Guatemala 

The most commonly used types of corporate organizational forms for such purposes are the Sociedad Anónima (a Stock Corporation) and the Sociedad de Responsabilidad Limitada (a Limited Liability Company). Both are legal entities separate from their constituents. There are also partnership types available under law, but they are rarely used in practice. Foreign companies can operate through local branches or subsidiaries.

Stock Corporation:

• The Stock Corporation is the most common corporate structure in Guatemala. According to the Guatemalan Commerce Code, the equity capital of this entity is divided into shares. Shareholders may transfer their interests freely, unless there is an express agreement otherwise. Unlike an LLC, the Deed of Incorporation does not have to be updated for each share transfer. The shareholders’ liability is limited to the shares owned. Each share provides a right to vote to a shareholder. The corporate capital can be categorized into authorized, subscribed and paid-in capital. The authorized capital is the sum up to which the corporation can issue shares of stock without modifying its Deed of Incorporation. Different from an LLC, a Stock Corporation does not have to pay the full amount of authorized capital upfront. The shareholders may choose to subscribe, totally or partially, to the amount of authorized capital. Subscription means that the shares are issued, but only 25% of their value is required to be paid. The paid-in capital is the actual value of contributions made by the shareholders. The minimum amount of paid-in capital necessary to start a Stock Corporation is Q.200.00 (approximately US$27.00). It is possible to not have a Board of Directors and appoint only a Sole Administrator, who will hold the same powers and obligations as the board members.

Limited Liability Company:

• According to the Guatemalan Commerce Code, the equity capital of a Limited Liability Company is divided into ownership interests, not represented by shares. Members may transfer their interests, but there is a right of first refusal in favor of the other members. Additionally, all members have to unanimously agree to the transfer, unless there is an express agreement otherwise in the Deed of Incorporation. The Deed of Incorporation has to o be amended if the members of the Limited Liability Company change.
• The members have limited liability up to the amount of their capital contributions, unless they expressly elect to be liable for more. The minimum amount of capital necessary to start an LLC is the same as for a Stock Corporation. This capital must be paid in full before the Deed of Incorporation is issued. For an LLC, there is a maximum of twenty (20) members. Votes are by person and not by percentage ownership interest, unless expressly agreed otherwise. In accordance with Guatemalan tax law, the LLC may enable foreign investors to avoid international double taxation in the United States through the “check-the-box regime.” Consequently, the members may be able to set-off any United States tax liability against any Guatemalan taxes paid.

a. Enterprises that seek financing from investors and will have multiple owners tend to form Stock Corporations.

b. Some Social Enterprises may use the Sociedad Civil (Civil Corporation) form, which is similar to a Stock Corporation but governed by principles of Civil Law instead of Commercial Law. Among these, the most important is the fact that the liability of the constituents or members is not limited to the amount of their contributions and there are no shares issued.

The statutory legal framework (Commercial Code) dates from 1970, has suffered few amendments, and does not explicitly contemplate these more recent developments of Commercial Law.

However, the interests of employees must be considered inasmuch as the Constitution and Labor Code, among others, grant special minimum legal protections to employees, which may in no case be diminished. This is even more relevant if the company has a Collective Bargaining Agreement and a Workers Union.

There is also a Consumer Protection Act that, although not requiring direct consideration, balance or prioritization of customer interests at the managerial level, does establish mandatory protections which companies must abide by in their daily operations and may give rise to liabilities.

Environmental and other social interests are also not directly developed in business law frameworks, but have been increasingly enforced through judicial rulings, including and especially those of the country’s Constitutional Court.

Furthermore, judicial rulings have also required specific companies to implement compliance and anti-corruption mechanisms and control, as a result of various criminal cases involving private actors linked to State corruption.   

Yes.

a. There are specific legal frameworks for NGOs and Cooperatives, as well as the general civil law rules for Associations and Foundations.

b. Both are legally required to be non-profit. However, Cooperatives do have an enterprise and distribute profits among their associates, although the law states that it is not for profit but for service to their associates. NGOs may in no case do any such or similar distribution.

c. The main benefits of Cooperatives are their tax exemptions and access to government aid programs. NGOs have been a vehicle widely used for social promotion activities and foreign cooperation.

d. Restrictions on profits and distribution are those mentioned above. When they receive and administer public funds, they are subject to special reporting obligations applicable to all public expenses.

e. Yes. A traditional enterprise (Stock Corporation or LLC) is usually registered by the Commercial Registry and the Tax Authority rather fast, and there have even been recent legal amendments to make registration even easier. NGOs, on the other hand, must be registered at the Legal Entities Registry (REPEJU), which is widely known for its much more lengthy and difficult processes.

f. NGOs and Cooperatives are widely known. Cooperatives have increased their activities in financial and social entrepreneurship sectors, and NGOs have a longstanding tradition in promoting social and environmental causes.

Yes.

a. No. There are other possible types of Nonprofit organizations in Guatemala, but they fall outside the category of Cooperatives and “NGOs as such” (though also mentioned in the NGO Act) and may cover issues such as neighborhood committees, foundations, associations, etc.

b. No.

c. No.

d. Social Enterprise is usually carried out through Cooperatives and NGOs. Other forms, such as Foundations and Associations are usually more oriented toward philanthropy, sports and recreation, etc.

Yes. Cooperatives have access to tax exemptions and government aid, but are also subject to special government oversight through the National Cooperatives Institute (INACOP). 

Reporting requirements are not so much unique, but analogous to those of other organizations. The main difference is the government bodies to whom they report and register: Cooperatives are subject to INACOP, NGOs to the General Comptroller’s Office (Contraloría General de Cuentas).

The Constitutional Court replied negatively to a consultation on whether Cooperatives were part of the commercial, industrial and agricultural associations which the Constitution allows to vote for a Member of the Monetary Board (Docket 4476-2008, opinion of January 12th 2009).

The Constitutional Court suspended the entry into force of a legal amendment to the NGO Act which would have, according to critics and petitioners, placed undue and discriminatory burdens on NGOs and made them more susceptible to government interference and cancellation. The suspension is currently in place pending the final ruling. (Accumulated Dockets 859, 860, 879, 895, 896, 904, 905 and 1029-2020, rulings of March 2nd and 5th 2020).

Not generally, beyond what was answered on Question 3. There are, however, some specific governance requirements on certain activities under legislation seeking to prevent money laundering and financing of terrorism.

No specifically. 

No.

No. They are permitted to consider them. 

Grants and charitable investment. Some NGOs receive funding from foreign governments and international agencies and development programs. This has made them politically suspect under some administrations and, according to some observers, led to the attempted legal amendments mentioned in answer to Question 4(j).

Not too prevalent, to our knowledge.

There is a program run by the Ministry of the Economy to support Cooperatives and small businesses through various efforts, including technical assistance and training.

The government contributes funds to INACOP and its General Inspection. There is no specific funding limited to such Enterprises.

Some NGOs obtain government funding directly from the national budget.

No.

None.

Not prevelant. 

No.

Crowdfunding is not specifically regulated in Guatemala, though it is also not prohibited. It is in fact practiced through a few local websites, specifically for Social Enterprise.

Cooperatives have specific exemptions in the specific legislation but, in general, they are the same as those included in general tax legislation for all Nonprofits.

1. Cooperatives are exempt from stamp tax, VAT, inheritance tax, import duties. They are exempt from income tax on transactions with their associates and with other cooperatives, federations and confederations, not on income from operations with third parties. Nonprofits, such as Associations and Foundations, are exempt from income tax only on income destined solely to the nonprofit purposes. They are taxed for income tax on any commercial activity they may carry out. Donations to Nonprofits are exempt from VAT.
2. Yes, they must be either Cooperatives or Nonprofits.
3. See restrictions mentioned in (a).

Yes. The donations must be made to Nonprofits duly registered and with a tax solvency certificate. The maximum deduction is 5% of gross income and Q.500,000.00 per year. Deductions for in-kind donations may not exceed those limits nor the acquisition, production or construction cost, without depreciation. Donations must be registered in the accounting books of both the donating and receiving parties.  

No.

No, but it does provide for foreign Nonprofits to register operations in Guatemala.

No.

There is a program run by the Ministry of the Economy to support Cooperatives and small businesses through various efforts, including technical assistance and training. Some programs are mediated through the Ministry but financed by international cooperation. Similar programs, more specifically of training and operational support, are carried out by INACOP and some federations or confederations of Cooperatives.

Yes, but due to their different nature as legal entities. For example, as explained above, traditional Stock Corporations or LLCs have different registration, reporting and tax regimes from NGOs and Cooperatives.

Only for Cooperatives. INACOP is in charge of supervising compliance with all legal and regulatory matters related to Cooperatives, promoting their organization and providing technical and administrative assistance. It also runs the official registry of cooperatives and General Inspection.

No.

Formation of commercial entities (Stock Corporation, LLC or others) may range between around US$600.00 to US$5,500.00, depending on the amount of authorized capital. Their registration takes approximately two weeks.

Cooperatives and NGOs take longer to register.

There are some incentives and programs specifically related to environmental protection.

There is a project headed by the National Protected Areas Council (CONAP) known as "Guatecarbon", which seeks to reduce emissions in the Mayan Biosphere Reserve (Reserva de la Biósfera Maya) through activities aimed at reducing deforestation. This project has generated carbon credits to be traded in the international market. AGEXPORT (a collective of Guatemalan exporters) has promoted actions to reduce greenhouse gas emissions, setting up investment agreements through carbon bonds between entities such as Global Carbon Group, Rainforest Alliance and Guatemalan municipalities.

Congress issued Decree 52-2003, the Incentives for the Development of Renewable Energy Projects Act, which establishes tax, economic and administrative incentives to the effect. These include exemption from import tariffs during pre-investment and construction for up to ten years and from income tax for ten years and issuing of emission reduction certificates.

The formation of commercial entities has become less costly and more expedited in recent years, following legal amendments and modernization of Commercial Registry services since 2018. However, flourishment is still a challenge due to the country’s lack of political stability and legal certainty, which have, on the contrary, become more acute in recent years.

There is currently a “wave” of Social Enterprises and Cooperatives in Guatemala, though their formation is slower than for commercial entities. Their flourishment faces the same challenges.

The current obstacles to Social Enterprises are more of an administrative nature (for example, the widely regarded inefficacy of REPEJU). Specific to NGOs, the legal amendments blocked by the Constitutional Court would indeed have added obstacles and made it easier for NGOs to be targeted by the government for political reasons. Since the case is still pending final decision and a new Constitutional Court is set to be installed this year, it could influence the final outcome of that legislation.

Yes. NGOs have been controversial for various reasons. On the one hand, some have been seen by government and other political actors as vehicles for political agendas and economic interests (especially those tied to environmental causes and to international cooperation on socially progressive issues), leading to tensions with authorities and a general bad reputation with certain sectors of the population. On the other hand, some have been accused of serving as vehicles for public officials to direct public funds to personal projects, or as payment for political favors to allies.

See Question 5.

We believe this is more of a corporate cultural issue than legislative, given various national circumstances, including limited government ability to enforce the law. We have seen a trend toward more social and environmental responsibility, especially from multinational companies.

No.