Additional requirements to register foreign entities - Resolution No 7/2003

The Public Registry of Commerce (“PRC”) issued on September 19, 2003, Resolution No 7/2003 (“Resolution”) published in the Official Gazette on September 25, 2003. The scope of this Resolution is to verify that foreign companies comply with the provisions of Argentine legislation and therefore, to detect those foreign entities that are registered in fraud of Argentine legislation. The Resolution establishes additional requirements to register foreign entities with the PRC as well as additional information to be filed annually.

The Resolution will be in effect as from October 14, 2003.

Below follows a summary of the additional requirements established by the Resolution. Those requirements include all foreign entities that wish to: a) conduct business on a permanent basis in Argentina (pursuant to Section 118, 3º paragraph of Companies Law No 19,550) (“Branches”); and b) participate as shareholder or partner/quotaholder of domestic companies (pursuant to Section 123 of Companies Law No 19,550).

1.      Additional requirements for registration

a) Foreign entities must inform and submit evidence of whether there is any prohibition or legal restriction to develop all, their principal or some of their principal activities in the place of their incorporation.

b) Foreign entities must evidence their effective operation abroad either by filing evidence of:

(i) the existence of one or more offices, branches or permanent representations abroad;

(ii) the ownership of participation in other companies registered as non-current assets; or

(iii) the ownership of fixed assets in their place of incorporation. If foreign entities do not evidence at least one of the listed requirements, the PRC will deny its registration.

2.      Annual filings

a) Branches

In order to verify that the main activity of the foreign entity is developed abroad, Branches must annually file with the PRC an accountant certificate showing the composition and value of the company assets, specified as current and non-current assets placed outside Argentina.

b) Foreign entities registered under Section 123 of Companies Law No 19,550.

In this same respect, legal representatives of the foreign entities registered under Section 123 of Companies Law No 19,550 (“Legal Representatives”) must annually file with the PRC an accountant certificate showing the composition and value of the company assets specified as current and non-current assets placed outside Argentina.

Likewise, Legal Representatives must evidence the fulfillment of Resolution No 1375/02 enacted by the Federal Administration of Public Revenue (“AFIP”), for the immediately preceding calendar year or lesser period, whichever corresponds. Please refer to the article “Information requirements” published in Marval News # 13 of December 20, 2002.

3.      Penalties

If foreign companies fail to comply with the requirements established by the Resolution, the PRC may:

a) reject the foreign company’s registration, but only if it does not fulfill the requirements mentioned in 1.b) above;

b) require the amendment of the foreign company’s by-laws or articles of incorporation in order to adapt them to the formalities required under Argentine Companies Law for the incorporation of domestic companies. The PRC will require such amendment when any of the following situations is verified: (i) absence of assets abroad; (ii) absence of essential non-current assets abroad, and (iii) that the local foreign entity domicile is its main office;

c) request the judicial cancellation of the company’s registration and, as the case may be, its liquidation, in the following situations: (i) the failure to comply with the amendment of its by-laws or articles of incorporation in accordance with Argentine legislation, within 180 days as from its requirement; and (ii) failure to comply with the annual filings mentioned in paragraph 2. above, during two consecutive years, since January 1, 2004.

4.      Consequences of the Resolution on domestic companies

a) Shareholders and Quotaholders meetings

Section 8 of the Resolution provides that the PRC shall not register documents pertaining to shareholders or partners’ resolutions whereby a company not registered under Section 123 of Companies Law No 19,550 has exercised its voting rights at such meeting, regardless of the percentage of its participation, if the issued votes were crucial to make up such resolution.

Those resolutions adopted with the participation of unregistered shareholders, as mentioned in the precedent paragraph, whether related to the approval of the financial statements or not, will be considered as irregular to the administrative effects.

b) Directors

The directors of local companies that are under PRC supervision could be punished with warnings and/or fines of up to Argentine pesos 6,801.47 if foreign entities which are not registered with the PRC participate at shareholders’ meetings.