Note: This page has been updated as of February 2009 to reflect the New Law on SRLs and LLCs in Panama

An SRL, or Sociedad de Responsibilidad Limitada, is a Panamanian structure comparable to a limited liability partnership (UK) or a Limited Liability Corporation (USA). It is less known internationally than the normal Panama S.A. corporation, but can offer some significant advantages in certain cases.

Legal Foundation of Panamanian SRL

Panama has passed a new law that became law on January 15th 2009.  Law 4 of January 9 of 2009 that regulates the Limited Liability Companies in Panama, replacing entirely Law 24 of 1966 that originally created and regulated this same type entity.

The new Law is more flexible than the old and although this type of company is not as popular as the well known Panama Corporation, is equally important to consider for some structures.

Among the most interesting features of the Panama SRL we find the following:

1. The new Law provides for an unlimited number of partners, who may be individuals or corporate bodies, with no restrictions as to their citizenships or country of residence. However, two is the  minimum amount of partners required. These may be nominees.
2. The new law does not provide for a minimum or maximum capital,  therefore leaving it open. The law also provides that the capital can be established in any currency. Note that the higher the  capital, the higher the registration fees will be, therefore we recommend for a standard capital of US$10,000 divided into the quotas you deem convenient that will equate a value in total of US$10,000. No bearer shares are permitted.
3. The SRL can engage in any type of civil or commercial activity anywhere in the world.
4. The names of the partners must be registered with the Panama Public Registry. Each time a transfer of a quota is done such transfer must be recorded at the Public Registry.
5. The economic liability of each partner for the obligations of the company will be limited to the amount of their participation made or promised.
6. One Manager can be appointed, in which case it can be an individual or a corporate body of any nationality or jurisdiction of incorporation. Also in this case his/her name must also be recorded on public records.
7. No meetings are required to be held, unless otherwise such is stated on the articles of incorporation.
8. If the articles permit it, the manager of a Panama SRL can represent the company in any judicial or extrajudicial proceeding,  but it will require a special power of attorney to carry on acts  that go beyond the normal course of business. He/she will need authorization to transfer assets and to encumber assets or secure   debts of the SRL.
9. Once the SRL is recorded it acquires a different legal personality from that of its members and managers.
10. An SRL can be converted at any moment into any type of company,  such as an S.A. and vice versa.
11. An SRL can also be re-domiciled to any jurisdiction and vice versa.
12. The SRL is not obliged to pay the Annual Government Fee.
13. For tax purposes, this is a transparent vehicle, so that at least in the United States it can be treated as a “disregarded entity”.
14. The name must bear one of the following two endings: “SOCIEDAD DE  RESPONSABILIDAD LIMITADA” or S. DE R.L. The name cannot be similar in any way or form to a name already registered, notwithstanding if it is a different type of company, like an S.A., for example.

Administrator

The SRL may appoint a third party as administrator, and in this case his/her name must also be registered. No meetings are required if the Partnership has 5 members or less. Otherwise, a meeting must be held at least once a year. There are no requirements for annual returns or filing of any accounts.

The SRL does not automatically have full powers like a corporation. Therefore, the administrators require special authorization from the partners to carry out acts beyond the normal course of business established in the charter, to transfer assets, and to encumber assets to secure debts of the SRL.

Once registered at the Public Registry, the SRL acquires its own legal personality.

Transparency for Foreign Taxation Purposes

The SRL, unlike a corporation, qualifies in certain foreign countries including the USA as a disregarded entity for purposes of avoiding CFC legislation.

A US taxpayer may file Form 8832, and thereby convert certain foreign corporations into a disregarded entity for U.S. tax purposes. If you are the only owner, the income and losses of the entity will be reported on Schedule C of your personal tax return and can therefore reduce your personal income tax is the entity has experienced losses. The election to be treated as a disregarded entity is only available for “eligible entities”. Entities that are not eligible to make the election are listed in IRS Regulation 301.7701-2 and in the instructions to the Form 8832. In Panama, the regular type of corporation (Sociedade Anonima) is NOT an eligible entity and can’t be treated as a disregarded entity. A Panama SRL does however qualify for disregarded entity status.

Interested in forming an SRL or LLC in Panama? You can. Our law office can assist you with the entire process. Once your SRL has been formed we can assist you with the opening of brokerage accounts, credit card merchant accounts and corporate bank accounts in Panama and worldwide (please refer to the countries listed on the right of this page). Contact us using the contact form in order to get the process underway!