EL SALVADOR Law and Practice Contributed by: Héctor Torres, Annette Herrera, Daniel Leiva and Raquel Santos, Torres Legal
is logical for the entire business to be sold. This approach allows for a clean transition of owner- ship and can provide the seller with a complete exit strategy. 4.3 Liquidity Event: Form of Consideration In El Salvador, it is more common for transac- tions to involve a complete sale of the com- pany 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 warran- ties, 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 pos- sible claim.
government and institutional support, incubator 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 combination is possible in El Salvador. However, all regulations must be complied with to estab- lish a formal corporation, limited liability com- pany, 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 Sal- vador that are in the primary market. 6.2 Mandatory Offer In El Salvador, there is no specific mandatory offer threshold established by law, since that type of transaction is not regulated. However, there are regulations regarding thresholds in cer- tain private companies that, due to their opera- tions, have a special regulatory framework and
5. Spin-Offs 5.1 Trends: Spin-Offs
In El Salvador, spin-offs in the technology indus- try are not very common; however, they are becoming more popular because of the entre- preneurial ecosystem and innovation. The entre- preneurial 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
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