code (1.889)  Law of Business Associations - LSM (1934) ▫ Brazil – Law of Corporations (6.404 of 1976) ▫ Argentina – Law of Business Associations ( – 1972) RESISTANCE TO LEGISLATIVE CHANGE

1.Limited Liability 2.Flexible internal structure 3.Reduction of formalities for incorporation 4.Transparent tax structure 5.Broad contractual freedom USEFULNESS OF HYBRID FORMS

CONTENTS 1.Corporate Governance Reforms in Last Decade 2.Reasons for change in Policy Agenda 3.Model Act on Simplified Stock Corporations 4.The Colombian SAS (2008) 5.Empirical Evidence on SAS 6.General Features of SAS 7.Conclusions

1.OAS Legal Committee (April 2011) 2.Proposal of a separate statute introducing a new type of company 3.Model Act contains substantive and procedural provisions 4. Ex ante mandatory rules are generally reduced or replaced by ex post standards MODEL ACT ON SIMPLIFIED STOCK CORPORATIONS

SAS INSPIRING MODELS Simplified Stock Corporation (Colombia) Limited Liability Partnership, LLC, Closely held corp. (USA) Société par Actions Simplifiée (France)

CONTENTS 1.Corporate Governance Reforms in Last Decade 2.Reasons for change in Policy Agenda 3.Model Act on Simplified Stock Corporations 4.The Colombian SAS (2008) 5.Empirical Evidence on SAS 6.General Features of SAS 7.Conclusions

COLOMBIAN SAS Law 1258 of 2008 Introduced a new hybrid business form with all the features of a modern corporation law statute

CONTENTS 1.Corporate Governance Reforms in Last Decade 2.Reasons for change in Policy Agenda 3.Model Act on Simplified Stock Corporations 4.The Colombian SAS (2008) 5.Empirical Evidence on SAS 6.General Features of SAS 7.Conclusions

Data for YearNumber SAS % New Business 2008 (Dec)1607.4% , % , % 2011 (through Oct)45, %

Newspaper editorial February 3 rd, 2011 “The SAS is a legal Revolution…”.

CONTENTS 1.Corporate Governance Reforms in Last Decade 2.Reasons for change in Policy Agenda 3.Model Act on Simplified Stock Corporations 4.The Colombian SAS (2008) 5.Empirical Evidence on SAS 6.General Features of SAS 7.Conclusions

E-INCORPORATION (in one hour)

E-INCORPORATION STEPS 1.Tax ID 2. Minutes 3. Payment 4. Digital signature issuance 5. Signing Document 6. Registration

E-INCORPORATION – TAX ID

E-INCORPORATION – NAME CHECK

E-INCORPORATION – MODEL BYLAWS

GENERAL FEATURES OF SAS 1. Single-member or Multi-member Entity 2. Simplification of Incorporation Process 3. Commercial Nature 4. Full-fledged Limited Liability 5. Broad Contractual Freedom 6. Flexible Capital Structure 7. Ex-Post Standards 8. Specialized Conflict Resolution Mechanisms 9. Unlimited Life Span and Unrestricted Purpose Clause 10. Freedom to Define Organic Structure 11. Flexible Rules on Capitalization 12. Modern Rules on Transferability of Shares 13. New Corporate Restructuring Mechanisms 14. Simplified Rules for Dissolution and Liquidation

CONTENTS 1.Corporate Governance Reforms in Last Decade 2.Reasons for change in Policy Agenda 3.Model Act on Simplified Stock Corporations 4.The Colombian SAS (2008) 5.Empirical Evidence on SAS 6.General Features of SAS 7.Conclusions

CONCLUSIONS Advantages: ▫ Reduction of informality ▫ Access to credit by SMEs ▫ Relevance for groups of companies ▫ Foster innovation, economic growth Implementation presupposes: ▫ Breaking up path dependence ▫ Support from pressure groups ▫ “efficient minded” lawmakers ▫ Overcome legal elites / traditions

Many Thanks