EL SALVADOR Law and Practice Contributed by: Héctor Torres, Annette Herrera, Daniel Leiva and Raquel Santos, Torres Legal
2.3 Early-Stage Financing Commonly, early-stage financing comes from local investors, family offices and government- sponsored funds. However, with new market regulations, more seed investment and foreign investors looking for current business opportuni- ties in El Salvador are being seen. 2.4 Venture Capital In El Salvador, a typical source of venture capi- tal (VC) is government-sponsored funds that offer grants to start-ups. These grants are more common than overall VC funding. Additionally, foreign VC firms are gradually becoming more active in providing financing, but the availability of home-country VC for start-ups remains lim- ited. 2.5 Venture Capital Documentation The VC ecosystem in El Salvador is still develop- ing. As such, standardised documentation prac- tices are evolving. 2.6 Change of Corporate Form or Migration As mentioned before, it is common for start-ups to begin with a very basic structure – ie, a corpo- ration or SAS structure, as they are easier to set up and are the industry standards. However, as start-ups develop and seek VC financing, they may be inclined to consider changes in their structure or jurisdiction. For example, as start- ups expand their operations, they often need more complex structures, like a corporation in Delaware, to attract investment. Investors may prefer to invest in entities with a more familiar corporate structure, and companies may also face stricter regulatory requirements, prompting re-evaluation of their corporate structure.
entrepreneurs, called the simplified stock com- pany (SAS), which only requires one person and can be set up with only USD1. 2.2 Type of Entity The type of entity entrepreneurs choose depends on their business goals, their needs and the nature of their operations. The most common types are as follows. • Corporation: This entity is suitable for busi- nesses seeking to raise capital through the issuance of shares. It allows for limited liabil- ity, meaning shareholders are not personally liable for the company’s debts. • Limited liability company (LLC): Often pre- ferred by small to medium-sized businesses, this structure offers limited liability and is gen- erally easier to manage than a corporation, with fewer regulatory requirements. • SAS: This newer entity type is designed for entrepreneurs with more informal operations who are looking for flexibility and simplicity. It has no minimum capital requirement and can be founded by just one shareholder, making it very suitable for start-ups. • Partnerships: These entities can be suitable for smaller ventures or professional services where the partners want to share responsi- bilities and profits directly; however, they are less common. The choice of entity affects factors like taxa- tion, liability and governance, so entrepreneurs and investors are usually advised to carefully consider which one suits them best. However, regulations allow for changes during the pro- cess, and businesses often start with one idea regarding the entity type but switch to another as they evolve.
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