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Chile

Published on Wednesday 6th December 2017

    • Chile

      The regulation of the internal affairs of both, public and private held companies is mostly contained in Law No. 18,046 (the Chilean Corporation Act).

      Specifically with respect to publicly held companies, their internal affairs are also regulated by the Stock Market Law No. 18,045 (the Chilean Securities Exchange Act), and the regulation issued by the Superintendency of Securities and Insurance (SVS).

      Furthermore, the by-laws of a company are allowed to include regulation referring to their internal affairs. A company is free to self-provide all kind of rules and directives related to its corporate governance as long as current legislation is respected, especially those matters of public policy that cannot be freely modified by the parties. Other discretional internal affairs of a corporation may be regulated in shareholder agreements.

      Last verified on Tuesday 2nd January 2018

    • Chile

      In a narrow sense, only publicly and privately held companies are subject to corporate governance regulation, with special emphasis on publicly held companies.

      Alternative corporate structures such as limited liability have some corporate governance regulation, usually incorporated in their own by-laws, since these companies are free to create their own rules to regulate internal affairs. Thereby, as a general principle, corporate governance laws do not regulate alternative corporate structures. Instead, they are regulated by their own special legislation (in the case of limited liability companies, Law No. 3,918 and the Chilean Commerce Code), and additionally by their own contractual clauses.

      This notwithstanding, is important to keep in mind the relatively recent creation of a new corporate structure in our country, the joint-stock company, which benefits from a wide acceptance in our country given its statutory flexibility, allowing one shareholder.

      As a consequence, depending on the social by-laws, shareholders may choose to apply the provisions of this law, including the corporate governance regulations mentioned before.

      Last verified on Tuesday 2nd January 2018

    • Chile

      The SVS related to the government through the Treasury Department is the Chilean competent authority in this matter. This public institution has a regulatory, surveillance, sanctioning and market development role. In relation to corporate governance, the SVS has the responsibility of regulating and supervising all the publicly held companies whose shares are traded on the stock exchange market.

      Special types of corporations, which in general are obligated to organise as publicly held companies, such as insurance companies, banks and pension fund administrators, are also subject to their respective and specialised state regulatory agencies, namely, the SVS, the Superintendency of Banks and Financial Institutions (SBIF) and the Superintendency of Pensions (SP), respectively.

      In the case of pension fund administrators, the Corporations Act states that this type of company shall be regulated by a publicly held corporation rules as long as those legal provisions are applicable and not contrary to the pension fund administrators’ special legislation.

      A good example of self-regulated agencies is the stock exchange. The Chilean stock exchange is regulated by the Securities Act and, at the same time, subject to surveillance by the SVS, therefore, the stock market requires its authorisation to operate. In order to do so, the stock exchange must comply with certain requirements, among others:

      • maintain no less than 30,000 UF (US$1.3 million approximately) in paid capital;
      • operate with at least 10 stockbrokers;
      • not a single stockbroker, individually or together with connected persons, may own, directly or indirectly, more than 10 per cent of a stock market ownership; and
      • shares may be traded on the same issuer stock market or another, different market.

      Last verified on Tuesday 2nd January 2018

    • Chile

      As pointed out before, the SVS has authority related to corporate governance matters, according with Decree-Law No. 3,358 has a preponderant role as supervisory authority of the entities involved in the insurance and the stock exchange market in the country. To achieve its objective, this agency essentially has three principal functions:

      • regulatory function: corresponding to the capacity of the SVS, to perform a regulatory role through the promulgation of standards or instructions for the market and the entities that comprise it;
      • supervisory role: corresponding to the control and the monitoring the laws, regulations and administrative provisions; and
      • sanctioning function: corresponding to the power of the SVS to apply sanctions against non-compliance or violation of the regulatory framework as a consequence of an investigation.

      Specifically related to corporate governance powers, it is worth noting that in 2012 the SVS issued a regulation for the dissemination of information on corporate governance standards adopted by listed corporations. This regulation, General Standard No. 341, was intended to encourage the adoption of good corporate governance practices by voluntarily disclosing the ones adopted by those entities.

      The SVS must ensure that all the entities under its surveillance comply with the correspondent regulations regarding all those matters that have been given to its competence, among the major powers of the SVS in relation to corporate governance are:

      • planning, directing, implementing, coordinating, monitoring and control activities of supervision, aimed at collecting necessary background to absolve the complaints and requests made by shareholders, investors, foreign regulators, national or international agencies or other legitimate stakeholders related to the legal framework governing entities supervised by the Superintendency, except those related to the insurance market;
      • receive and examine all records that by law must be submitted by regulated subjects, such as corporate books, accounting documents, statutes, commercial backgrounds, minutes of board or shareholder meetings; and
      • to verify that the entity delivers, in the manner stipulated by the SVS, all legal, economic or financial background that by law must be provided to the public.

      In 2015 the SVS issued the General Standard No. 385, which abrogates General Standard No. 341, but it keeps the essentials about corporate governance and consists of a self-assessment in relation to the implementation of a set of corporate governance practices that must be answered by public companies.

      Last verified on Tuesday 2nd January 2018

    • Chile

      In certain cases specified by law, shareholders may sue directors for violating their legal duties. Additionally, any person that breaches the Corporations Act, by-laws or SVS rules, causing damages to another person, shall be compelled to compensate the harm suffered, without prejudice to civil, criminal and administrative sanctions.

      Furthermore, shareholders may bring a shareholders’ derivative action on behalf of the corporation against those responsible for any loss or losses suffered by the company’s patrimony, under certain circumstances.

      The class actions are exceptional in our legislation and are restricted to subjects related to consumption, users and construction.

      The arbitration shall be conducted when is established by the company's by-laws.

      Last verified on Tuesday 2nd January 2018

    • Chile

      Managers, liquidators, external auditors and account inspectors also fall under corporate governance rules, incorporated in the Corporations Act and by-laws. Administrative SVS sanctions may be applied as well.

      Nationally, there are many who voice support for the need to broaden the concept of corporate governance in the sense of covering the entire network of managers and administrators of the corporation to include them in the ordinary planning and operation of the company.

      Last verified on Tuesday 2nd January 2018

    • Chile

      Generally speaking, the incorporation of a new company does not require the intervention of a corporations’ regulator; there is freedom in the creation of new companies and no special authorisation is needed, as long as the company complies with the legal requirements for legal incorporation.

      In the case of special types of corporations, such as insurance companies, banks and pension fund, in addition to the common requirements of incorporation, these types of corporations may need an administrative resolution that authorises their existence, and the publicaton of a special certificate given by the correspondent public agency.

      Corporate governance plays a role since several rules on it are contained in the Corporations, Securities and SVS Acts, among other laws. Corporate governance is not only important in the company’s incorporation procedure but also to comply with the law.

      Incorporation documents, such as certificate of incorporation and by-laws, are always public, and are usually published in both government records and their own corporate web pages.

      Last verified on Tuesday 2nd January 2018

    • Chile

      The number of directors will depend on the nature of the corporation: whether a privately or publicly held corporation. In the first case, the boards of directors shall comprise no fewer than three members, and in the second case no fewer than five. In any case, the by-laws can state a different but unchangeable number of members, always observing the legal minimum.

      Concerning independent directors, certain publicly held corporations are obligated to have at least seven directors in its board, designate at least one independent director and constitute a directors’ committee (see Law No. 18,046, articles 31 and 50 bis). In this case, it shall be necessary to have a market value equal to or greater than 1.5 million UF (approximately US$63 million) and where at least 12.5 per cent of the outstanding voting shares are held by shareholders who control or possess less than 10 per cent of those shares, individually.

      Without prejudice to the aforementioned, publicly held companies that do not have the minimum patrimony and percentage of shares mentioned above may voluntarily invoke this provision. In that case, the corporation shall comply with the rules on independent directors.

      The Corporations Act establishes exhaustive rules regarding criteria and requirements for independent directors. The criteria are that the law will not consider independent a person who in the past 18 months has been in any of the following circumstances:

      1. has had any ties with, interest in, or any relevant economic, professional, credit, or commercial dependency on the company, with any other company group of which it is part, with its controlling interest or with the senior executives of any of the above, or has been a board member, manager, administrator, senior executive or consultant to any of these;

      2. has had any family relationship with the individuals indicated in (1) up to the second degree of consanguinity or affinity;

      3. has been a board member, manager, administrator or senior executive of non-profit organisations that have received relevant support, contributions or donations from persons indicated in (1);

      4. has been a shareholder or partner who has possessed or controlled, directly or indirectly 10 per cent or more of the capital, or has been a board member, manager, administrator or senior executive of an entity that has provided legal or consulting services for relevant amounts, or external auditing services to the persons indicated in (1); and

      5. has been a partner or shareholder that has possessed or controlled, directly or indirectly 10 per cent or more of the capital, or has been a board member, manager, administrator or senior executive of the company’s main competitors, suppliers or clients. Such a candidate must commit to remain independent throughout their term as a board member.

      Last verified on Tuesday 2nd January 2018

    • Chile

      Once again it is necessary to distinguish between privately and publicly traded companies. Privately traded companies have the option to choose between two internal account inspectors plus two substitute account inspectors or independent external auditors; this kind of corporation may eliminate the requirement of external auditors to the administration or establish other mechanism according to their needs, while publicly traded companies shall be compelled to designate an external auditors’ company.

      In a narrow sense, the Corporations Act does not require the creation of an audit committee but regarding publicly held corporations, in the special situation indicated above, they are obligated to establish a committee of directors. This committee shall be composed of three members; the majority of whom shall be independent in the terms indicated above. In accordance with the Corporations Act, the committee shall have some auditing duties, namely:

      • to examine the reports of the external auditors, the balance sheet and financial statements presented by the company administrators or liquidators to its shareholders, and issue a declaration about them prior to their presentation to shareholders for approval;
      • to propose the board the names of external auditors and private risk classification agencies; and
      • to inform the board regarding the convenience of hiring an external audit company.

      Last verified on Tuesday 2nd January 2018

    • Chile

      Publicly held companies in special circumstances established by law are compelled to nominate and compensate their committee of directors. In the event that there are more than three independent directors, the board shall be in charge of nominating, unanimously, the members of the committee. Where there is only one independent director, he or she shall be in charge of nominating two members from the board.

      The work of the directors’ committee shall be remunerated and the amount shall be decided annually in the ordinary shareholders’ meeting. On the other hand, the law establishes that the directors’ committee in the exercise of their functions, in addition to the responsibility inherent in the post of director, they shall be jointly and severally liable for the damages they cause to shareholders and the company.

      Last verified on Tuesday 2nd January 2018

    • Chile

      According to the Corporations Act, the only committee that is obligated to file an annual management report is the directors’ committee. In addition, they have to include in their report the activities undertaken and costs. Finally, they must present the annual management report to the ordinary shareholders’ meeting.

      Last verified on Tuesday 2nd January 2018

    • Chile

      Yes, Law No. 18,046 establishes that publicly held companies are those that enrol, voluntarily or imperatively, their shares on the stock exchange, those with 500 or more shareholders and those in which at least 10 per cent of its capital belongs to at least one hundred shareholders. Two essential characteristics of this type of corporation are the information and publicity duty to company shareholders, the SVS and the general public.

      Those disclosure requirements are not just linked to the existence as a publicly held company. Moreover, the law provides that a public company has to comply with the following disclosure requirements, among others:

      • maintain and make available to shareholders updated copies of its by-laws;
      • any agreement regarding capital decrease must be published in the Chilean Official Journal, in a newspaper of national circulation and on the company’s website;
      • report to SVS any shareholders’ meeting performed;
      • publish on its website information regarding financial statements and audit reports at least 10 days before the shareholders' meeting takes place; and
      • publish in a true, sufficient and opportune way, all facts or essential information regarding itself and its business at the moment they happen or it receives notice. Essential information is understood such as information that a wise man would consider important for his investment decisions.

      Last verified on Tuesday 2nd January 2018

    • Chile

      In regard to publicly held corporations and special corporations subject to surveillance by the SVS, all the books, files and documents shall be permanently available to its review in the corporations’ headquarters. Moreover, all financial statements shall be supervised and examined by an external auditing company, which shall be appointed annually by the shareholders in its annual meeting and, eventually, supervised by the SVS if it is required.

      As mentioned above, privately held corporations are not subject to surveillance by the SVS. It may apply the financial and disclosure system that their shareholders estimate appropriate to the company. Besides this, ordinary shareholders’ meetings shall annually nominate two titular account inspectors and two substitutes or an external auditory company with the purpose to inspect the accounting, inventory, balance sheets and other financial statements, which shall report in the next ordinary shareholders’ meeting. Nevertheless, by-laws might exempt the corporation from that duty or stipulate a diverse control mechanism.

      Corporations shall prepare once a year a general balance sheet to 31 December or to the date set out in the by-laws.

      Last verified on Tuesday 2nd January 2018

    • Chile

      According to Law No. 18,045 and the General Standard No. 210, issued by SVS in 2008, public companies have a legal duty to report the SVS in a true, sufficient and opportune way, all facts or essential information regarding themselves and the business at the moment that happens or it receives notice. Notwithstanding the above, with the approval of three-quarters of the management board, certain events or records regarding pending negotiations shall be kept in private to protect the company’s interests. However, resolutions and agreements in this case shall be communicated to the SVS the next day.

      Last verified on Tuesday 2nd January 2018

    • Chile

      Shareholders shall reunite in ordinary (regular) or extraordinary (special) meetings. Ordinary shareholders’ meetings are held at least once a year, within the next four months at the balance sheet date:

      • to examine the company’s situation and reports from account inspectors or external auditors;
      • to approve or reject the annual report, the balance sheet and financial statements presented by the company administrators or liquidators;
      • to distribute profits from each fiscal year, particularly to distribute dividends;
      • to elect or remove board members and alternates, liquidators and administrative supervisors; and, in general
      • to address any other matters of interest to the company that do not fall under the purview of a special shareholders’ meeting.

      Extraordinary shareholders’ meetings may be held at any time, in accordance with the company’s needs, to make decisions on any matter that the law or company’s by-laws places under their exclusive scope. The subjects of this type of shareholders’ meetings are as follows:

      • the dissolution of the company;
      • the transformation, merger or spin-off of the company and the modification of its by-laws;
      • the issuance of bonds or convertible debentures as shares;
      • the transfer of over 50 per cent of company assets;
      • the granting of collateral or personal guarantees by the company to secure or guarantee third-party obligations except where these are controlled subsidiaries, in which case the board’s approval shall be sufficient; and
      • all other matters that, pursuant to the law or the by-laws, must be reported to the shareholders’ meetings or come under its authority.

      Shareholders can be represented by a third person, even though that person is not a shareholder. Representation shall be conferred in writing, by the total of the shares the represented shareholder own. Furthermore, the SVS by a general rule might authorise publicly traded corporations to establish several systems to allow proxy voting.

      The process for electing directors is the following: corporation by-laws shall establish an unchanging number of directors. The renovation of the board of directors shall be total and shall be at the end of the period: it will not be more than three years. Directors may be re-elected indefinitely in their functions. In the absence of an express rule in the by-laws, it shall be understood that the renovation of the board shall be every year. If, for any reason, the shareholders’ meeting (regarding directors’ election) is not held in the agreed period, it may be understood that their functions are extended until the board nominates successors. Finally, the board’s election might be in an ordinary or extraordinary shareholders’ meeting.

      The board of directors shall be voted on in only one voting. This vote is indivisible, unless the board elects that shareholders may accumulate the votes in favour of just one person or distribute it in the way they deem convenient.

      Concerning the right to seats on the board based on a certain percentage of share ownership, the Corporations Act stipulates that every shareholder shall have one vote for each share in ownership or representation. Nevertheless, by-laws may consider preferential share series without voting rights or limited voting rights. Also, share series with multiple voting shall not be established.

      Shares without voting rights or limited voting rights, in those subjects that equally does not have voting rights, shall not count in the quorum computation or voting in the shareholders’ meeting.

      The Securities Act decrees that persons that own 10 per cent or more of the subscribed capital in a publicly held corporation shall have a duty to report to the SVS and stock market any share acquisition or alienation. The same duty is applied to directors, liquidators and corporation managers, any share percentage they own, and to the majority shareholders if their acquisitions were for acquiring control of the company or if they were just a financial investment.

      Last verified on Tuesday 2nd January 2018

    • Chile

      Board meetings may be developed in ordinary or extraordinary sessions. Ordinary or regular board meetings will be held on the date and time scheduled by the board itself. In publicly traded corporations, such meetings must be held at least once per month, while in other types of corporations the board shall meet as stipulated in by-laws. Extraordinary or special sessions will be held when the chairman of the board or the absolute majority of the board deems necessary.

      According to the Corporations Act and/or by-laws, items covered by board meetings are directly related to all the administration and disposal faculties that are not exclusive subject of a shareholders’ meeting. Each director has the right to be informed at any time by the manager of everything related to the progress of the business. Even though a director has been chosen by a shareholders group or class, he or she has the same duties as the corporation and the rest of shareholders and shall not be able to defend shareholders special groups’ interests.

      The functions of a board member of a corporation may not be delegated and shall be only exercised collectively in a legally constituted meeting. Notwithstanding the foregoing, the board of directors may partially delegate their faculties in principal officers, managers, sub-managers or corporation’s attorneys, in a particular director or a committee of directors and, to specifically determined subjects, as third parties.

      It is necessary to keep in mind that the general rule is that the actions of the board and the board minutes are private and just for internal use of the company, the corporative books, are subject to review by external auditors in order to perform the annual audit. However, the company may be obligated to deliver to the SVS the correspondent board minutes if this authority asks for them.

      Last verified on Tuesday 2nd January 2018

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