PUERTO RICO Law and Practice Contributed by: Fernando J. Rovira-Rullán and Andrés I. Ferriol Alonso, Ferraiuoli LLC
consideration the years of service of the employee with the target acquired entity. In addition, the Puerto Rico Supreme Court has adopt - ed the successor employer doctrine, which provides that if the purchaser of assets retains some or all of the target company’s employees and, subject to certain factors, it is deemed a successor employer, therefore the purchaser, among other events: • could be responsible for any discriminatory termi - nation of an employee by the target; • must comply with prior collective bargaining agree - ments; and • could be liable for illicit employment practices undertaken by the target. In addition, depending on the structure of the trans - action and the specific voluntary benefits offered by the target to its employees, purchasers may also be required to comply with the provisions of the Employ - ee Retirement Income Security Act, a US federal law which governs private industry employee pension and welfare plans. 2.6 National Security Review Puerto Rico is an unincorporated territory of the USA and enjoys US constitutional, legal, financial and reg - ulatory protection. As such, the Foreign Investment and National Security Act of 2007 and the Exon-Florio Amendment to the Omnibus Trade and Competitive - ness Act of 1988 apply. These statutes grant the Com - mittee on Foreign Investment in the United States the authority to investigate and block transactions that may threaten the national security of the USA. 3. Recent Legal Developments 3.1 Significant Court Decisions or Legal Developments A significant legal development impacting the local M&A market is the enactment of Act 60 of 2019, as amended, known as the Puerto Rico Incentives Code. In general, the Puerto Rico Incentives Code codified local tax incentive legislation pertaining to decrees, incentives, exemptions, subsidies, reimbursements and other tax benefits. In addition, Act 60 of 2019
establishes the framework for the creation and taxa - tion benefits of two types of private equity funds in Puerto Rico. Among other things, private equity funds must invest at least 80% of their paid-in capital in Puerto Rico private businesses. Another significant legal development in Puerto Rico was the enactment of Act 55 of 2020, as amended, which established the new Civil Code of Puerto Rico of 2020 and repealed the Civil Code of Puerto Rico of 1930. Act 55 of 2020 provides that the Civil Code of Puerto Rico, as amended, is the main source of private law in Puerto Rico. The Civil Code of Puerto Rico of 2020 contains a general set of norms that gov - ern multiple matters including the basic principles of contractual law. 3.2 Significant Changes to Takeover Law Outside of the statutes mentioned above that may have an impact on general M&A activity, in recent years there have been no other significant changes to local laws that may have a direct or material impact on M&A activity in Puerto Rico, nor is there, at the time of writing, any pending legislation that could impact on such activity in the coming months. 4. Stakebuilding 4.1 Principal Stakebuilding Strategies Given the private nature of most businesses in Puerto Rico, it is very difficult, if not nearly impossible, to acquire a stake in a target corporation or limited liabil - ity company prior to launching an offer to acquire it. The general practice is to approach the owners, make an offer and hopefully generate sufficient interest to commence negotiations for the acquisition of the tar - get. Nonetheless, if the target is one of the very few Puerto Rico-based companies that currently trade on US stock exchanges, a stake could be acquired prior to launching an offer via the acquisition of its publicly traded stock. 4.2 Material Shareholding Disclosure Threshold Unless the target is a publicly traded corporation based in Puerto Rico, which would be subject to the disclosure requirements under the federal securities
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