Joint ventures in Argentina: overview
A Q&A guide to joint ventures law in Argentina.
The Q&A gives a high level overview of joint ventures law, including regulation of joint ventures, types of joint ventures permitted in the jurisdiction, whether corporate joint ventures are subject to the corporate law, formalities for formation and registration of joint ventures, statutory limits on duration, anti-trust rules, termination, rules relating to joint ventures with foreign members, and incentives.
This Q&A is part of the Joint Ventures Law Global Guide.
Domestic company joint ventures (JVs)
The concept of joint ventures (JVs) is based more on economics than the law in Argentina, and therefore, JVs are not expressly regulated. A JV can be:
Of a corporate nature (for example, a company set up by two or more parties).
Of a contractual nature (for example, associative contracts of any kind, such as distribution, supply, agency or franchising).
A combination of the above.
Generally, where a venture is undertaken and the risks are shared by the parties, a JV can arise regardless the type of vehicle chosen by the parties.
However, the legal system does regulate many of the vehicles that venturers can choose for their prospective business.
Contractually, a JV can arise in various contracts and may or may not be expressly regulated. For example, some forms of franchising, concession, distribution or agency agreements are examples of contractual JVs that are regularly used and are very common. However, these contracts were not expressly regulated until the recent enactment of the replacement of the Civil Code for a unified Civil and Commercial Code, which will enter into force on 1 August 2015 (Civil and Commercial Code).
Since 1983, two types of contractual JVs have been expressly regulated in the Law No. 19550 (Business Companies Law, and following a recent amendment which will also enter into force on 1 August 2015, the General Companies Law (GCL)):
Agrupaciones de Colaboración (AdC).
Union Transitoria de Empresas (UTE).
In 2005, a third type of contractual JV was expressly regulated, which is the Consorcios de Cooperación (CdC) (mainly used for export purposes), which is an unincorporated JV similar to the UTE. The new Civil and Commercial Code regulates these three types of contractual JVs under Chapter No. 16 "Associative Contracts" (see Question 2).
However, the possible types of contractual JVs in Argentina are very broad, and are not limited to these three types of contractual JVs discussed above.
For the most common forms of JVs where venturers choose to create a new entity or to acquire an existing one, these entities are expressly regulated and, therefore, governed by the GCL.
Generally, parties can enter into any kind of agreements with each other without limitation, including contracts of an associative kind. The only limits on the parties' free will are:
Compliance with mandatory provisions (leyes de orden publico) (public order legislation).
Observance of the principles of good faith, morality and good customs.
The prohibition of the abuse of law, among other general principles of law.
Contractual joint ventures (JVs)
Generally, the free will of the parties governs their contractual relationship (see Question 1). Therefore, the possible spectrum of contractual JVs is very broad.
The General Companies Law (GCL), and Law No. 26,005 (and after 1 August 2015, the Civil and Commercial Code), expressly regulate some specific types of contractual JVs (see Question 1):
Agrupaciones de Colaboración ( AdCs) . These must not pursue profit. The aim of these JVs is to facilitate or develop specific phases of the entrepreneur's members' activites or to perfect or increase the outcome of these activities.
Union Transitoria de Empresas ( UTEs) . These have been defined as a vehicle to enable the engagement of entrepreneurs to develop or execute specific work, service or supply, within or outside the country Argentina. Their essence is to be transitory contracts where the parties are not considered partners, de facto companies or partnerships. UTEs are particularly used in the mining industry and generally required by local governments in bids for public works.
Consorcios de Cooperación ( CdCs) . The purpose of a CdCs is to enable the parties to set up a common organisation to facilitate, develop, increase or execute transactions related with the economic activities of their members (whether specified or not at the moment of their creation) with the purpose of improving or increasing their outcomes. This type of JV is regarded as similar to UTEs.
All three types of contractual JVs lack legal personality (so are not considered a business entity) and, therefore, do not have a legal existence separate from their members. Registration within the Public Registry of Commerce is mandatory in order to do business as such and to avoid their members being deemed part of a de facto company, therefore responding jointly and severally (or just severally under the new Civil and Commercial Code) to the debts of the other venturers (see Question 16).
However, these three types of JVs are not the only types of contractual JVs, in particular when considering the JV as a phenomenon of free association rather than necessarily of a corporate nature. Therefore, the spectrum of contractual JVs is extremely broad.
The GCL sets out several corporate types that venturers can use as their JV vehicle to formalise their relationship.
Where the venturer's choice is to create a new entity or to acquire an existing one, the provisions set out in the General Companies Law (GCL) apply.
Commercial activities in Argentina are usually carried out through a Sociedad Anónima (SA) or a Sociedad de Responsabilidad Limitada (SRL) because generally they limit the liability of their shareholders in SAs (or quotaholders in SRLs) to their contributions in the entities. Careful and sound advice is needed on the exceptions to the limitations of shareholders' liability.
These corporate vehicles are regulated by the GCL, which applies nationwide. However, each Province (as well as the Autonomous City of Buenos Aires) has its own Public Registry of Commerce (Registry) where companies must register and each Registry sets out its rules that companies must comply with depending on the jurisdiction of incorporation. Most companies with international parties register in the Autonomous City of Buenos Aires.
In the City of Buenos Aires, the Registry is the Inspección General de Justicia (IGJ), whose regulations must be complied with by the companies incorporated in this jurisdiction. The most comprehensive and important one is the General Resolution No. 7/2005 IGJ, as amended and restated (Regulation 7/05). While in general terms the registries of the Provinces tend to follow IGJ regulations, there may be slight differences between them, so the local regulation should also be taken into account.
The structure and rules of the SA and the SRL are quite similar, although the latter has slightly less operational costs. While the minimum stock capital required for an SA is ARS100,000 there is no minimum requirement for a SRL. However, Registries can require that the stock capital must be consistent with the corporate purpose of the relevant entity, which currently makes the process discretionary.
Formation and registration
Generally, the use of foreign language is not restricted. However, where the venturer's choice is to create a new entity that must register with a Public Registry of Commerce (Registry), the following must be in the Spanish language:
The articles of incorporation of the entity.
The remaining documentation requested by the pertinent Registry to incorporate the entity.
Where the documents are written in a foreign language, they must be translated into Spanish by a public translator.
The same requirements apply for the three contractual types of joint ventures (JVs) whose registration with the Registry is required by law.
If any other type of JV agreement is filed with a State Agency then public translation is needed.
It is sometimes advisable to produce documents in both Spanish and English from the outset to avoid eventual misinterpretations by the parties.
Certification of the signatures of the parties in the private document by a public notary is required in contractual joint ventures where registration with the Public Registry of Commerce (Registry) is required by law.
Also, it is common practice to certify the signatures and authority of the individuals signing the relevant contract by a public notary.
Where the venturer's choice is to create a Sociedad Anónima (SA), a public deed executed before a public notary must contain the statutes of incorporation of the SA.
Where the venturer chooses to create a Sociedad de Responsabilidad Limitada (SRL) even though a public deed is not required, Regulation 7/05 (and similar regulations in jurisdictions other than the Autonomous City of Buenos Aires) requires certified signatures of the parties in the pertinent private documents as a prerequisite to enable their registration with the Registry.
Except where registration with the local Public Registry of Commerce (Registry) is required (such as incorporation of a new entity or the acquisition of quotas of an existing Sociedad de Responsabilidad Limitada (SRL) or creation of a contractual joint venture (JV) that requires registration) in principle and subject to the matters explained below, no other registration of the JV is required.
With a Sociedad Anónima (SA), since the transfer of the shares is registered in the relevant company's books (Shareholders' Registry Book), registration with the relevant Registry is not required.
However, as in most jurisdictions, the performance of regulated activities such as media, banking or insurance requires filings with the relevant regulatory agencies.
Local companies and JV parties must also register with the Federal Tax Authority Agency (AFIP) and comply with several informative regimes giving details of, for example:
Their shareholders (or quotaholders).
The occurrence of any transfer of its shares (or quotas).
Public sector bodies
The National Anti-trust Commission (CNDC) is the governmental entity in charge of the investigations of anti-competitive practices and merger reviews and may have to be involved in cases where a JV reaches the criteria set out in the Law No. 25,156 as amended (Anti-trust Law).
Although the Anti-trust Law does not prohibit economic concentrations as such, it does prohibit acts restricting or distorting competition that may harm the "general economic interest" (a term interpreted as closely related to that of "consumer welfare"), as well as abuses of a dominant position.
In any event, JVs (be they contractual or corporate) can trigger red flags from a competition viewpoint and, therefore, can potentially be caught by the Anti-trust Law.
Generally, transactions (mergers and acquisitions) that produce a transfer of control (or a substantial influence on) of a business or assets meeting the criteria indicated in the Anti-trust Law are subject to the CNDC control.
Transactions (acquirer and target companies or merging parties, but not sellers) involving turnovers in excess of ARS200 million must be notified to the CNDC, unless a special exemption applies.
Exemptions from merger control that are relevant for JVs are:
Acquisition of a single enterprise by a foreign investor that has not owned shares or assets in Argentina.
Situations where the amount of the transaction and the value of the assets located in Argentina being acquired, transferred, or controlled do not exceed ARS20 million, unless recent transactions in the same market exceed certain thresholds.
Where the joint venture (JV) could be caught by Law No. 25,156 as amended (Anti-trust Law), or does not fall within one of the exceptions set out under this, it will have to be notified to the National Anti-trust Commission (CNDC). The notification must be carried out in advance, or within one week starting from the date of closing of the relevant transaction, in order to enable the CNDC to perform a review on the transaction.
Failure to comply with this notification requirement implies that the transaction will not be effective among the parties to the agreement nor to third parties. It may also trigger the imposition of fines by the CNDC as set out in the Anti-trust Law.
Regarding Agrupaciones de Colaboración (AdCs), Union Transitoria de Empresas (UTEs) and Consorcios de Cooperación (CdCs), the respective Public Registry of Commerce has to forward certain documents (for example, the contract under which the JV was created) to the CNDC after registering the contractual JVs.
Generally, joint ventures (JVs) can be used in every market, since a restriction in this regard is against the constitutional right of "carrying out any licit industry" (Article 14, Magna Carta (Constitución Nacional)).
However, the performance of regulated activities such as media, banking or insurance requires filing with the relevant regulatory agencies that should be carefully assessed before investing.
Also, in some cases the law requires that certain activities must be carried out using a given corporate vehicle (for example, a Sociedad Anónima (SA) (among other corporate vehicles such as Cooperativas or branches) for the banking industry), hence, JVs in these industries must adopt the prescribed forms.
Contractual joint ventures (JVs)
Since the free will of the parties governs their contractual relationship they can enter into any kind of agreements for whatever purpose they wish and are only limited by the mandatory provisions and the observance of the principles of good faith, morality and good customs, among other general principles of law.
The General Companies Law (GCL), Law No. 26,005, and General Resolution No. 7/2005 of the Inspección General de Justicia (IGJ), as amended and restated (Regulation 7/05) require that all vehicles must strictly specify their purpose, preventing all forms of terms that are not clearly defined. With Union Transitoria de Empresas (UTEs), their purpose must be thoroughly determined in the UTE contract, providing a concrete specification of the activities and the means to conduct them. The new Civil and Commercial Code does not change these provisions.
The GCL establishes that the entities must designate their "corporate purpose", which must be precise and specific (Article 11.3, GCL).
Within the jurisdiction of the City of Buenos Aires, Regulation 7/05 sets out certain rules related to the corporate purpose of the entities subject to IGJ supervision.
For example, it sets out that it must have a sole corporate purpose and that its references are made in a precise and determined manner through a concrete and specific description of the activities that are to be performed for its effective execution. The inclusion of other activities is allowed to the extent that they are related, accessories or complementary activities in order to achieve the effective execution of the corporate purpose.
Regulation 7/05 also establishes that the set of activities described in the corporate purpose should be consistent with the entity's stock capital.
Share capital and participation
Forms of participation
With Sociedades de Responsabilidad Limitada (SRL) the form of participation is by a subscription of quotas that have the same value and have to be in ARS10, or multiples of this.
For Sociedades Anónimas (SAs), the form of participation is by a subscription of shares that can be ordinary or preferred. Ordinary shares generally carry one vote per share (they can carry up to five votes per share). Preferred shares generally do not carry voting rights except for the cases expressly provided by Article 244(4) of the General Companies Law (GCL), for example:
Anticipated dissolution of the company.
Material change in the corporate purpose.
Transfer of the domicile abroad.
Participation in a company can also be made through an irrevocable capital contribution. Subject to certain requirements, this is a quicker way to make a capital contribution where the investor contributes something to the company (generally cash) without this contribution being accepted by a shareholders' meeting at that time. While shareholders decide whether to capitalise this contribution, the investor is not considered a shareholder of the company.
In unincorporated JVs, the free will of the parties is to govern the forms of participation as well as the contributions of their members, which can be made either in cash or in kind.
Both SA and SRL contributions can be made in cash or in kind. However, contributions in cash are the most common form of contribution given that the mechanisms to value contributions in kind are more burdensome and, therefore, usually delay the registration process with the Public Registry of Commerce.
To carry out a contribution in cash, an amount not less than 25% of the relevant subscription of shares (or quotas) must be paid to the company together with the subscription and the remaining amount within two years.
Contributions in kind must be paid in full at the moment of subscription of the relevant shares, and are only obligations to contribute something that is valuable in money (for example, goods or assets). They cannot be "obligations to perform something" (Obligaciones de Hacer). However, the fact that the articles of incorporation can stipulate obligations to perform something by the shareholders, these contributions do not result in the issue of any shares.
With Union Transitoria de Empresas (UTEs), the contributions are also defined as "participation" interest allowing parties to freely stipulate the terms and conditions of their investment (Article 378.8, GCL; Article 1464(h) of the new Civil and Commercial Code, effective from 1 August 2015).
The share capital of an Argentine corporate entity is always denominated in Argentine legal currency (Argentine peso).
However, capital contributions can be made in foreign currency, but for the purposes of their accountability and registration with the Public Registry of Commerce (Registry), the amounts in foreign currency must be converted into Argentine peso at the official exchange rate (published by the Banco de la Nación Argentina) on the date that the capital contribution in cash is made.
Duration and limits on membership
Contractual joint ventures (JVs)
The duration of a contractual JV is ruled by the free will of the parties.
They can either designate a duration term or not. If a duration term is not designated, then it is characterised as a contract with an indefinite duration term with the implication that the characterisation may imply in the case of termination (for example, an obligation to give prior notice of a defined length of time to legally terminate the agreement).
The Civil and Commercial Code makes changes in this regard and regulates the matter for several contracts, for example:
Setting the minimum duration terms for distribution and concession agreements at two or four years depending on whether there is a provision of the main premises from the principal or not.
Setting the minimum duration term for franchising agreements at four years, except in some specific cases.
For Union Transitoria de Empresas (UTEs), the General Companies Law (GCL) states that the term must be equal to:
The duration of the work to be carried out.
The service to be rendered.
The supply to be performed.
These must always refer to the purpose of the relevant JV, which means that these agreements can last for decades.
For Agrupaciones de Colaboración (AdC), the GCL allows a maximum term of ten years, stating that it can be extended before it elapses.
For Consorcios de Cooperación (CdCs) the GCL only states that the CdC must have a specified duration term without fixing any maximum one.
The new Civil and Commercial Code, which will regulate the UTEs, AdC and CdC from 1 August 2015 does not introduce any changes on this matter.
The GCL sets out that the articles of incorporation of legal entities must indicate a specified duration term. It is common practice to stipulate in the articles of incorporation a 99-year term.
Public sector bodies
In principle, all relationships between the public and the private sector are regulated by public laws, which are mandatory (public order legislation).
The public tender proceeding is the rule for contracting with the private sector, and direct contracting is the exception subject to specific conditions, as set out in Decree No. 1023/2001, for example:
Secrecy of the transaction under grounds of national safety or national defence.
However, Decrees No. 966/2005 and 967/2005 establish national regimes of "Private Initiative" and "Public-Private Association", respectively, to foster the public-private associations.
The Private Initiative regime allows entrepreneurs from the private sector to present projects to the public sector "to develop activities of general interest", for example:
If the Government considers the project to be of public interest, it must launch a call for tenders, and the private entrepreneurs that presented the project have priority in the public tender process to the award.
The public-private associations' regime regulates the vehicles that can be used to undertake the public-private association, with a very broad definition, which is "corporations, trusts, or any other kind of vehicle that may result eligible to be funded by the public offer regime set forth in Law No. 26,831". It also sets out the possible contributions that the public sector can make to the project, for example:
Rights to certain public assets privately owned by the state.
The presentation of the project is made at the request of a public organisation and the public call for tenders can be launched to select a partner from the private sector.
In either case, the public tender proceeding to award the project to a private entrepreneur cannot be avoided.
On the other hand, the traditional mechanisms for the public sector (whether national, provincial, municipal or a legal body legally authorised to that end) to be involved in entrepreneurial activities is by using the corporate type Sociedad Anónima (SA).
The General Companies Law (GCL) sets out a specific type of Sociedad Anónima, which is the Sociedad Anónima con Participación Estatal Mayoritaria. Here the public sector holds 51% (or more) of the shares of a SA, either from its incorporation (by law) or afterwards (by acquiring the 51% after its incorporation). The private sector can also participate, but always with a minority stake (49% or less).
In these cases, the company is governed by corporate rather than public law, and consequently, no PPP or public procurement laws or regulation, apply to these entities.
There are a number of cases where this type of SA is used, for example, Yacimientos Petrolíferos Fiscales (YPF), an Argentina-based integrated oil and gas company, in which the state, following a nationalisation of the shares held by Spanish Repsol, now owns a 51% controlling stake. The remaining stake is in different private hands (their shares are also listed in the Buenos Aires and New York Stock exchange markets).
Non-competition and anti-trust clauses
During period of effectiveness
Generally, and subject to the considerations explained below regarding the rulings of the National Anti-trust Commission (CNDC) on this point, there are no statutory constraints on the use of non-competition or anti-trust clauses.
Given that one of the purposes of the Anti-trust Law is to prohibit acts restricting or distorting competition that may harm the general economic interest, non-competition or anti-trust clauses have been carefully scrutinised by the CNDC.
Generally, the CNDC has considered that non-competition or anti-trust clauses are typical clauses that may, in certain cases, restrict competition. That is why in many cases brought for CNDC analysis, the authorisation of the relevant transactions have been subordinated to the prior amendment of the relevant non-compete clause, mainly by reducing the term during which the parties cannot compete within the Argentine territory.
Despite the fact that this should be analysed on a case-by-case basis, generally, the CNDC has decided that a two-year term is a reasonable term from the competition viewpoint, and also accepted a maximum of five-year term where, besides the transfer of the business, there is an actual transfer of know-how.
On the other hand, it has also been construed that, in principle, in cases where there is an extended relationship (as in most of joint ventures cases) the non-compete clause term should be reduced or even eliminated to avoid harming competition.
De facto company/partnership
The law recognises de facto companies or partnerships. Indeed, many joint ventures (JVs) are created and perform their activities for many years as a de facto company. The Federal Tax Authority Agency (AFIP) also recognises their existence by providing them a Tax ID.
However, there are numerous risks for the members of a JV where it is characterised as a de facto company. The most important one is that members are considered jointly and severally liable for the "company's" debts. However, it is worth noting that, from 1 August 2015, a new regime will be applicable to these companies due to an amendment to the General Companies Law (GCL) that, for example, will modify the liability regime and, therefore, members will only be severally liable for the company's debts unless otherwise stipulated.
This is why, among other things, in 1983 the GCL was amended regulating the Union Transitoria de Empresas (UTE) as an associative (non-corporate) contract, limiting the liability of their members. However, to that end, UTEs must be duly registered before the relevant Public Registry of Commerce.
In any event, many JVs decide not to register as a UTE so as not to be limited to the applicable form and regulations. This is because its members can effectively demonstrate that there is no de facto company in place, either:
By having a correct accountability and administration.
Because of the diligent manner that they handle their responsibilities and assume their liabilities by setting up clear terms and conditions as well as guarantee mechanisms.
This transparency may avoid unserious claims against them. That is why certain members of contractual JVs can avoid, in some cases, registering as an UTE considering that whether the financial risks or claims could be easily addressed. In this regard, it is worth noting that the Association of Public Accountants has issued important accountable principles applicable to contractual JVs different form UTEs (Regulation RT 14).
Limiting member liability
The free will of the parties governs their contractual relationships, and, therefore, the parties can rule on this. However, in doing this, the parties must observe the principles of good faith and avoid any act that can be characterised as an abuse of law, or contrary to morality or good customs, which is prohibited by the law.
With Agrupaciones de Colaboración (AdC) and Consorcios de Cooperación (CdCs), the rule regarding liability is that, unless otherwise stipulated in the contract, their members are jointly and severally liability.
However, parties can eventually agree to indemnify a member of the JV. Although this stipulation is not enforceable against third parties, it does allow the indemnified party to demand a refund or damages from its co-members.
Conversely, in Union Transitoria de Empresas (UTEs) joint and severable liability is not presumed, and therefore, their members are not considered jointly and severally liable.
These stipulations are considered null and void. Indeed, any stipulation that sets out that one or more partners receive all the benefits, or should be excluded by them or should be free to contribute to pay for the losses are null are void (Article 13, General Companies Law).
See Question 6, Public sector bodies.
Governance and limits on directors
Contractual joint ventures (JVs)
Generally, the free will of the parties rules their relationships.
With contractual JVs expressly regulated, generally the parties can regulate them and the law applies for lack of stipulation, for example, regarding the decision-making process (the majority govern Agrupaciones de Colaboración (AdC) and consensus governs Union Transitoria de Empresas (UTEs)). The regime for AdCs applies to Consorcios de Cooperación (CdCs) under Law No. 26,005. In all cases, due to the contractual nature of the association, any amendment to the contract must be carried out by consensus. The new Civil and Commercial Code does not bring substantial changes to this.
Corporate JVs must observe the mandatory provisions set out by the GCL on, for example, corporate governance and the decision making process, for example:
Competences of the shareholders meetings.
Quorum and majorities to vote on certain matters.
Representation of the company.
Generally, governance corresponds to the shareholders' meeting while the day-to-day administration corresponds to the board of directors. The chairman of the board of directors is the legal representative of the company.
Except for individuals convicted of serious intentional crimes, there is no limit or restriction on the eligibility of an individual as a member of the board of directors. However, the majority of directors of a Sociedad Anónima (SA) must be Argentine residents.
With statutory auditors, the General Companies Law (GCL) sets out that they must:
Be Argentine residents.
Have a lawyer or public accountant degree.
Be registered with the pertinent professional association.
Also, it sets out that they cannot be:
Directors, officers and employees of the same company or other controlled or controlling company of the relevant entity.
The following in relation to the directors and general managers:
relatives with straight consanguinity;
collateral up to the fourth degree inclusive and related within the second grade.
Contractual joint ventures (JVs)
These stipulations are governed by the free will of the parties. Therefore, the parties can stipulate the events that can trigger termination of the agreement. Generally, as with any contractual relationship, a contractual JV can be validly terminated for just cause.
However, as the law does not support the abuse of law it cannot support the abuse of a party to terminate an agreement forcing a just cause (for example, by arguing a just cause that does not actually exist, or enforcing a stipulated just cause that has no real ground or importance to determine the termination of the agreement).
Contract law (Civil Code and the new Civil and Commercial Code) also sets out the possibility for the defaulting party to cure any event triggering termination within a specific period of time, therefore, enabling the party to comply with its duties under the contract and, in so doing, avoiding the termination of the agreement.
The General Companies Law (GCL) sets out the legal regime applicable to either the Sociedades de Responsabilidad Limitada (SRL) or Sociedad Anónima (SA) to be winded-up and liquidated.
There is no public sector body's approval that must be obtained to duly terminate a contractual joint venture (JV).
However, the termination of the contractual JVs (which requires registration) must be duly registered with the Public Registry of Commerce, such is the case of the Union Transitoria de Empresas (UTEs).
Choice of law and jurisdiction
Contractual joint ventures (JVs)
In principle, the parties can choose the law and the jurisdiction of their choice to apply to their contractual JV.
Any dispute can be referred to a foreign court and under a foreign law, to the extent that the disputes have an international and monetary nature (Article 1, Civil and Commercial Procedural Code).
However, the law is extremely restrictive regarding the choice of jurisdiction and applicable law since it requires the existence of connecting factors.
For example, with a domestic JV with local venturers (that are not the subsidiary of a multinational) performing local work, an international jurisdiction can be declared invalid and, therefore, unenforceable giving jurisdiction to the local courts. Also, choosing a jurisdiction completely oblivious to the matter or that lacks connecting factors to the relevant dispute can give rise to challenges to the foreign court's jurisdiction on the grounds of forum non conveniens (forum shopping).
Any dispute of a strict corporate nature (for example, a challenge of a shareholders' meeting resolution or directors' liability), must be submitted to the courts where the corporate entity is incorporated.
JVs with foreign members
Validity and authorisation
Subject to the corporate registration comments discussed below for foreign companies, foreign investors (whether individuals or legal entities) are generally subject to the same regulations as local investors, whether to incorporate or purchase a company or to enter into a contractual joint venture (JV) (Article 20, Constitution).
See Question 25 on certain limitations on the grounds of nationality.
Foreign companies wishing to participate in local companies (or to incorporate a new one) must register with the relevant Public Registry of Commerce (Registry) (Article 123, General Companies Law).
Although this is not an authorisation, failing to comply with the registration can trigger that resolutions taken in shareholders' meetings with the vote of the non-registered shareholder could be considered invalid from an administrative viewpoint, and, therefore, not recordable before the relevant Registry (for example, the registration of an increase of capital), as well as fines from the relevant Registry. This is why it is important to handle these registrations of foreign companies with due care and allow sufficient time.
To register, the foreign company must file with the Registry:
A copy of their articles of incorporation and bye-laws.
Proof that they validly exist according to the laws of the country where they were incorporated.
The corporate resolution appointing legal representatives and fixing a local domicile in Argentina.
The representatives must inform the Registry if they are subject to business prohibitions or restrictions in their place of incorporation. The company must also demonstrate that, outside of Argentina, it either:
Has one or more agencies, branches, or permanent representations.
Holds a participation in companies that qualifies as non-current assets.
Owns fixed assets in their country of incorporation.
Where a foreign company was incorporated for the sole purpose of acting as a vehicle for investing in other companies, compliance with the above requisites by its controlling entity suffices.
With a contractual JV, where the foreign entity carries out activities in Argentina on a regular basis (rather than isolated acts) they must incorporate a subsidiary or establish a branch or a permanent representation office.
Effect of foreign membership
Foreign investors are generally subject to the same regulations as local investors.
Freedom to set up a business by foreign investors in Argentina is the prevailing principle.
However, there may be some restricted or sensitive areas where national security or public interest issues are involved, and, therefore, certain restrictions on the grounds of nationality of the parties are permitted, for example:
Law No. 25,750 limits certain foreign investors' participation in media companies.
Law No. 26,737 (Protection on Rural Land Ownership) imposes limits on the ownership or possession of rural land by foreign individuals or legal entities.
Decree Law No. 15,385 (National Regime on Security of the Borders) set out that certain portions of land near the borders of Argentina must belong to Argentine native citizens.
Foreign exchange controls
With contributions of foreign parties in Argentina, the Argentine Foreign Exchange Control Regime (FX Regime) is very relevant for the international party involved in the joint venture (JV), whatever type of vehicle chosen (contractual or corporate JVs).
The Argentine Central Bank (BCRA), currently tightly regulates the inflow and outflow of currency through the local exchange market (Mercado Único y Libre de Cambios) (MULC).
With inflows, the government issued Decree No. 616/2005 (Decree 616) that discourages short-term investments practices by establishing, for instance, minimum periods for repayment of loans (more than 365 days), a mandatory non-remunerated deposit (Deposit) of 30% of the total amounts entered into Argentina for one-year. This is because for short-term investments, Argentina followed the international criteria that consider that short-term migration capital is an investment practice that may harm the economy. Further to Decree 616, subsequent and related BCRA regulations were also issued to that end. Consequently, in case of dealing with short-term investments (and other kind of indebtedness from foreign to local residents) the FX Regime must be carefully assessed by investors performing a sound analysis of the same and even exploring alternatives.
With capital contributions, although foreign direct investments (for example, holdings by a foreign direct investor of at least 10% of the ordinary shares or voting rights or its equivalent of a company), are excluded from the scope of Decree 616, they are also subject to certain BCRA regulations. For example, under certain circumstances the Deposit is applicable when entering monies into Argentina through the MULC to capitalise a local company if no registration of the capital contribution in the relevant Public Registry of Commerce within a certain timeframe is completed.
Investments through capital markets have become a regular practice in the market. Inflows through the capital market would currently imply obtaining a larger amount of Argentine peso compared to the amount obtained through the MULC. This is because the implicit exchange rate of purchasing bonds abroad (listed in a foreign stock exchange market) in foreign currency and selling them locally (in the local stock exchange market) in Argentine peso is currently higher than the official exchange rate (between 15% and 25% higher). However, it is advisable to request relevant legal advice to comply with relevant requirements to legally carry out such transactions.
In connection with outflows, some considerations should be taken into account by the foreign investor because of the impact that they may have at the time of future repatriation of the investment. Generally, investments that were not entered into the country through the MULC (for example, the acquisition of shares of a company or the purchase of real estate) cannot be repatriated through the MULC. Here it has also become common practice for investors to either receive the payment for its relevant investment (for example, shares of a company or real estate) abroad, or to use an alternative outflow mechanism (for example, through carrying out securities transaction, which is the opposite of the transaction explained above).
Payments abroad of certain contracts such as those related to royalties, professional services and intellectual property rights require prior BCRA approval unless payments arising under each contract does not exceeds the sum of US$100,000 per calendar year.
The Argentine FX Regime is essentially dynamic, and also depends on the governmental economic policies in place in a given time. Nowadays, the market expects that, with the upcoming national governmental elections in October 2015, if a change in the government occurs, as from 2016, changes may be introduced to the FX Regime aiming to deregulate the foreign exchange market.
BCRA Informative regime
Regarding foreign direct investments, a BCRA information regime must be complied with. Where the investment (considering the accounting net worth value of the shareholding) does not exceed US$500,000 it is optional.
Registration of specific contracts
Some types of contracts commonly used in international JVs like the Transfer of Technology agreement (for example, license agreements) under Law No. 22,426, must register with a national registry (Instituto Nacional de la Propiedad Industrial), in order to obtain several tax benefits, for example, in income tax:
Reductions of the relevant withholding tax.
Deductions in the tax of the amounts paid for the transfer of the technology.
Economic or financial incentives
There are no specific economic or financial incentives for foreign direct investments in a joint venture (JV).
However, there are a number of regimes created to promote direct investments and economic development applicable to both domestic and foreign investors.
These regimes are mainly based on tax incentives or tax reductions (for example, reduction in value-added tax (VAT)).
The following are some of the investment incentives currently in force:
Investments in capital goods and infrastructure (Law No. 26360) introduces incentives for national production of capital goods, IT, telecommunications and agricultural machinery.
Software industry promotion:
Law No. 26692 on the promotion of the software industry;
Law No. 25856 on the consideration of software production as industrial activity.
Promotion of state-of-the-art biotechnology development and production (Law No. 26270).
Biofuels promotion (Law No. 26093 on regulation and promotion for the sustainable production and use of biofuels).
Mining industry promotion:
Law No. 24196 on Mining Activity;
Laws No. 25429 and 25161, as amended;
"Mining Code" (Law No. 1919; Decree No. 456/1997; Law No. 25225).
Forestry (Law No. 25080 on Investments for Planted Forests, as extended and amended by Law No. 26432).
Promotion of the exploration and exploitation of hydrocarbons (Law No. 26154 on hydrocarbons).
Promotion of the use of renewable sources of energy (Law No. 26190. Regulated by Decree No. 562/2009).
There are also incentives at a provincial or municipal level (including the City of Buenos Aires) for projects and developments of a public interest.
The regulatory authorities
Public Registry of Commerce of the City of Buenos Aires (Inspección General de Justicia) (IGJ)
Main activities. This is the Public Registry of Commerce of the City of Buenos Aires.
National Anti-trust Commission (Comisión Nacional de Defensa de la Competencia) (CNDC)
Main activities. Government entity in charge of the investigations of anti-competitive practices and merger review.
Federal Tax Authority Agency (Administración Federal de Ingresos Públicos) (AFIP)
Main activities. AFIP is the Federal Administration of Public Revenue and is in charge of the enforcement, collection and control of the national taxes.
Alberto Navarro, Partner
Navarro Castex Abogados
Professional qualifications. Attorney-at-Law, admitted in Montevideo, Uruguay, 1985; Buenos Aires, Argentina, 1988; LLM, Harvard Law School, US, 1989
Areas of practice. Corporate; finance.
Languages. Spanish (native); English (fluent); French (fluent)
International Bar Association and as such he served as officer and chair of the Closely Held and Growing Business Enterprises Committee (2003- 2009), and as president of the IBA Professional Ethics Committee.
On behalf of the Buenos Aires Bar Association (Colegio Público de Abogados de la Capital Federal), currently serves as IBA Council Member.
Member of the Buenos Aires Bar Association (Colegio Público de Abogados de la Capital Federal).
Eduardo Patricio Bonis, Senior Associate
Navarro Castex Abogados
Professional qualifications. Lawyer, Universidad de Buenos Aires, Ciudad Autónoma de Buenos Aires, Argentina, 2006; Master for International Lawyers (Master of Laws focused on European Union and International Private Law), Universitá di Bologna, Bologna, Italia, 2010
Areas of practice. Banking and finance; commercial law; and general practice.
Non-professional qualifications. Comprehensive seminar on Foreign Exchange regulations, Asociación de Bancos de la Argentina (ABA), Ciudad Autónoma de Buenos Aires, Argentina; Corporate Taxes, CEDEF Law and Finance, Ciudad Autónoma de Buenos Aires, Argentina; Tax and Finance, CEDEF Law and Finance, Ciudad Autónoma de Buenos Aires, Argentina; Complex aspects of M&A transactions, CEDEF Law and Finance, Ciudad Autónoma de Buenos Aires, Argentina; Continuous training program, CEDEF Law and Finance, Ciudad Autónoma de Buenos Aires, Argentina; Course on Commercial Practice, Universidad de Buenos Aires, Ciudad Autónoma de Buenos Aires, Argentina; Course on Trust Law, Universidad de Buenos Aires, Ciudad Autónoma de Buenos Aires, Argentina
Languages. Spanish (native); English (fluent); Italian (fluent); Portuguese (intermediate)
Professional associations/memberships. Member of the Buenos Aires Bar Association (Colegio Público de Abogados de la Capital Federal).
"Liability of Internet Service Providers (Broad Sense). Notice and Take Down, Argentine Version". Published on the newsletter of the Latin America and Caribbean Committee, ABA Section of International Law, July 2015.
Confirman la legalidad de la operación de Contado con Liqui (Legality of the Blue Chip Swap transaction confirmed). 16 March 2015, published on Abogados-inhouse.com.
Blanqueo de Capitales, Prevención de Lavado de Activos y Financiamiento del Terrorismo (Tax Amnesty, Anti-money Laundering and Counter Terrorism Financing Law). 17 June 2013, Publishing House: La Ley, Ciudad Autónoma de Buenos Aires, Argentina.
Recurso directo contra resoluciones sancionatorias de la Unidad de Información Financiera. Comentario a Fallo (Direct appeal against resolutions issued by the Financial Information Unit imposing fines. Comments to judgement). 1 November 2013, Publishing House: La Ley, Ciudad Autónoma de Buenos Aires, Argentina.