COLOMBIA Law and Practice Contributed by: Gabriela Mancero, Daniel Peña, Maria Fernanda González and Andrea Sánchez Gallardo, Peña Mancero Abogados
panies with significant revenue and international expansion might eventually consider listing on a more established foreign exchange, such as Nasdaq or the New York Stock Exchange. 3.3 Impact of the Choice of Listing on Future M&A Transactions If the company chooses to list on a foreign exchange, the feasibility of a future sale will still be subject to local regulations governing the specific type of entity involved, including minor- ity-shareholders’ protection. 4. Sale as a Liquidity Event (Sale of a Privately Held Venture Capital- Financed Company) 4.1 Liquidity Event: Sale Process Although it is legally possible to run a private auction in the sale process, the sale process is typically run as a bilateral negotiation with a chosen buyer. 4.2 Liquidity Event: Transaction Structure The typical transaction structure for the sale of a privately held technology company with VC investors usually involves selling the entire company rather than just a controlling interest. However, potential buyers often request that the founders remain involved in the company’s oper- ations as key employees or directors to ensure short- to medium-term profitability. Additionally, the parties may agree on earn-out payments if specific revenue and profitability targets are met. 4.3 Liquidity Event: Form of Consideration Transaction structures are highly dependent on the tax regulations in force at the time of their implementation. Prior to the regulation on the indirect transfer regime under Law 1943 of 2018
and Law 2010 of 2019, it was common to include a combination of stock and cash compensation, usually involving stock of foreign (off-shore or tax heavens) corporations. Indirect transfers of shares of corporations located in Colombia are now taxed as if the transfer had occurred directly within the national territory. This has resulted in more transactions being cash-based. 4.4 Liquidity Event: Certain Transaction Terms It is common for founders and VC investors to stand behind representations, warranties and certain liabilities post-closing, typically through indemnification mechanisms. The main areas of liability in Colombia are tax, labour and the environment. Escrows and holdbacks are becoming custom- ary to secure indemnification obligations, with a portion of the purchase price placed in escrow or held back for a negotiated period. However, representations and warranties insurance is not yet common in Colombia. Spin-offs in the technology industry are becom- ing more frequent as the sector grows. When tech companies do pursue spin-offs, it is gen- erally to support specific strategic or financial goals, especially for high-growth businesses that want to unlock value or focus on core areas. 5.2 Tax Consequences Current tax regulations in Colombia provide for a fiscal neutrality regime in spin-off transactions, under which, if the requirements set forth in the tax statute are met, it is not considered a transfer 5. Spin-Offs 5.1 Trends: Spin-Offs
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