EL SALVADOR Law and Practice Contributed by: Héctor Torres, Annette Herrera, Daniel Leiva and Raquel Santos, Torres Legal
4.3 Liquidity Event: Form of Consideration In El Salvador, it is more common for transactions to involve a complete sale of the company for cash. While there are instances where a stock-for-stock transaction occurs, or where buyers acquire stock and also provide cash, it is important to note that assets owned by the state typically remain excluded from such deals. 4.4 Liquidity Event: Certain Transaction Terms Founders and VC investors are expected to be held responsible for representations and warranties, as well as certain liabilities after closing. This is often established in the agreement, through indemnification clauses and other mechanisms that clearly define who is responsible. An escrow can be a security mechanism to cover potential claims; however, an insurer can be more effective as it translates the risk and responsibility to a third party to cover any possible claim. In El Salvador, spin-offs in the technology industry are not very common; however, they are becoming more popular because of the entrepreneurial ecosys- tem and innovation. The entrepreneurial culture has started to flourish, driven by incubators, accelerators and universities that promote start-up development. Some factors leading to the emergence of spin-offs include government and institutional support, incuba- tor programmes and education and training. 5.2 Tax Consequences In the current legal framework, spin-offs are not tax- free entities in El Salvador. However, there are new laws that offer certain tax benefits that may apply to specific operations of a spin-off – such as capital gains while trading digital assets – or to any other tech company. 5.3 Spin-Off Followed by a Business Combination A spin-off followed immediately by a business com- bination is possible in El Salvador. However, all regu- 5. Spin-Offs 5.1 Trends: Spin-Offs
lations must be complied with to establish a formal corporation, LLC, SAS or other preferred entity. 5.4 Timing and Tax Authority Ruling The timing for a spin-off should be the same as that for establishing a normal entity, namely two to four weeks. Registration before the tax authority and a tax identification number are mandatory. 6. Acquisitions of Public (Exchange- Listed) Technology Companies 6.1 Stakebuilding There are no public companies as such in El Salvador that are in the primary market. 6.2 Mandatory Offer In El Salvador, there is no mandatory tender offer threshold established by law, as public takeovers are not specifically regulated. However, certain industries – such as banking and pension fund management – are subject to ownership and control limitations under sectoral laws to ensure transparency and market sta- bility. These restrictions apply to share acquisitions in regulated entities but do not constitute general M&A thresholds. 6.3 Transaction Structures Due to the nature of transactions involving a public entity and a private partner, various structures must be considered. As mentioned before, El Salvador does not have public companies that are in listed in the market; however, it does have public-private partner- ships, such as joint ventures between the state and private entities, as well as concessions, particularly when public services or the exploitation of state resources are involved. 6.4 Consideration and Minimum Price In El Salvador, public company acquisitions in the technology industry can be structured as cash trans- actions or stock-for-stock transactions; however, they are mostly cash transactions. The only regulation regarding the specific minimum price is that it is not possible to sell all shares at the nominal price.
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