Practical Guide to the Legal Representative Role

All companies and foriegn shareholders operating in Chile require a local legal representative. There has been many times over the years where foreign companies have raised concern because they do not understand the legal representative role and are apprehensive about providing a power of attorney to a third party. This role is quite unique to Latin America and can be different then other parts of the world where power of attornies are less common.

We have provided an overview of the legal representation role to help companies understand its importance when operating in Chile (and Latin America). 

What is a Legal Representative?

In the simplest terms, the representative is the legal “face” of the company who is liable for the local entities’ actions in Chile. This person will have the ultimate signature authority over all official acts the company might undertake in the country. From a practical perspective, the legal representative is essentially the person that the government can hold responsible for or summon to court hearings on behalf of the company should something happen.

When is a Legal Representative needed?

In the case of a foreign company incorporating a company, there are two cases when a legal representative is needed –

• The first is to represent the foreign shareholder and the person needs to be appointed when registering the foreign shareholder for a local tax number.
• The second is to represent the local company and the person needs to be appointed when drafting the articles of incorporation in Chile. If the legal representative is changed after the company is already operating, a new power of attorney needs to be provided and it needs to be registered in the bylaws.

Who Can Act as a Legal Representative?

Any person that is over 18 and is a permanent resident or citizen of Chile can act in this role. A legal entity cannot become a legal representative as it must be an individual.

What Liability does the Legal Representative have?

A legal representative is personally liable for the companies and foreign shareholders’ actions. The most common areas that the legal representative is responsible for are – taxation, civil lawsuit, adherence to labour laws, payment of employees’ social security and taxes, and municipal business licenses.

For example, if a company or shareholder were to not pay taxes in Chile, the tax office {SII} may bring criminal or civil penalties against the legal representative directly. In the case of civil lawsuit, it will be the legal representitive who is served to apprear in court.

Practical Aspects of the Legal Representative Role

Beyond just the legal aspects that the legal representative is liable for, the role also has some practical considerations that are important to consider. Here are a couple of examples –

• When opening a bank account, the bank will evaluate creditworthiness of the legal representative, particularly when opening a company for a foreign shareholder that has no credit history in Chile. Therefore, the creditworthiness of your legal rep is important.
• The legal representative is needed for most day-to-day requirements such as contracting internet and phone services, signing employment contracts, registering with different government offices, signing tender documents, etc.

Do other countries in Latin America have similar requirements? 

Most countries in Latin America have a very similar model. They will require a local legal representative who is responsible for the companies activities. The intricacies of the role may differ slightly from country to country but in general it is the same concepts. The role is an important part of operating in the region, so it is advisable to understand how the legal representation works in each country you are operating in. 

Ax Legal Practical Tips 

We generally recommend that foreign companies do not appoint an employee to this role. The role requires broad powers that could potentially be abused. This is particularly sensitive for foreign companies who tend to not have complete oversight of all day-to-day activities that are taking place on the ground.

Providing all the power to someone like the General Manger can create unneeded risk since critical local issues can be hidden from the foreign shareholder. It also requires the company to make unnecessary corporate changes if the General Manager quits or needs to be removed from their position.

Instead, we recommend a check and balance system for foreign companies. That is, providing enough powers to the General Manager to act in day-to-day matters but keeping the legal representation with someone of trust who is the second signature for sensitive areas such as banking, entering into contracts, purchasing or selling assets, etc. The goal is to provide sufficient oversight while not slowing down the local operations.

Having a competent and trusted professional who is not connected to the local management team is an important part of having good corporate governance. When Ax Legal acts in this role, we are the eyes and ears of the foreign shareholder ensuring the local operations and management teams are adhering to Chilean laws.

Ax Legal takes a proactive approach by continuously advising our clients on best practices and providing training to the local management teams to help them manage risk and ensuring the company is compliant in all of its activities.

Ax Legal is an advisory firm that works with foreign companies in Latin America. Our team of legal and commercial advisors have a distinguished track record of helping foreign technology and services companies to grow and operate in Latin America. Over the years, we have worked with starts up, mid-size businesses, and publicly listed companies. The one common factor that connects our clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.

To better understand how we can support you in the Region, please contact Cody Mcfarlane at cmm@ax.legal