Investor’s Guide
Legal framework for foreign direct investment in Guatemala
Florencio Gramajo Associated
Foreign investment can be direct or indirect. There are three basic mechanisms in which international businesses can be developed: export and import processes; international technology transfer and foreign investment. Foreign investment can be direct or indirect. In theory, foreign direct investment has been defined as the one made by the resident of capital exporting country, in an entity based in the state receiving the investment, which in turn, allows the investor to have a shareholding of more than 10% of the right to vote and to participate effectively in the decision-making of that entity. [1] In foreign direct investment, the investor has a fixed stay in the receiving State of the investment, carrying out activities of its ordinary course of business through the establishment of its own company abroad. This can be done through the establishment of a branch, a subsidiary or a Joint Venture or by acquiring on-going operations or companies. In Guatemala, the Commercial Code allows
74
that companies legally incorporated abroad wishing to establish or operate in any form in the country, may do so through the establishment of a branch. Once authorized, the branch will be subject to the laws of Guatemala and must have at least one representative permanently in the country. As for the subsidiary, Guatemalan law regulate several types of commercial companies that a foreign investor could use as a vehicle for its investment in Guatemala, the most common being the the stock corporation (in Spanish, sociedad anónima) and the Limited Liability Company (in Spanish, Sociedad de Responsabilidad Limitada). It is also common for foreign investors to opt for the creation of a Joint Venture with local partners. This may be caused either by a requirement in that there is cooperation between the foreign investor and a local company, or by an economic decision in which the foreign investor intends to have the experience of the local investor or that the transaction exceeds the required economic capabilities. Finally, with regards to acquisition of ongoing businesses, these involve the purchase of an operating entity in Guatemala. This purchase of existing assets rather than the creation of
DOING BUSINESS & INVESTING IN GUATEMALA
