Single director -shareholder Companies (sociedad unipersonal) according to the Nicaraguan legal system.cording to the Nicaraguan legal system.

Jul 13, 2015 | English Blog

What is a Single Shareholder and Director legal entity?

Generally speaking, a Single-Director shareholder Company, is defined as a legal entity formed by only one shareholder, being the same either an individual or legal entity, originating from a unilateral legal act and declaration, and complying with the corresponding legal requirements applicable in each jurisdiction for its formation. This type of legal entity may also be known as a ¨sociedad unipersonal originaria¨ (Original Unipersonal or single shareholder company).

Is this type of legal entity regulated in Nicaragua? Single-shareholder legal entities are not specifically regulated in the Nicaraguan legal system, and it is until recently that this concept is being analyzed and discussed in the academic world, even though in practice, our legal system indirectly recognizes this type of legal entity, when a shares corporation has been incorporated with at least two shareholders, but then for any reason or circumstance all of it shares are acquired by a single shareholder, becoming a single owned corporation.

Our legal system expressly prohibits the incorporation of a corporation with a single shareholder. In the deed of incorporation (articles of incorporation), the notary public is obligated by law to include at least two shareholders, and the Commercial Public Registry cannot register an incorporation deed, that does not comply with the legal requirement of having at least two shareholders.

However, due to modern regulatory recognition achieved in countries with advanced legal systems the figure of a single Shareholder Company has gained broad doctrinal treatment in Nicaragua. Currently, in order to avoid the perception that our legislation is outdated, not only in comparison with other legal systems in the region, but also with European legislation, whereby Single – Director Shareholder companies are expressly regulated, the doctrinal tendency is to include this type of legal entities in our legal system from the beginning (ab initio), It is very important that our legislators evaluate and consider an explicitly comprehensive, full inclusion of the single-shareholder company into our legislation, since it is widely known that entrepreneurs in Nicaragua use third parties just to provide the legal appearance of plurality, in order to meet the legal requirements of at least two shareholders to form a company. But it is evident, that these individuals don’t always intend to remain as shareholders in such companies, and do it simply, because, they want/need to meet the minimum required by law, and subsequently, end up transferring their shares to the shareholder that is the real owner of the legal entity. Thus, becoming, this way, a single-shareholder company by occurrence, by using partners that only “lend” their names and are assigned a symbolic number of shares – in many cases only one share- to give the appearance of plurality when indeed we have a materially single-shareholder company, who is controlled by the majority partner. These situations could be avoided and at the same time regulated, if the Nicaraguan system allows companies to form with a single partner.

Under the existing regulation, the plurality is only necessary for the creation of the company, but not for its subsistence and operation as a legally existing entity, since in practice a corporation may subsist with a single-shareholder for up to six months and the law does not clearly state what may happen if a corporation does not recover the plurality of members. It leaves this to the discretion of the shareholders to request its dissolution thereof, but if its dissolution is not requested , such company can operate during the time provided for in its incorporation document duly registered at the Commercial Public Registry.

At present, our legislators are discussing a new commercial code, which is the perfect opportunity to include explicitly this figure in our system, in order to be more consistent with the globalized world in which commercial transactions are performed, and once this figure is recognized expressly by our legislation, individual entrepreneurs will have a legal mechanism that will allow them to protect their personal assets and capital used in their business operations since it will be understood that the company is an independent body with capital and personality very different and distinct from the assets of the entrepreneur which is the sole shareholder.