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Dominican Republic

Published on Wednesday 6th December 2017

    • Dominican Republic

      The main statute that regulates the internal affairs and other corporate structures of corporations in the Dominican Republic is the General Law 479-08 on Commercial Companies and Limited Liability Individual Enterprises, of 11 December 2008, as amended (Companies Law). The Companies Law is a major updating of corporate law regulations in the Dominican Republic, which had been previously regulated by the Code of Commerce from the 19th century.

      A second significant legislation is Law 03-02 on Mercantile Registration enacted on 18 January 2012, which creates the Mercantile Registry operated by the Chambers of Commerce and Production incorporated in several provinces, which is an obligatory public registration of companies and corporate documentation.

      In addition, the internal operations of entities participating in the capital market are subject to the Regulations to the Securities Market Law contained in Decree 664-12 of 4 December 2012 applying to entities participating in the securities market, whether they be public corporations with equity titles traded in the public securities market or privately owned corporations issuing debt securities traded in the securities market (securities issuers).

      Securities Issuers also must comply with regulations issued by the National Securities Council (CNV) and the Superintendency of Securities (SIV). Under current legislation only one type of corporate vehicles, the sociedades anónimas, the most common kind of corporations, are allowed to issue securities traded in the securities market, whether with debt or equity titles.

      In addition to the regulations of the Companies Law, special regulations apply to entities participating in the securities and stock markets, as well as to entities operating as financial intermediation entities (EIFs), which are regulated by Law 19-00 on the Securities Market, and Law 183-02 on Monetary and Financial, respectively, and by regulations issued by the Monetary Board, for EIFs, and regulations by the CNV for public corporations.

      Finally, it is important to note that as of this date the Chief Executive Branch has presented a bill to the National Congress to substitute and replace Law 19-00 on Securities Market. The draft bill presented to Congress includes important changes in the regulations that would affect securities issuers. One major modification is to allow other types of corporate vehicles, besides sociedades anónimas, to issue debt securities in the securities market and the corporate governance provisions of said bill would therefore also apply to those entities.

      Owing to the keen interest by the Administration in the approval of its bill, we deem it highly likely that it will be approved and enacted in the near future with major impacts on the corporate governance regulations in our jurisdiction. For example, if the bill is approved, the National Securities Council would be mandated to issue new corporate governance rules applicable to securities issuers.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

      The Companies Law regulates seven types of corporate vehicles that are considered as legal entities, that is, six types of society that require a minimum of two partners or shareholders for their incorporation, and a sole owner vehicle denominated as limited liability individual enterprises (EIRL). However, three of these types are largely irrelevant as they do not provide limited liability protection to the partners, and the limited liability individual enterprise has been of little use in commercial practice. Therefore, most commercial activities are performed through entities organised into one of three types of corporate vehicles: (i) the sociedad anónima (SA), equivalent to a corporation; (ii) the sociedad anónima simplificada (simplified corporation) (SAS), which constitutes a simplified version of a corporation, with fewer requirements in terms of capitalisation and corporate governance regulations, and (iii) the sociedad de responsabilidad limitada (SRL), equivalent to a limited liability company. 

      The Companies Law provides corporate governance regulations applicable to all types of corporate vehicles created under its provisions, as well as particular rules applicable to each type of corporate vehicle. In this case the corporate governance regulations of the corporations are the more complete and restrictive ones.

      Even though projects for the issuance of equity titles by corporations to be negotiable in the securities market have been approved by the SIV for the issuance of equity titles negotiable in the securities market, to date no equity title of Dominican corporations are negotiated in the securities market. Several corporations in the financial, energy, manufacturing, tourism and real estate sector have issued debt securities title currently negotiated in the securities market.

      As indicated in question 1, in the event that the bill proposed to replace the Securities Market Law is approved, SAS and SRL would be allowed to issue debt securities titles in the securities market and therefore those entities would become securities issuers and subject to the proposed corporate governance regulations and supervision by the SIV.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

      Law 03-02 created the Mercantile Registry operated by the Chambers of Commerce and Production located in different provinces all over the territory of the Dominican Republic and subject to regulation by the Ministry of Industry and Commerce. However, these institutions barely perform a role as regulator of companies, limiting their action to the registration of newly created corporate vehicles and foreign entities operating in the Dominican Republic, and the registration of corporate documents that shall be registered before the offices as mandated by law. As per the provisions of the Companies Law, the Mercantile Registry might reject the registration of entities or corporate documents based on failure to compliance with formalities in their creation, which could also be interpreted as including a lack of compliance with corporate governance regulations.

      In addition, the SIV as per the provisions of the Companies Law and the Rules of the Securities Market Law act as a regulator for securities issuers. Under said provisions securities issuers are subject to compliance with internal regulations issued by the CNV and the SIV, to present periodical reports on their activities, including those considered as relevant events as per the provisions of the Securities Market Law, Rules of the Securities Market Law and regulations issued by the CNV and the SIV. 

      Also, within the securities market there is currently one stock exchange, the Dominican Stock Exchange, or BVRD, which, as provided by the Securites Market Law, establishes rules to be followed by entities whose titles are negotiable in the BVRD.

      As provided by the Securities Market Law, the BVRD as a securities exchange mechanism, although incorporated as a private corporation subject to regulation by the SIV, is authorised to issue regulations that affect the requirements for entities to participate in its stock exchange mechanism, as well as the requirement to securities acceptable for negotiation. In this case the BVRD issues internal rules that provide for mandatory reporting of events and compliance with minimum corporate governance regulations by title issuers.

      In addition, regulated sectors have issued corporate governance rules applicable to entities in their respective sectors, in particular financial institutions subject to comply with the Corporate Governance Rules issued by the Monetary Board and Pension Fund Managers (AFPs) subject to a similar regulation issued by the Superintendency of Pensions.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

       Mercantile Registries are authorised by the Companies Law to reject the registration and documentation of entities which fail to comply with the formalities provided by the Companies Law. However, it cannot reject documents based on their content, as this would be an infringement on corporate governance provisions and could therefore be challenged by a judicial action by stakeholders with valid interest (shareholders or creditors of the company) to sue for annulment of acts and resolutions not in compliance with corporate governance rules.

      The SIV does enforce compliance by securities issuers of the applicable corporate governance regulations by the imposition of sanctions ranging from verbal or written warnings to suspension of activities up to definitive revocation of authorisation to participate in the securities market.

      The SIV is also authorised to intervene in the activities of securities issuers’ activities, either by request of shareholders representing at least at 10 per cent of the subscribed capital, or on its own initiative when there are indications of irregularities.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

      Shareholders may sue managers. Such actions could be imitated by a single shareholder or jointly by several shareholders as long as the plaintiff(s) represent at least one twentieth of the subscribed capital of the corporation.

      The judicial action could be issued against individual directors or the entire board of directors.

      Such an action initially is of the competence of the national courts, although it may be pursued via arbitration if foreseen in the by-laws of the company.

      Similar provisions are established in the Companies Law for SRL and SAS for actions by partners or shareholders, as applicable.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

      Under current legislation, the corporate governance regulations apply to corporate officers and directors and the statutory auditor in charge of supervision of the corporation (comisario de cuentas), all of whom must comply with the requirements established by law and are all liable for their audit functions.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

      The Mercantile Registries are authorised to deny registration of a corporation only due to non-compliance with the formalities required by law for each document submitted; they do not have discretion to authorise incorporation on the basis of the content of the documents. 

      The Mercantile Registry Law and Companies Law provide that for all corporate vehicles, the major corporate documents, including by-laws and minutes of shareholders’ meetings, must be recorded with the Mercantile Registry, rendering such documents public. Law 155-17 on prevention of Money Laundering and Financing of Terrorism increased the sanctions for failure to register with the Mercantile Registry and the General Agency for Internal Taxes (DGII), those corporate documents which imply changes in the capital composition of all types of Companies.

      In addition, the Regulations of the Securities Market provide for the obligation to disclose the corporate documentation of securities issuers as relevant events to be made available to the public. A similar provision is contained within the regulations of the BVRD.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

      The Companies Law requires a minimum of three members on the board of directors for sociedades anónimas. In the case of securities issuers, the Regulations of the Securities Market require a minimum of five board members and at all times an odd number of directors.

      The Companies Law does not provide a minimum of members for other types of corporations; therefore, a company could have just one director.

      The existence of an independent director is not foreseen in current legislation, nor is there a definition of what constitutes an independent director. However, within the financial sector, the corporate governance regulation issued by the Monetary Board applicable to all financial institutions requires the appointment of independent members of the board of directors who shall represent at least one-fifth of the members of the board of directors.

      However, the bill drafted by the SIV, submitted by the Chief Executive Branch and currently being discussed by the National Congress to modify and substitute the Securities Market Law would make it mandatory for companies issuing equity titles traded in the securities market to include independent directors constituting at least one-fifth of the board of directors. Here, as provided for in the draft, the independence of the directors would be verified by the general shareholders’ meeting appointing the board of directors. In order to qualify as independent directors the candidates must be free of any conflict of interests, not be directly or indirectly subject to personal or economic interests and nor related to the company or persons related to the company.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

       The Companies Law allows the boards of directors of corporations to create special committees, including audit committees, but this is not obligatory in the Companies Law nor in the Regulations of the Securities Market. Thus, the creation of audit committees is optional unless required by the corporate by-laws.

      As an exception, for financial institutions, the regulations of corporation governance require audit committees as well there are particular rules to guarantee their independence.

      In the bill for the new Market Securities Law before Congress, audit committees are made mandatory only for corporations managing the securities exchange mechanism.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

      The creation of nominating and compensation committees is allowed by current legislation but this will not be mandatory for all entities. As with audit committees, nominating and compensation committees are mandatory for financial institutions. Information on said committees is required in the annual corporate governance report of securities issuers, by all such committees, whether mandatory or voluntary.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

      Since those committees are not usually mandatory there are no rules of general application on their operation.

      When mandatory (ie, for financial institutions), audit committee must submit an annual audit report to the board of directors, plus other periodical reports related to the annual audit plan.

      As for nominating and compensation committees of financial institutions there are no mandatory reports to be presented, although the committee must comply with established policies.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

      The Companies Law requires that for every type of corporate vehicle incorporated in the Dominican Republic, the managers or board of directors must present an annual report to the general meeting of shareholders or partners, as applicable, within the 120 days after the end of the fiscal year.

      The report must be made available at the domicile of the company at least 15 days prior to the annual general shareholders’ meeting, and shall include the following information:

      • financial statements – they must be audited if the company meets any of the following criteria: (i) it has borrowed from financial institutions; (ii) it has issued securities in the securities market; or (iii) it has had annual income above 100 minimum wages[1];
      • a detailed account of the development of the business and the financial situation and earnings and losses of the company’s operations;
      • a breakdown of investments and how they were made;
      • acquisition of the company’s own shares;
      • the transactions carried out with its affiliates and subsidiaries;
      • a description of the events occurring between the closing of the fiscal year and the date of preparation of the management report which could significantly affect the financial position of the company, with its accounting justification;
      • all transactions between related parties;
      • the localities in which the company operates;
      • risk factors and ongoing legal processes; and
      • members of the management and administration bodies.

      In particular, securities issuers are required to submit reports to the SIV, as set forth by the CNV resolution number R-CNV-2016-15-MV.

      The content of the report varies depending on the situation of the securities issuer in the following categories: registered securities issuer with no current offer in the market; securities issuer with titles currently in the securities market; and securities issuer with equity titles offered in the securities market.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

      There are information obligations for all companies. However, with respect to securities issuers the disclosure and reporting obligations to SIV are mandatory.

      As a minimum, registered securities issuers must prepare annual reports that shall include the following:

      • individual audited financial statements;
      • consolidated audited financial statements, if the security issuer has subsidiaries in its corporate structure;
      • minutes of the shareholders’ meeting or of the general meeting of shareholders or partners, as appropriate which approved the audited financial statements of the company, duly certified, stamped and recorded with the Mercantile Registry of the Chamber of Commerce and Production having jurisdiction on the company;
      • a current list of shareholders or partners, with their respective shares, certified, stamped and recorded with the Mercantile Registry by the Chamber of Commerce and Production having jurisdiction on the company or with the applicable register. This list must comply with the following specifications:
      1. For individuals: the name, nationality, profession, domicile, identity and electoral card number or passport (if he or she is a foreigner) of each shareholder present or represented; and
      2. For legal entities: corporate title and purpose, domicile, shareholders (general data and share holdings of each), National Taxpayers Registry number (RNC) and Mercantile Registration number.
      • Proof from the General Agency of Internal Taxes (DGII) certifying there are no outstanding income tax obligations for the latest fiscal period.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

      Securities issuers, in addition to the mandatory report to be presented to the shareholders as set forth by the CNV resolution number R-CNV-2016-15-MV, must report to the SIV. The report varies depending on whether it is issuer of debt securities or an issuer of equity securities.

      The actual reports that should be sent to the SIV must meet the criteria below:

      Securities issuer with debt titles offered in the securities market   

      Annual

      • Individual audited financial statements;
      • Consolidated audited financial statements, if the security issuer has subsidiaries in its corporate structure;
      • Letter of management, exclusively for supervision purposes;
      • Affidavits from the president or chief executive and from the chief financial officer, stating that the person is committed to the truthfulness, accuracy and reasonableness of the information submitted;
      • A current list of shareholders, with their respective shares, certified, stamped and recorded with the Mercantile Registry by the Chamber of Commerce and Production having jurisdiction over the company, if it is incorporated as a commercial company; or in the applicable registry if its structure is governed by special regulations. This list must comply with the following specifications:
        • For individuals: name, nationality, profession, domicile, identity and electoral card number or passport (if he or she is a foreigner) of the shareholders present or represented; and
        • For legal entities: company name, address, National Taxpayers Registry number (RNC), Mercantile Registry number and the general data of the representative as for individuals.
      • Minutes of the shareholders' meeting or equivalent in which the audited financial statements are approved, certified by the Mercantile Registry through the Chamber of Commerce and Production having jurisdiction over the company, if it is a commercial company; or in the applicable register, if its structure is governed by special regulations;
      • Proof from the General Agency of Internal Taxes (DGII) certifying there are no outstanding income tax obligations for the latest fiscal period.
      • Annual corporate governance report approved by the board of directors, according to the applicable current regulations.

      Quarterly

      • statement of financial situation;
      • earnings and losses statement;
      • statement of cash flow; and
      • statement of changes in equity.

       Securities issuer with equity titles offered in the securities market (including public corporations)

      Annual

      • Annual report from the securities issuer's audit committee on the supervision and compliance of the internal audit programme, business risks and the securities issuer's areas, as appropriate. While the creation of such a committee is discretionary, the reporting requirement is mandatory.
      • List of the main executives of the company, their positions and their general personal data. When there is no change, the company communicates this to the SIV within the same term.

      Semi annual 

        1. Management report, with at least an indication of significant events that occurred during the six-month period and their impact on the financial statements. The SIV may require other information when it so deems for the exercise of its supervisory and inspection powers.    

      Quarterly

        1. Report on significant changes in share holdings that exceed 10 per cent of the authorised capital of the company. If there are none, then this fact must be communicated to the SIV within the same term.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

      The general shareholders’ meeting is the highest corporate decision-making body. The meetings may be “ordinary” or “extraordinary”, depending on competency, with different requirements for convening, quorum and decision.

      Companies are required to hold at least one annual ordinary shareholders meeting within 120 days following the end of their fiscal year.

      The annual ordinary general shareholders’ meeting requires the presence of shareholders (by themselves or represented by proxy) representing at least half of the subscribed shares, in the first convening call; if that quorum is not met, the portion is reduced to one-fourteenth of the subscribed shares for a second convening call. Decisions are approved by simple majority of the votes in the shareholders’ meeting.

      The annual ordinary general shareholders’ meeting has competence to address the following issues:

      • deliberate and decide on the annual accounts, after hearing the report of the statutory auditors and take the measures it deems appropriate;
      • appoint and remove the directors and the statutory auditors, when applicable;
      • to establish the remuneration of the members of the board of directors and the statutory auditors, if they are not determined in the by-laws;
      • to decide on the application of the results of the fiscal year;
      • to record the shares subscribed and paid during the year; and
      • to appoint external auditors of the company.

      In the case of securities issuers, in addition to the above items, the annual ordinary general shareholders’ meeting must also address the following:

      • the annual objectives of the company;
      • predictable material risk factors;
      • corporate governance structures and policies; and
      • the election or removal of the members of the board of directors, when applicable.

      Additional non-annual ordinary shareholders’ meeting may be convened at any time of the year by complying with the convening call requirements, in order to resolve on other issues not exclusively of the competence of the extraordinary general shareholders’ meeting.

      The extraordinary general shareholders’ meeting can be convened at any time by complying with the convening call requirements of the Companies Law. For the valid convening of the extraordinary general shareholders’ meeting a quorum of shareholders representing at least 50 per cent plus one of the subscribed shares, in the first call; if that quorum is not met, the portion is reduced to one-third of the subscribed shares for a second call. In any case decisions are only approved with the favourable vote of two-thirds of the votes. The following decisions are the exclusive competence of an extraordinary shareholders’ meeting:

      • modifications or amendment of the by-laws;
      • increase or reduction of authorised capital;
      • the transformation, merger or division of the company;
      • the dissolution and liquidation of the company;
      • total disposal of fixed assets or liabilities;
      • issuance of securities; and
      • limitations of the right of first refusal of the shareholders.

      Shareholders may be represented in the shareholders’ meeting by proxy by way of a power of attorney in the format indicated by the Companies Law, filed in the corporate domicile at least one day prior to the meeting.

      The ordinary shareholders’ meeting has the competence to appoint the members of the board of directors. This must be included in the meeting’s agenda attached to the convening call, but it is not mandatory to circulate a slate to shareholders.

      The same provisions are applicable to SAS, taking into consideration that an SAS could have just one director (called the president); however, when the by-laws provide for a board of directors, the provisions for the direction of corporations are applicable to SAS. 

      Regarding an SRL and the convening to a shareholders meetings (called a partners’ meeting), the SRL, such as an SAS, could be administered by a board of managers or a single manager.

      Shareholders have no explicit right to appoint members of the board of directors. The information on the ownership of the shares is public and whenever any person becomes owner of equity of at least 10 per cent of the subscribed capital, it must notify the company. In the case of financial institutions, the Monetary and Financial Law provides for mandatory notification of acquisition of 3 per cent of the subscribed capital.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

    • Dominican Republic

      The only entities required to be managed by a board of directors are sociedades anónimas. However, the rules for the functioning of the board of directors are also mandatory for the SAS whose by-laws require the creation of a board of directors; that is, although it is optional for the SAS to form a board of directors, as opposed to a single manager or president, once the decision is made to have a board of directors, the company is subject to compliance with the provisions regarding the board of directors.

      The agenda items and frequency of meetings of the board of directors is to be determined by each entity in its by-laws. However, since the board of directors approves the annual financial report in advance and convenes the annual ordinary shareholders meeting, it must meet at least once a year.

      The board of directors has broad power over the administration of the company, limited only by the provisions of issues that must be approved by a general shareholders’ meeting by mandate of the Law and to the extent established in its by-laws. 

      The board of directors can delegate powers to third parties or special committees, provided that the board itself establishes the term and limits. The board can revoke such delegation at any time.

      The minutes of the meeting of the board of directors will be signed by all the directors participating in the meeting, or with evidence of their votes, in the event a meeting is held by communication devices that do not require the physical presence of the members of the board. It is not required to make the minutes public, but they must be filed in the corporate domicile of the company.

      Answer contributed by Vilma Veras , Henry Pastrano from Jiménez Cruz Peña

      Last verified on Monday 23rd October 2017

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