PUERTO RICO Law and Practice Contributed by: Fernando J. Rovira-Rullán and Andrés I. Ferriol Alonso, Ferraiuoli LLC
4.6 Transparency Generally, in Puerto Rico, the shareholders do not have to publicly disclose the purpose of a proposed acquisition or their intention regarding the control of a private corporation. Nevertheless, if the target is a banking institution or an insurance company, the pur - chaser will be required to disclose additional informa - tion concerning the transaction to the Office of the Commissioner of Financial Institutions or to the Office of the Commissioner of Insurance. There are no statutory disclosure triggers applicable to privately held companies in Puerto Rico. However, as discussed in 2.2 Primary Regulators , insurance companies contemplating a transaction must disclose their plans and obtain the approval of the Commis - sioner of Insurance of Puerto Rico. Financial institu - tions must also disclose their plans and obtain the approval of the Commissioner of Financial Institutions of Puerto Rico prior to closing, and if a party to an M&A transaction holds a tax incentive grant, certain notices or consents must also be obtained from the OIBPR, which is ascribed to the Department of Eco - nomic Development and Commerce. As a general rule, these entities should disclose the transaction fol - lowing the execution of a non-binding letter of intent. In addition, lenders often require advance notice or consent under existing credit facilities, which can influence deal timing. 5. Negotiation Phase 5.1 Requirement to Disclose a Deal If the transaction is a merger or consolidation, the General Corporations Act requires that the parties involved in such a transaction file the corresponding merger or consolidation agreement with the Puerto Rico Department of State. The parties may, however, elect to file a certificate containing the information specified in 7.4 Transaction Documents . In respect of federal laws, depending on the size of the transaction and the parties, disclosure to the Federal Trade Commission and the federal Department of Jus - tice under the HSR Act may be required. With regard to Puerto Rico’s publicly traded companies, there are no statutory requirements regarding deal disclosures
laws, there is no material shareholding threshold dis - closure requirement under Puerto Rico laws. When the target is a publicly traded corporation, any person who acquires a beneficial ownership of more than 5% of the outstanding shares with equity voting rights is required by the federal securities laws to comply with Section 13-d of the Securities Exchange Act 1934 by filing Form-13D with the SEC. Note that, besides the outright ownership of the shares, beneficial ownership is attributed to persons who have the right to acquire these shares within a period of 60 days via other types There are no statutory requirements in Puerto Rico concerning ownership thresholds for privately held companies. Thus, Puerto Rico companies do not engage in the practice of introducing different report - ing thresholds in the articles of incorporation, by-laws, limited liability company agreements or elsewhere oth - er than those applicable to publicly traded companies under federal securities laws. However, in practice, most privately held Puerto Rico companies include contractual transfer restrictions – such as rights of first refusal, rights of first offer, and consent requirements – that may effectively limit stakebuilding. 4.4 Dealings in Derivatives Under federal and Puerto Rico securities laws, dealing in derivatives is allowed. Notwithstanding this, the use of derivative securities or instruments is not common among Puerto Rico privately held companies, and their use is very limited and confined to sophisticated parties. 4.5 Filing/Reporting Obligations of securities, such as call options. 4.3 Hurdles to Stakebuilding As mentioned in 4.2 Material Shareholding Disclo- sure Threshold , under Section 13-d of the Securities Exchange Act 1934, beneficial ownership of voting stock for triggering the 5% disclosure requirement includes the right to own such shares via derivatives. Additionally, depending on the size of the transaction and the parties, disclosure to the Federal Trade Com - mission and the federal Department of Justice under the HSR Act may be required.
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