PARAGUAY Law and Practice Contributed by: Mauro Mascareño, Carlos Vargas and Rodrigo Gómez Sánchez, Mascareño Vargas – Asesores
3.2 Choice of Listing If a company decides to become publicly traded, it is more likely that it will pursue a listing on a foreign stock exchange. This is particularly true when the local stock market lacks the depth of other emerging or established regional and global markets. Foreign exchanges provide bet- ter access to capital and increased liquidity for shareholders. 3.3 Impact of the Choice of Listing on Future M&A Transactions The decision to list on a foreign exchange can significantly influence the feasibility of future M&A transactions. For instance, foreign exchanges often have stringent minority share- holder protection rules, including squeeze-out mechanisms that are not commonly available under Paraguayan law. This could pose a chal- lenge in implementing a successful tender offer and squeezing out minority shareholders, espe- cially if the company is not listed on the home country exchange. Understanding the tax implications is crucial. For instance, if shares of a publicly listed company in the Paraguayan stock exchange are sold, the capital gain is entirely exempt. On the other hand, the sale of a non-listed share is subject to Paraguayan taxes. 4. Sale as a Liquidity Event (Sale of a Privately Held Venture Capital- Financed Company) 4.1 Liquidity Event: Sale Process In Paraguay, the sale of a company typically involves bilateral negotiations with a specific buyer rather than going through an auction pro- cess. The smaller market size often results in
fewer competing buyers, making auctions less frequent, if not non-existent, in the past. 4.2 Liquidity Event: Transaction Structure In Paraguay, the typical transaction structure for a privately held tech company involves selling a controlling interest. Current trends show that venture capital funds often choose to exit entire- ly, while founders may remain as shareholders. This structure allows investors to cash out while ensuring continuity in the management of the company. 4.3 Liquidity Event: Form of Consideration In Paraguay, most transactions are conducted as cash sales for a liquidity event. However, stock-for-stock deals may occur when the buyer is a foreign company listed on an exchange. It is rare to have a combination of cash and stock, but this may happen, especially when valuation uncertainties need to be addressed. 4.4 Liquidity Event: Certain Transaction Terms In a liquidity event, founders and venture capital investors are usually required to support repre- sentations and warranties, such as tax liabilities, employee claims and environmental issues, after the deal is finalised. Escrow accounts or holdbacks are commonly used to cover these potential liabilities, but representations and war- ranties insurance is not yet widely used in this jurisdiction.
5. Spin-Offs 5.1 Trends: Spin-Offs
Spin-offs, while not particularly common in Para- guay due to its limited regulations, have been on the rise in recent years, particularly in the tech-
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