When starting a business in El Salvador, one of the first steps is deciding the legal structure. The Salvadoran Commercial Code recognizes different types of business entities, which fall into two categories: partnerships (sociedades de personas) and capital companies (sociedades de capital).
This article focuses on the capital companies, which are often the most attractive option for entrepreneurs and foreign investors.
Partnerships vs. Capital Companies
- Partnerships: These are based on the personal trust between partners. In some cases, partners may be personally liable for the company’s debts. Examples include the General Partnership and the Limited Liability Company (Sociedad de Responsabilidad Limitada, S. de R.L.).
- Capital Companies: Here, what matters most is the capital contribution rather than the identity of the shareholders. Liability is usually limited to the amount each shareholder invests, and ownership is often represented by shares.
Types of Capital Companies in El Salvador
There are three types of capital companies recognized by Salvadoran law:
1. Corporation (Sociedad Anónima – S.A. or S.A. de C.V.)
The Corporation is the most traditional form, commonly used by medium and large businesses.
- Liability: Limited to the shareholder’s contribution.
- Minimum Capital: US $2,000 (at least 5% must be paid upon incorporation).
- Shareholders: At least 2.
- Flexibility: If registered as S.A. de C.V. (Variable Capital Corporation), the company can increase or reduce capital without amending the articles of incorporation.
- Best for: Larger businesses or those planning to attract multiple investors.
2. Partnership Limited by Shares (Sociedad en Comandita por Acciones – S. en C.)
This company blends characteristics of both partnerships and corporations.
- Partners:
- General partners (comanditados) manage the company and have unlimited liability.
- Shareholders (comanditarios) provide capital and their liability is limited to their investment.
- Minimum Capital: Around US $2,000, divided into shares.
- Best for: Projects where a group of managers wants to attract investors who don’t participate in daily operations.
3. Simplified Joint Stock Company (Sociedad por Acciones Simplificada – SAS)
The SAS is a new legal entity introduced in 2024 to simplify business creation, especially for entrepreneurs and SMEs.
- Liability: Limited to the shareholder’s contribution.
- Minimum Capital: From just US $1.
- Shareholders: Can be incorporated by a single shareholder (individual or legal entity).
- Incorporation: Can be done fully online, with digital signatures.
- Best for: Entrepreneurs, startups, and small businesses seeking a fast, flexible, and low-cost structure.
Comparison Table
| Type of Company | Liability | Minimum Capital | Shareholders Required | Best Suited For |
|---|---|---|---|---|
| S.A. / S.A. de C.V. | Limited to contribution | US $2,000 (5% upfront) | 2+ | Medium to large businesses |
| S. en C. by Shares | Unlimited for general partners / Limited for shareholders | ≈ US $2,000 | 2+ | Mixed investor/manager structures |
| SAS | Limited to contribution | From US $1 | 1+ | Startups, SMEs, individual entrepreneurs |
Why Choose a Capital Company in El Salvador?
- Limited liability: Protects shareholders from personal risk beyond their contributions.
- Flexibility: Options range from large-scale corporations to agile, low-cost structures.
- Attractive to investors: Shares can be transferred or issued more easily than in partnerships.
- New opportunities: The SAS has opened the door to digital incorporation and minimal capital requirements, making it much easier for foreigners and locals alike to start businesses.
Final Thoughts
El Salvador’s capital companies provide a solid framework for business, whether you are planning a large investment or launching a small startup.
- If you’re setting up a traditional company with multiple shareholders, a Corporation (S.A. or S.A. de C.V.) is likely the best fit.
- If you need a hybrid model with active managers and passive investors, the Partnership Limited by Shares may work.
- If you’re an entrepreneur or small investor, the SAS offers the fastest, simplest, and most affordable path.
By choosing the right structure, you’ll be better positioned to succeed in El Salvador’s growing business environment.
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