Business Innovation in the Legal Framework of El Salvador.
By: Adán Araujo, Arias.
Adán Araujo, Senior Counsel in El Salvador, expert in Corporate Law, shares with us this article about the Simplified Joint Stock Company (SAS), a legal figure introduced in 2024 that facilitates the creation of companies through simplified procedures, limits the liability of its shareholders and provides them with administrative flexibility. This tool is modernizing the legal framework and promoting entrepreneurship in emerging sectors.
The Simplified Joint Stock Company: Business Innovation in the Legal Framework of El Salvador
The inclusion of the Simplified Joint Stock Company, hereinafter “SASâ€, in the Salvadoran legal framework, through the reforms to the Commercial Code that came into force in February 2024, marked a milestone in the country’s commercial legislation. This type of company, introduced by Legislative Decree No. 905, stands out for its simplicity and flexibility, becoming a key tool for dynamizing the economy and promoting the creation of companies. In a globalized context where emerging companies and entrepreneurship play a central role, the SAS seeks to facilitate the formalization of businesses, reducing bureaucratic barriers and promoting legal efficiency. This type of company not only represents an accessible alternative for local entrepreneurs, but also positions El Salvador as a country that is committed to the modernization of its commercial legal framework.
One of the main novelties of the SAS regulation in El Salvador is the possibility of its incorporation by unilateral declaration of will, which allows the company to be incorporated without the need for a public deed. This measure considerably simplifies and reduces the cost and time required for the creation of a company and is protected by article 305-A of the Reformed Commercial Code, which states that the SAS is a legal entity that can be incorporated by one or more wills, whether of natural or legal persons, and whose liability is limited to the amount of contributions made by the shareholders.
In addition, the SAS regime allows for sole proprietorship, which means that a single person can own all of the company’s shares. This feature is particularly attractive for individual entrepreneurs seeking to formalize their business without the need to partner with other investors. Compared to exercising commercial activity as an individual trader, the SAS offers greater asset protection to shareholders, limiting their liability to the amount of their contributions. This advantage reinforces legal security and reduces the personal risk faced by entrepreneurs when setting up a company.
Another of the innovative features of the SAS in El Salvador is the simplification of the procedures for its incorporation and operation. According to Decree No. 905, the company can be established using electronic forms provided by the Commercial Registry, and signed using a certified electronic signature, which eliminates the need for the physical presence of the shareholders, or their representatives, to carry out the incorporation act. This advance not only facilitates the incorporation of companies, but also reduces costs for emerging companies and facilitates access to the formal trading system.
The SAS can keep its corporate and financial books in electronic format, which speeds up administrative procedures. Additionally, when the company’s assets are less than twelve thousand US dollars, the company can keep its accounting directly, without the need to have a certified public accountant​ and the appointment of an internal or external auditor or supervisory board will not be mandatory for those companies considered as micro-entrepreneurs. These provisions are a relief for small businesses and micro-enterprises, since they allow them to operate formally without having to face additional costs until their volume of operations warrants it.
Despite the facilities offered by the SAS, it is important to note that its shares cannot be traded on the stock exchange nor can they take the form of electronic book entries​. This provision ensures that this type of company is focused primarily on small and medium-sized entrepreneurs, whose main objective is local operations without the need to seek financing through stock markets. This marks a significant difference with other types of companies that may opt for greater exposure in the financial market.
Legislative Decree No. 905 grants great flexibility in the way SAS can structure their administration and governance. The shareholders of the company are free to define the organic structure, as well as the powers and obligations of each of the company’s organs. In the event that specific rules are not stipulated in the articles of incorporation, the provisions governing public limited companies will apply in a supplementary manner. This ensures that, even in the absence of specific internal provisions, SAS have a solid legal basis for their operation.
The figure of the SAS has been widely adopted in countries such as Colombia and Mexico, where it has allowed for greater formalization of the economy and a notable increase in the creation of companies. In Colombia, for example, the SAS has facilitated the formalization of 54% of the companies created since its implementation in 2008. In Mexico, since its introduction in 2016, it has been widely used by startups and small businesses.
The Salvadoran legal framework has been inspired by these models, but has added local innovations, such as the use of electronic forms provided by the Commercial Registry for the constitution and administration of SAS and the use of certified electronic signature, further simplifying the procedures. However, unlike the legislation of other countries, in El Salvador, the shares issued by SAS, as mentioned above, cannot be traded on the stock exchange, which reinforces its character as a company focused on small and medium-sized businesses.
One of the key advantages of the SAS is the protection of shareholders against the debts and obligations of the company. Article 305-A of the amended Commercial Code specifies that the liability of shareholders is limited to their contributions, protecting their personal assets against any corporate debt. In addition, it establishes that companies of this type may be established on a sole proprietorship basis, which offers even more flexibility to entrepreneurs and small business owners.
Another key aspect of the SAS is the simplified dissolution procedure. According to Legislative Decree No. 905, if a SAS decides to dissolve, the process can be carried out in an agile manner as long as there are no outstanding accounts payable or obligations to cancel. This accelerated procedure is especially useful for small business owners who need to close their operations without incurring long and costly liquidation processes.
The implementation of the SAS in El Salvador represents an effective response to the demands of the modern business sector. It allows the creation of companies with greater ease, security and fewer formal requirements, which encourages the creation of businesses in emerging sectors such as technology and e-commerce. In addition, by reducing the costs and requirements for entering the formal market, this figure is contributing to the reduction of informality in the Salvadoran economy, which in turn could generate a positive impact on tax collection and job creation.
In conclusion, the SAS in El Salvador is an innovative legal instrument that facilitates entrepreneurship, improves legal security for investors and simplifies the procedures for establishing companies. For anyone interested in taking advantage of business opportunities in a dynamic and competitive environment, the SAS offers an efficient and accessible option to formalize their commercial activities. Do not hesitate to contact our lawyers in El Salvador, experts in corporate matters, to receive detailed advice on how to take advantage of this new legal figure.
The information provided in this article is for informational purposes only and does not constitute legal advice. It does not establish, nor is it intended to establish, an attorney-client relationship.
The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, nor does it constitute, an attorney-client relationship. Readers should not act on this information without seeking the advice of legal professionals.
