PUERTO RICO Law and Practice Contributed by: Fernando J Rovira-Rullán and Andrés I Ferriol-Alonso, Ferraiuoli LLC
1. Introductory 1.1 Forms of Corporate/Business Organisations
2009, as amended (the “Corporations Act” ) and regulations published under it, as well as case law from the Puerto Rico Supreme Court. It is important to note that the Corpo - rations Act is modelled after the Delaware General Corporation Law, and that the Puerto Rico Supreme Court has stated that judicial decisions from Delaware courts in connec - tion with the interpretation of the Delaware General Corporation Law shall be highly per - suasive and illustrative before Puerto Rican courts. This principle of interpretation has not been expressly extended by the Puerto Rico Supreme Court to Delaware court decisions interpreting the Delaware Limited Liability Company Act (the “Delaware LLC Act” ) how- ever, it seems highly probable that the same principle would apply. • Organisational documents: A corporation’s or LLC’s organisational documents are an important source of corporate governance requirements, rights and obligations. A cor - poration’s articles of incorporation, by-laws and shareholders’ agreement may include particular provisions regarding voting require - ments, transfer restrictions, meetings and shareholder rights, among others. Note that although a shareholders’ agreement is an important source of corporate governance for corporations, the Corporations Act does not impose on a corporation or its shareholders the obligation to adopt such a document. • Although the Corporations Act has default provisions applicable to LLCs, an LLC’s limited liability company agreement is the principal source of corporate governance requirements, rights and obligations. This is because one of the LLC’s principal benefits is the freedom provided to the members in determining the governance structure of the company, the formalities (if any) that shall be
The principal forms of corporate/business organisations in Puerto Rico are “corporations” and “limited liability companies” (LLCs) – the latter having gained popularity among business owners given the particular advantages they offer, including: • the freedom to structure management (ie, member-managed, manager-managed, or with a centralised management structure such as board-managed); • not being required to file and disclose finan - cial statements with the Puerto Rico Depart - ment of State; • enjoying streamlined corporate formalities; and • having the option to be taxed as a pass- through entity or as a regular corporation. Please note that although there are publicly traded companies organised under the laws of Puerto Rico that trade in national stock markets (ie, NYSE and AMEX) and over-the-counter mar - kets (ie, NASDAQ), this chapter will not cover corporate governance requirements applica - ble to publicly traded companies under United States federal securities laws and regulations and applicable securities exchanges rules and regulations. 1.2 Sources of Corporate Governance Requirements There are two main sources of corporate govern - ance requirements. • Legal sources: Puerto Rico Corporations and LLCs are subject to the requirements of the Puerto Rico General Corporations Act of
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