In the Chilean Legislation companies can be Partnerships (Sociedades de Personas) or Corporations (Sociedades de Capital).

Partnerships have their main reason to incorporate in the qualities of the partners. In other words, the major interest protected is the identity and unity of the co owners. This is the reason why to make a reform of the bylaws is necessary to have the agreement of every single partner.

In this sense, if one partner on a Partnership wants to sell his participation to another partner or to a third party, he must count with the approval from every other partner. On the contrary, he will not be able to do so. If this lack of agreement turns into a controversy that cannot be solved the partnership must be dissolved.

The name of this type of companies generally must imply the names and last name of one or more partners. Although is also acceptable to include a reference to the business activity instead in the case of Limited Partnerships (Sociedad de Responsabilidad Limitada).

In the case of Corporations the thing that matter the most is the capital contributions of the partners. Here the decision over the reform of the bylaws and some other thing are taken by the majority of it members (which can freely decide on quorums if their not contrary to what law has established).

The contributions of capital create the Equity of Corporations, and shares divide this equity. These shares can be freely transferred without the agreement of other partners (shareholders agreement that put limitation on the transfer of shares can be considered an exception). The most common types of Corporations in Chile are the Sociedad Anónima and the Sociedad por Acciones.

This distinction may produce some effects in taxation. One example is the “Owner’s Salary” (Sueldo Empresarial), that may be deducted as a necessary expense to produce the income of the company when paid to the owner or to a partner. This applies only on partnerships, and for corporation different requisites must be met.

Other example is the Professional Partnerships, which only can be formed by natural individuals or Partnerships if they want to apply for the especial taxation system created for this type of companies.

Due to the necessity of transferring participation (or shares) in the case of Startups, is advisable to form a Corporation and not a partnership for this kind of ventures.

Santiago Henríquez C., Lawyer

Picture: Sam Horn (CC0)