CHILE Law and Practice Contributed by: Francisco Barreda, Barreda Legal Tech
Representations and warranties The most common include: • The company is validly incorporated and operates in accordance with the law. • The financial statements reasonably reflect the company’s financial situation. • There are no hidden liabilities or ongoing material litigation. • The intellectual property used belongs to the company and does not infringe third-party rights. • There are no prior agreements that may affect the investment or the investor’s rights. • The founders usually also declare that they have acted in good faith and disclosed all relevant information (the “full disclosure” clause). Covenants and undertakings (future commitments and obligations) • not to incur debt above a certain threshold without board approval; • not to amend the bylaws without investor consent; • not to distribute dividends without prior approval; • to promptly inform investors of relevant events; and • the obligation to dedicate full time to the busi - ness or not compete with the company for a specified period, etc (in the case of “founders’ covenants” ). Remedies In the event of breaches or false representations/ warranties, the investor may seek various rem- edies, which are typically specified in the con - tracts:
• the right to seek damages, with or without limits (eg, caps on liability or limited warranty periods); • the right to repurchase shares at face value or with a discount if the breach is serious; • the right to remove a founder from the board or management (in cases of misuse of funds, fraud, etc); • clauses accelerating certain obligations or preferential rights; and • in some cases, escrow agreements or reten - tion of part of the committed capital as a guarantee against potential contingencies. On the other hand, start-ups typically negoti - ate liability limitations, minimum thresholds for claims, and limited prescription periods (eg, 12 or 18 months). Finally, it is very relevant to review the interpreta - tion of such clauses from a judicial perspective in Chile to have an effective understanding of the scope and viability of each one. One of CORFO’s financing lines is the FC line, designed for funds that invest in the develop - ment and growth of start-ups. This differs from the FE and FET lines, which are granted to funds investing in early-stage companies. A fund that obtains an FC line must focus on investing in start-ups that have a validated product or ser - vice with sales. 4.2 Tax Treatment General Taxation Applicable to All Companies Start-ups, like any other company in Chile (including those of investors), are subject to the general first category tax (corporate tax) on their 4. Government Inducements 4.1 Subsidy Programmes
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