IMPORTANTE NOTICE 

ADMINISTRATIVE ORDER 2022-03: Extension to submit Annual Reports, pay fees and request Extensions (Download)

Pursuant to Chapter 15 of Act 164-2009, as amended, "General Corporations Act," corporations must file an annual report with the Electronic Registry of Corporations and Entities, administered by the Department of State, on or before April 15 of each year, with the exception of nonprofit religious corporations.

This report must be submitted electronically through the portal of the Government of Puerto Rico at here and/or through the Registry, which may be accessed directly at here or through the Department of State's web page at www.estado.pr.gov. The report must comply with the provisions set forth in the "Electronic Regulation of Corporations and Entities" Regulation Number 8688 (Download).

Likewise, all limited liability companies are required under Chapter 21 of the General Corporation Law to pay an annual fee on or before April 15 of each year. The payment must also be handled through the Registry, and in accordance with the provisions of the aforementioned Regulations.

Failure to file the annual report or pay the annual fee when due will result in the imposition of penalties, and may result in the cancellation of the corporation or limited liability company.

On the other hand, the registration of a limited liability company in the Registry is valid for one year, and must be renewed before the expiration of this term. Failure to renew on time will result in the expiration of the corporation, which will be subject to the applicable regulations.
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Administrative Orders and Circular Letters

What is a Corporation?

The "General Corporation Law" provides that a corporation may be created by one (1) natural or juridical person. Unlike public corporations that are created and their purpose is established by law, domestic or foreign corporations, whether for profit or not-for-profit, or social purposes, may only engage in the purposes set forth in their certificate of incorporation. The Act allows for profit or nonprofit corporations to state that they are engaged in any lawful business without specifying a particular purpose.

The Constitution of Puerto Rico (Article 6, Section 14) provides, however, that:

• A corporation may not engage in: Buying and Selling of Real Estate;
• Land tenure may not exceed five hundred (500) acres, in the case of agricultural corporations.

A corporation whose principal purpose is rendering a professional service must also not be registered unless it is registered under the professional corporation provisions. However, if the professional is not going to offer its services through the corporation and the corporation is going to offer a professional service, such as if it is going to engage in construction, they must include the following: "Administer construction services. The corporation will hire licensed professional personnel to provide these services".

Are there different types of Corporations?

Yes, corporations can be classified into domestic and foreign corporations, and into for-profit and not-for-profit corporations.

• Domestic Corporations - Corporations created under the Puerto Rico General Corporation Law. That is, they are corporations under the laws of Puerto Rico.
• Foreign Corporations - Corporations created under the laws of another jurisdiction. In order for a foreign corporation to operate in Puerto Rico, it must obtain an authorization from the Puerto Rico Department of State by filing the following documents with our Registry:

• For-profit corporations - These are domestic or foreign corporations where the owners derive an economic benefit from corporate management on the basis of profit sharing.
• Non-profit corporations - These are domestic or foreign corporations in which the net profits of their management, if any, are used to further the social purposes of the corporation itself, and not to benefit economically the members of such entity or third parties through the distribution of profits.
• Social benefit corporation - These are domestic or foreign corporations that have a social benefit purpose, i.e., their purpose is not to generate net profits, but if there were a net profit it could be distributed to their owners.
  

What are equity shares?

Equity shares can be described as an interest that an owner has in the corporation. They only exist in for-profit and social benefit corporations. In this way, when dividends or profits are distributed, each owner or shareholder is identified.

What does a closed or intimate corporation mean, and what does a public broadcasting corporation mean?

An intimate corporation is one whose number of shareholders or owners does not exceed seventy-five (75). This corporate group has the same rights and obligations as any corporation, but may operate without a Board of Directors and be directed by a single shareholder if so provided in the corporate bylaws.

What is the difference between the terms "Corporation" and "Incorporated"?

Neither. Both terms mean the same thing. Incorporators will always use one of these terms as it is a requirement of law that a corporate name possess one of the two words or their abbreviations (Corp. / Inc.).

What are By-Laws?

The corporation's by-laws or "By-Laws" are the provisions to which the entity is subject in terms of its governance, and detail those elements of governance that were not established in the certificate of incorporation. These provisions present the detailed rules or regulations that allow the internal functioning of the organization. The bylaws are not filed with the Department of State, as they are internal to the corporation.

What are the advantages and disadvantages of creating a private corporation?

Advantages

• The corporation obtains a legal personality, that is, it is a "person", with rights and obligations. In cases of litigation for some corporate management, the corporation would be sued and not its owners in their personal capacity.
• In tax terms, corporations are entitled to deduct expenses and payments for their administration and depreciation of real and personal property. In addition, they may obtain tax incentives if they comply with the requirements of the applicable laws.
• Corporations could obtain a wider borrowing margin, depending on the composition of shareholders and/or capital received through the sale of equity shares.

Disadvantages: 

• A corporation cannot necessarily claim all the constitutional rights that natural persons possess: e.g., the right to claim protection of privileges and immunities and the right against self-incrimination.
• In tax terms, corporations will pay for the income earned from their operations and the owners will also pay in their personal capacity for the dividends earned (profit sharing) in the commercial management of what they participate in (except for closely held corporations, which avoid double taxation by function of election under the internal revenue code).

What is a Limited Liability Company?

A limited liability company may be created by one (1) or more persons through an organization's certificate, which, except for the authorized capital stock, will have all the components of a certificate of incorporation.

The Act also provides that it shall only state that it is engaged in any lawful business, without specifying a particular purpose. The constitutional limitations, as well as the distinctions regarding professional, domestic and foreign, purpose, nonprofit and social benefit corporations, established for corporations will also be applicable to limited liability companies.

What is an annual report and why does it need to be filed with the Department of State?

All corporations must file on or before April 15 of each year, or the next business day if it is a weekend or holiday, with the Department of State an annual report containing the following information:

• Name and incorporation registration number;
• Physical and mailing address of the designated office;
• Name and physical address of the resident agent;
• Name and mailing address of at least two (2) officers of the corporation who are in office on the date the report is filed, including that of the officer signing the report, and the expiration dates of their respective positions;
• The Report shall contain a statement of the corporation's financial condition at the close of business during the preceding calendar year;
• If the turnover of the corporation exceeds three ($3,000,000) million dollars, this report must be audited by a Certified Public Accountant (CPA) licensed by the Commonwealth of Puerto Rico;
• The Report must be signed by an authorized officer, director or incorporator;

Important: Limited Liability Companies (LLC) will not be required to file an Annual Report with the Department of State, but will only pay annual $150 fees, on or before April 15 of each year or the next business day if it is a weekend or holiday. Failure to file this report or pay the annual fees will result in the imposition of penalties and possible cancellation of the legal entity.
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Note: The General Corporations Act establishes requirements and obligations that local or foreign corporations must comply with. The Comptroller of Puerto Rico has indicated that some governmental instrumentalities have entered into contracts with foreign legal entities without verifying whether they were in compliance with the provisions of the Act.

Circular Letter No. 1300-09-00, issued on December 13, 1999, instructs instrumentalities that before entering into a contract with a legal entity they must request, in addition to the documentation required in Circular Letter No. 1300-25-98 of May 29, 1999, the following documents:

• Certificate of registration or authorization to do business in Puerto Rico; and
• Certificate of Good Standing which guarantees that the legal entity has complied with submitting its annual reports or paid its annual fees to the Department of State, and that it is in good standing with the Registry.