FDI regulations and subsidiary companies

FDI Regulations

In principal 100% foreign ownership is allowed in all stages of the fisheries and aquaculture sector from fishing and feed mills up to processing. However, there are some restrictions which were lined out by International Business (2016). Foreign investment in fishing in is subject to approval by the National Fisheries Development Council. Extractive fishing by foreign companies is only permitted if the catch is processed in Ecuador. In the aquaculture sector, establishment of facilities in the highlands that are not designated for farming purposes need to be authorized by the Under Secretariat for Fishery Resources. Additionally, to set up aquaculture facilities on beaches and in bays requires a concession from the Under Secretariat of National Defense. Also, if the facility exploits groundwater, the granting of authorizations is subject to the submission of an environment impact study to the Environmental Management Commission (FAO, 2016). International Business (2016) also lines out the 14 sectors appointed by the Ecuadorian government to change the production composition in the country. These sectors, including fish and crustaceans, have been granted several investments incentives. One of the most important incentives is no payment of income taxes in the first five years of operation. Also, medium-sized companies can deduct twice their investments in research, technical training and innovation from the tax accounts. Investment proposals must be approved by the Technical Secretary of the Sectoral Council for Production.

Subsidiary Companies

The main business structures used in Ecuador are companies and partnerships. These include:
  • Corporations
  • Limited liability companies
  • Public-private partnerships (often called “mixed-capital companies”).
A step by step process on how to set up a company in Ecuador can be found on the World Bank’s “Doing Business Project”. Here we will line out some of the most important things to keep in mind based on advice of the US embassy in Ecuador.

Corporations

Corporation are the most flexible legal entity in Ecuador, allowing a mixture of foreign and local capital. Limited Liability Companies (LLC) are useful as closed companies, but have disadvantages regarding the sale and transfer of capital, and are usually not advantageous to the foreign investor. The corporation offers some major advantages to the foreign shareholder: (1) the limitation of shareholders’ liability to the amount of the issued capital, (2) shareholders are free to negotiate their stock without restrictions, (3) corporations are represented by managers who may be discharged at any time, and (4) continuity of the business as an ongoing concern is assured, regardless of changes in management or ownership. The set up of a corporation is governed by the Companies Law. The documents that must accompany the deed of incorporation include the company’s by-laws, a certificate of the name of the company granted by the Superintendent of Companies, a certificate granted by the bank where the company has opened its capital account, and documents identifying the shareholders. Protection of a trade name is contingent on registration with the Ecuadorian Intellectual Property Institute (IEPI). The Companies Law provides for the following: (a) a certificate of good standing must be issued by the competent authority of the domicile of the foreign shareholder, and a list of the stockholders of the foreign shareholders must accompany the deed of incorporation; (b) the foreign shareholder must appoint an attorney-in-fact to represent it within Ecuador; (c) foreign corporations whose by-laws contemplate the possibility of issuing bearer shares cannot participate as shareholders of Ecuadorian entities (corporations and limited liability companies). The certificate will be issued by the corresponding authority in the country of origin and the list must be signed and certified at a public notary by the secretary, administrator, or attorney legally authorized. The certificate and list must be notarized by an Ecuadorian consulate.

Limited Liability Companies

A limited liability company is characterized by (1) having two or more members, not to exceed 15; (2) the members have limited liability for company obligations up to the amount of their individual contribution; (3) foreign corporations are excluded from membership; (4) capital cannot be less than $400, and at least 50 percent of the capital must be paid-in at the time of formation and the remainder within one year; and (5) a legal reserve must be funded by the transfer of 5 percent of annual profits until the reserve equals 20 percent of capital. Each year in January, the legal representative of a limited liability company is responsible for presenting to the Superintendent of Companies a list of the foreign companies that are its partners or shareholders including the name, nationality, and domicile, along with notarized photocopies of the certificate referred to above.

Mixed Economy Company 

A “mixed economy” company is one with both private and public capital. Public sector funds may come from the central, municipal, or provincial governments, or from legal representatives of either public or parastatale entities.

Free