PUERTO RICO Law and Practice Contributed by: Dianette Rivera-Melendez, Oreste Ramos, Maria Trelles-Hernandez and Rosangela Sanfilippo, Pietrantoni Mendez & Alvarez LLC
buyer assumes ownership of the entire business, including its assets and liabilities. Stock purchase agreements specify the terms and conditions of the sale of stock. • Mergers: mergers involve the combination of two companies into a single entity through a statutorily provided mechanism. These transactions can be structured in various ways, and consideration can be provided in either stock or cash. • Joint ventures: joint ventures involve collaboration between two or more entities for a specific busi - ness purpose. The parties contribute resources, share risks and rewards, and often establish a sep - arate legal entity for the joint venture. Joint venture agreements outline the terms of the collaboration. • Licensing agreements: licensing agreements allow one party to use the intellectual property (such as trade marks, patents or copyrights) of another party for a specified period and under certain con - ditions. These agreements can involve the payment of royalties or licensing fees. • Franchise agreements: franchise agreements grant the right to operate a business using the brand, trade marks and business model of the franchisor. Franchisees typically pay fees or royalties to the franchisor in exchange for the right to use their established business format. • Real estate transactions: real estate transactions in Puerto Rico can take various forms, including sales, leases and development agreements. The structure of the transaction will depend on the par - ties involved and the specific terms negotiated for the transfer or use of real property. • Public-private partnerships (PPPs): PPPs involve collaboration between public and private entities to develop and operate public infrastructure projects or services. These partnerships are often governed by comprehensive agreements that outline the roles, responsibilities and revenue-sharing arrange - ments between the public and private sectors. It is important to note, however, that the Puerto Rican General Corporations Act (which is modelled on the Delaware General Corporation Law), requires share - holder approval for extraordinary matters such as mergers and the sale of all or substantially all assets. Given Puerto Rico’s treatment as a foreign jurisdic - tion under the federal Internal Revenue Code, when it
comes to structuring local M&A transactions, special consideration is typically given to structuring transac - tions in a way that avoids triggering federal tax liability. Special laws that apply to specific industries, such as insurance, mortgage banking and banks, impose additional requirements that impact the structuring of M&A transactions in Puerto Rico. 3.2 Regulation of Domestic M&A Transactions As detailed in 6. Antitrust/Competition , M&A transac - tions in Puerto Rico are subject to US and local anti - trust and competition laws. In addition, transactions involving the issuance of securities in Puerto Rico will be subject to the regulatory framework enacted and enforced by the SEC, as well as the Puerto Rican Uni - form Securities Act, which is enforced by OCIF. 4. Corporate Governance and Disclosure/Reporting 4.1 Corporate Governance Framework Legal Entities Most Puerto Rican entities are incorporated as cor - porations or organised as limited liability companies (LLCs). The choice of entity type is typically deter - mined by differences in tax treatment, liability limita - tions and structural flexibility, among other considera - tions. Corporate Governance Corporate governance matters in Puerto Rico are largely governed by federal law and the Puerto Rican General Corporations Act. This Act is modelled on the Delaware General Corporation Law, and court opin - ions issued by Delaware courts in connection with the interpretation of the Delaware General Corpora - tion Law are considered persuasive precedents for the purposes of interpreting the analogous provisions of the Puerto Rican General Corporations Act. Like Delaware, Puerto Rican law imposes fiduciary duties of loyalty and care upon officers and directors of a corporation, as well as on controlling sharehold - ers. Puerto Rican law also follows the shareholder primacy framework adopted by Delaware, in which the officers of the corporation must act in the best
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