There are many challenges to starting a business in Latin America for those who are unfamiliar with the local legislation, language or business culture.
As a foreign entrepreneur, it’s important to be mindful of key aspects that characterize the region to expand your business successfully. In recent years, several governments in the region have worked to improve their policies
to facilitate foreign business and boost economic growth.
However, legal frameworks remain complex and can be challenging for executives and entrepreneurs to navigate, especially with a language barrier at play.
In his article in Forbes
, Craig Dempsey
encourages entrepreneurs to consider these five pieces of advice from his experience as the managing director and founder Biz Latin Hub Group
, a company that helps businesses expand in Latin America to ensure your business is prepared and in the best position for success.
Choose Your Market Entry Route Carefully
Entrepreneurs have several options for entering Latin America. Deciding how to formally expand is crucial because your method of market entry could influence how your business is governed and the legal obligations you assume. You should make sure the structure you choose is appropriate for your business plan.
Methods of market entry can vary depending on the country, but common methods include:
• Forming a new company or a branch office.
• Hiring staff through a professional employer organization (PEO).
• Exporting directly into the country.
• Partnering with a third-party provider for support with commercial representation.
Many executives decide to enter the market by incorporating a company, but this can involve a large-scale investment compared to some other options, such as hiring staff through a PEO solution. Your business may simply want to test its success by exporting products to distributors within your chosen market or markets first and incorporating a company further down the track.
Know The Legal Requirements For Company Incorporation
When it comes time to incorporate a company, it is crucial to understand the requirements for establishing a company in the region.
Common types of legal entities in Latin America for foreign businesses are limited liability companies, corporations, simplified shares companies and foreign branch offices.
Each legal entity will likely set different obligations and governance requirements for each shareholder or partner and may require a different incorporation process. Most entities can be incorporated as follows:
1. Appoint a legal representative.
2. Prepare the company bylaws in accordance with local legislation.
3. Register the company before government authorities (usually a chamber of commerce or public registry).
4. Obtain tax identification.
5. Open a corporate bank account (to help you keep your personal assets separate and facilitate business transactions).
Understand Your Company’s Annual Compliance Requirements
While you’re developing business in Latin America, it is crucial to understand your corporate compliance requirements to avoid penalties or other sanctions that can hinder your operations. Corporate compliance varies from country to country.
Some examples for popular business destinations in Latin America include:
• Colombia: Companies must register
“acts, contracts and documents” with the chamber of commerce.
• Brazil: Joint stock companies have to hold an annual shareholders’ meeting
and ensure all books are current and updated with the company’s activity. Some companies
must also publish their annual financial statements.
• Peru: Corporations need to have
“at least two shareholders at the time of incorporation.” Companies must also record
transfers and encumbrances in their stock ledger books.
• Mexico: Companies in Mexico must hold an annual shareholders’ meeting
“within four months following the close of the company’s fiscal year.” Companies also have to notify the National Register of Foreign Investment (Registro Nacional de Inversión Extranjera) of any foreign investments.
Conduct Regular Entity Health Checks
While doing business in Latin America, it’s a good idea to conduct entity health checks. This health check will help you understand your company’s overall compliance status in relation to government authorities and mitigate risks that could harm your business and reputation.
For executives of multinational companies expanding across the region
, it’s difficult to keep pace with the activities of all subsidiaries. If necessary, hire an independent contractor to audit the company. Conducting an audit (either yourself or through a contractor) will provide reassurance that your business is complying with tax, labor, accounting and corporate obligations.
Register Your Trademark
A key element of legal security for business development in Latin America is registering a trademark. Your company’s brand distinguishes your products and services from others.
A trademark is intended to grant legal protection over the commercialization of your services and products. Those who register a trademark typically have exclusive rights
to the registered signs or logo and can take action against any third party appropriating it for commercial use.
To protect your business effectively, make sure to monitor the registration of new trademarks to prevent a third party from using similar distinctive signs that could affect your company’s profitability, reputation and client base.
Conclusion: Growing Investment Activity
According to an Economic Commission for Latin America and the Caribbean (ECLAC) report, foreign direct investment inflow grew 13.2% in 2018
from to the previous year in those regions. The main investors in the Latin American region were Europe and the United States; Europe focused on doing more business in the Southern Cone, and the United States invested more in Mexico and Central America.
Latin America presents new opportunities among its territories. Sectors such as renewable energy, technology and innovation, e-commerce, and agritech could be attractive for foreign businesses.
To operate successfully in Latin America, executives must navigate complex and unfamiliar legislation. A clear market entry strategy and an understanding of basic pillars of legal frameworks will help support business development and protect your company’s growth.