The international press keeps reporting that the global banking crisis is global. That seems like truth, but they are giving you incorrect information. Although the crisis that began in the American banking sector has spread across the globe, and has hit most major banking center it has not hit the banks in Mongolia. Nor has it hit the banks in the Republic of Panama. In the case of Mongolia, there are no close ties to the global economy. This means there is no exposure to the toxic assets that flood the global system. In the case of Panama, with its close ties to the global economy, it must be “luck.”

More than 100 American banks have been closed by regulators between 1 January and 15 October 2009; another 400 banks have bad assets in excess of net assets and are teetering. They have not been closed because the FDIC is woefully underfunded and can not ensure the deposits represented by these banks. Otherwise, they would be gone. Smart Americans are looking for a safe place to put their money, and quickly.

So it appears that the Mongolian banking system is going to see huge influx of American money seeking safe haven… But let’s take a look at Panamanian “luck” first. The banks in Panama have not suffered in this crisis for precisely the same reason that Mongolian Banks have not suffered, no exposure. No exposure to the greed that permeated the global banking system; no exposure to ridiculous Ponzi schemes; no exposure to borrowers who had absolutely no ability to make good; no exposure to borrowers who had no ‘skin’ in the game.

Understand that Panama has no central bank to act as a lender of last resort.  Since there is no one to “bail them out,” Panama banks are still conservative in their approach to business. They create only safe, well-collateralized, properly documented loans. The financially deadly concepts of subprime mortgages, 10% down, 5% down or even No Money down loans, and NINJA (No Income, No Job or Assets) loans are concepts that do not exist here. Panama banks still require a 25% down payment from Panamanian residents and 30% from non-residents. They simply have not created for themselves the same types of risks that are causing the global financial problems.

That’s not to say that these good outcomes were strictly the result of market action and corporate prudence. Panama’s National Banking Commission ensures depositor safety. Monthly audits detect problems before they get out of hand.  The NBC is empowered to deal with potential problems and to direct banks actions to remedy any situations. Banking superintendent, Olegario Barrelier, told Reuters “At the moment our banks are good, very good. They are healthy, they are liquid, capital is nearly double what is required. They are being financed by local deposits and are not dependent on external financial markets.” He said the global crisis would eventually slow Panama’s economy rather than create havoc in the financial system.

Panama uses the U.S. dollar; there are no exchange controls to prevent the ready flow of monies into or out of the country; there is a stable government; the Canal and the Colon Free Trade Zone encourage free trade. Panama has a top notch telecommunications system, an excellent legal framework that allows 100% foreign owned investments, and a strategic location with access to the entire western hemisphere.

Mongolia or Panama? Panama is obviously the correct choice.

And “luck” didn’t have a thing to do with it.

Foreign investment is something the Panamanian government has always encouraged.    Foreign investment in Panama is easier now than it has ever been.  There is a new free trade agreement with the U.S., and a new domestic policy, Law 41 (2007), is designed specifically to reward multinational corporations, both large and small, for establishing regional headquarters here.  Now is a great time to consider the opportunities in Panama.

Many foreign investors starting a business in Panama or purchasing real estate decide to use a corporate entity as an ownership vehicle.  The specific corporate form is defined during the due diligence phase, and the corporation should be established in conjunction with the project and not as a separate consideration.  The corporate ownership vehicle offers privacy and allows flexibility in estate planning, tax management, asset protection, and representation.

Should an investor use (or form) a local Panama corporate entity, or use an existing foreign corporation? The answer is “it depends,” but in most cases, the use of a local entity creates more benefits.   If you use a foreign entity, make sure to register it in the Public Registery.  Although Law 41 has streamlined the procedures for registration of foreign entities, it could still take several weeks to complete the process.

Panamanian commercial law allows many corporate forms.  Two important forms that offer the investor structures similar to the familiar limited liability company are the “Sociedad de Responsabilidad Limitada” and the “Sociedad Anónima.”   Determining which of the many forms is the correct choice is part of your due diligence efforts, but these are the two most prevalent forms with the S.A. as the preferred vehicle.

The S.A. has many features which offer privacy.  Some of the more important features are: no requirements to disclose ownership; no restrictions on owning investments outside of Panama; no restrictions concerning ownership of shares; no residence requirements for Directors/Officers; no requirements to file annual Financial Statements; no requirement to hold annual General Meetings of Shareholders or Directors.  This feature is very important – the accounting books for the corporation can be kept in any part of the world and in any language.

Entities doing business within Panama must register with the Tax Authority.  Formal tax registration is not needed if the corporation simply holds real estate, or does not generate taxable income within the territory of Panama. “Within” means any transaction that is from a location in Panama to another location in Panama.  Anything that crosses a border is a non-taxable transaction.  Directing transactions in other countries from Panama is non-taxable.

Every corporation must reside in Panama or have a local registered agent.  There is an annual registration fee paid to maintain a valid registration at the Public Registry of Panama.  The fees and taxes are quite reasonable, but must be paid promptly. Late payment can produce penalties or cause the company to be stricken from the Register.

A corporation may adopt by-laws for the regulation of its internal affairs and procedures, but adoption is not mandatory. If by-laws are adopted, they can be registered at the discretion of the directors of the corporation.  Registration of by-laws is not mandatory, but if the directors decide to register the by-laws, any amendments to the by-laws must be registered as well. For privacy and convenience, we recommend against the registration option.

We can assist you in the formation of the correct entity, or with entity management as needs may arise.  We are based in Panama City, but it is not necessary that you come to our offices, ever, unless you want to stop in for coffee.  The usual procedure is that we act according to the information you furnish us.   You can send the information by fax, e-mail, or regular postal mail, whichever you prefer. We will organize the articles of incorporation using a standard format. Normally within 10-15 days, all the pertinent documents will be returned to you.  For immediate delivery, we also have Shelf or Ready Made Companies.

Panama has passed a new law that has entered into effect as of January 15 of 2009.  Such is 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 certificates 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.

Should you have any questions, please do not hesitate to contact us.

The international press keeps reporting that the global banking crisis is global. That seems like truth, but they are giving you incorrect information. Although the crisis that began in the American banking sector has spread across the globe, and has hit most major banking centers it has not hit the banks in Mongolia. Nor has it hit the banks in the Republic of Panama. In the case of Mongolia, there are no close ties to the global economy. This means there is no exposure to the toxic assets that flood the global system. In the case of Panama, with its close ties to the global economy, it must be “luck.”

More than 100 American banks have been closed by regulators between 1 January and 15 October 2009; another 400 banks have bad assets in excess of net assets and are teetering. They have not been closed because the FDIC is woefully underfunded and can not ensure the deposits represented by these banks. Otherwise, they would be gone. Smart Americans are looking for a safe place to put their money, and quickly.

So it appears that the Mongolian banking system is going to see huge influx of American money seeking safe haven… But let’s take a look at Panamanian “luck” first. The banks in Panama have not suffered in this crisis for precisely the same reason that Mongolian Banks have not suffered, no exposure. No exposure to the greed that permeated the global banking system; no exposure to ridiculous Ponzi schemes; no exposure to borrowers who had absolutely no ability to make good; no exposure to borrowers who had no ‘skin’ in the game.

Understand that Panama has no central bank to act as a lender of last resort.  Since there is no one to “bail them out,” Panama banks are still conservative in their approach to business. They create only safe, well-collateralized, properly documented loans. The financially deadly concepts of subprime mortgages, 10% down, 5% down or even No Money down loans, and NINJA (No Income, No Job or Assets) loans are concepts that do not exist here. Panama banks still require a 25% down payment from Panamanian residents and 30% from non-residents. They simply have not created for themselves the same types of risks that are causing the global financial problems.

That’s not to say that these good outcomes were strictly the result of market action and corporate prudence. Panama’s National Banking Commission ensures depositor safety. Monthly audits detect problems before they get out of hand.  The NBC is empowered to deal with potential problems and to direct banks actions to remedy any situations. Banking superintendent, Olegario Barrelier, told Reuters “At the moment our banks are good, very good. They are healthy, they are liquid, capital is nearly double what is required. They are being financed by local deposits and are not dependent on external financial markets.” He said the global crisis would eventually slow Panama’s economy rather than create havoc in the financial system.

Panama uses the U.S. dollar; there are no exchange controls to prevent the ready flow of monies into or out of the country; there is a stable government; the Canal and the Colon Free Trade Zone encourage free trade. Panama has a top notch telecommunications system, an excellent legal framework that allows 100% foreign owned investments, and a strategic location with access to the entire western hemisphere.

Mongolia or Panama? Panama is obviously the correct choice.

And “luck” didn’t have a thing to do with it.