Ecuador: Laws and Regulatory Changes for Entrepreneurs and Startups
Article presented by the firm of auditors and business consultants Audit Corporate and Tax Corporate, Member of Allinial Global
Contact Email: Diego Zambrano
The entrepreneurship law and regulatory changes in 2020 correspond to the creation and management of companies in various industries in Ecuador. Details of changes shall be in force in 2021, which led to noticeable results.
Organic Law of Entrepreneurship and Innovation
The Official Gazette Supplement No. 151, published on 28 February 2020 (Friday), focused on the Organic Law of Entrepreneurship and Innovation. A summary of the main aspects addressed by the standard includes:
- Creation of Simplified Stock Companies (SAS);
- Companies of Benefit and Collective Interest
At the time of adopting the status of a company of benefit and collective interest, a company is obliged to create a positive material impact on society and the environment, where an annual report is presented to the management;
- The definition of “entrepreneur” is provided, and the government entities are established to disseminate the procedures and applicable rates for entrepreneurs;
- It is arranged to develop work and contractual modalities to be implemented in entrepreneurial work, including part-time, legal benefits and others;
- Regulatory frameworks are established for crowdfunding, and other platforms in their different products, such as donations, pre-purchase, investment in shares, reimbursable financing;
- Limited companies are allowed to subsist with a single shareholder;
- The joint-stock company and the limited liability company may subsist with a single shareholder/partner. For its constitution, at least two contracting parties must participate;
- The existence of the position of the commissioner becomes optional. In accordance with the provisions of the statutes, Public limited companies may or may not have commissioners as an oversight body;
- A company will incur cause of dissolution due to losses, when these represent 60% or more of the equity and that this situation is maintained for more than 5 continuous years;
- In companies whose bylaws provide for the existence of a Board of Directors, the Legal Representative of the company may not be president or representative of that collegiate body;
- It is allowed that the financial statements presented to the tax authority are not presented to the Superintendency of Securities and Insurance Companies;
- Holding general meetings through telematic means is allowed;
- It is allowed to carry out capital increases under the compensation of credits, rights of attribution and absorption of losses; When a company registers operational losses and has reserves, these will be eliminated automatically;
- Voluntary and early dissolution does not require prior authorization from the Superintendency of Companies, Securities and Insurance. Therefore, the direct registration of that corporate act in the Mercantile Registry is allowed for the beginning of the liquidation that will be supervised by the control body. The change of name, change of address and modification of the company term do not require prior authorization either;
Less than 50% of the instruments proposed by the regulation to promote the creation of businesses in the country are operational. The Law defined the creation of new types of credit and companies, among others, but only the latter has been effectively operationalized with the creation of firms through Simplified Stock Companies (SAS).
From May 2020 to February 2021, more than 5,000 companies of this type were registered. Another benefit that the norm raises is to generate an employment contract that implies fewer costs for entrepreneurs, this type of instrument was generated last year through new work modalities with durations of only one year, with the cancellation of the eviction.