In terms of offshore vehicles, few jurisdictions offer such
a wide range of solutions as Panama. From the widely-known
Panama corporation to limited liability companies and from
trusts to foundations, this jurisdiction provides vehicles to
address a broad range of needs.
Not surprisingly, Panama vehicles have been used by
publicly-held multinational corporations, by private equity
funds, by closed-end funds and mutual funds, by companies
seeking to establish asset protection trusts, bankruptcy-remote
vehicles or collateral trust arrangements and by individuals
for their personal investment or family and estate planning
Perhaps the most widely used offshore vehicle in Panama is
the corporation (sociedad anónima). Based on
early 20th century Delaware and New York corporate law,
Panama's general corporation law is extremely flexible, a trait
that has successfully permitted this vehicle to be used in many
Several NYSE-listed companies are incorporated in Panama,
such as Carnival Corporation (CCL), Copa Holdings SA (CPA),
Willbros Group Inc (WG), McDermott International Inc (MDR) and
Banco Latinoamericano de Exportaciones SA (BLX). All of these
companies comply with the strict corporate governance and
disclosure rules applicable to public companies. Panama's
general corporation law has been able to accommodate such
needs, including demands not only from securities regulators
and the NYSE but also from rating agencies and shareholders'
Panama corporations are also increasingly being used as
holding companies by Latin American conglomerates and regional
holding companies by multinational corporations.
In addition, Panama corporations are also frequently used to
structure closed-end funds and mutual funds, as Panama's
general corporation law offers the flexibility to deal with
issues common to this class of vehicles, such as the
subscription and redemption of shares, the calculation of the
shares' net asset value, the appointment of investment managers
and the need to limit corporate purposes to specific investment
objectives and policies. Offshore funds and private equity
funds are also frequently incorporated in Panama.
Finally, Panama corporations are used as personal investment
companies by millions of individuals and corporations around
a) Articles of incorporation and bylaws
Panama corporations are incorporated by filing the articles
of incorporation with the Public Registry Office in Panama. The
articles of incorporation are the main organisational documents
of a corporation. In addition, Panama corporations may, but are
not required to, adopt bylaws for the regulation of their
internal affairs and procedures. Bylaws may, but need not, be
filed with the Public Registry Office.
b) Corporate name
Corporations may adopt a name in any language, provided that
it includes an abbreviation that denotes that it is a
corporation, such as SA, Inc or Corp. The use of certain words
such as bank, trust and insurance is restricted for use only by
corporations that are licensed to operate in such
c) Corporate purpose
Panama corporations are authorised by law to engage in any
lawful business or activity in Panama or outside of Panama.
Most corporations are incorporated with broad corporate
purposes. However, when the proposed structure or transaction
requires that corporate purposes be limited or restricted, such
as in the case of certain bankruptcy-remote securitisation
vehicles or certain funds, Panama's general corporation law
does permit it. In these cases, the articles of incorporation
are drafted only to allow the corporation to engage in limited
or restricted business or transactions.
Panama corporations must have an authorised capital, which
may be stated: (i) in terms of a certain sum of money of any
currency divided into a stated number of shares with a stated
par value each; (ii) in terms of a stated number of shares
without par value; or (iii) a combination of both.
No minimum paid-in capital
There is no minimum regulatory or paid-in capital for Panama
corporations. Capital may be paid in over time. In fact, shares
of stock can be issued as fully-paid or partially-paid,
although bearer shares and no par value shares can only be
issued as fully-paid and non-assessable. Shares are issued by
resolution of the board of directors and consideration for the
stock can be in cash, kind or services.
Classes and series
Panama corporations may issue all classes of stock, in one
or more series, with such designations, preferences,
privileges, voting powers and other rights, as well as with
such qualifications, limitations and restrictions, as their
articles of incorporation may provide. All types of common,
preferred and convertible securities are frequently issued by
Registered and bearer shares
Shares may also be issued either in registered form or to
the bearer. All shares of stock issued by a corporation must be
recorded in the share registry of the corporation. In the case
of shares issued in registered form, the name of the
shareholder is stated both in the share certificate and in the
share registry. When shares are issued to the bearer, only the
word, bearer, is recorded. The share register is a private
corporate document in Panama. The names of the shareholders are
not filed in any public offices and are not a matter of public
Generally, each common share of a corporation entitles its
holder to one vote in all matters to be decided by
shareholders. However, non-voting shares, both common and
preferred, as well as limited voting right shares, are also
permitted in Panama. Voting trust arrangements are lawful in
Panama, as is the appointment of proxy holders to attend and
vote at meetings on behalf of shareholders.
Preemptive rights are granted to holders of common stock
with respect to new issues of common stock. However, if
preemptive rights are not desirable for a particular structure
or transaction, the articles of incorporation may deny such
rights to shareholders.
No minimum or national requirements
There is no mandatory minimum number of shareholders in
Panama. A corporation can be wholly-owned by one single
shareholder. In addition, there are no nationality or residency
requirements, therefore any person of any nationality or place
of residency can be a shareholder in a Panama corporation.
Meetings of shareholders can take place anywhere in the
world, if so provided in the articles of incorporation. There
is no requirement to hold a minimum number of meetings per
year, although most corporations hold at least an annual
general meeting. Shareholders owning at least 5% of the issued
and outstanding voting shares have a right to request that a
stockholders' meeting be called. Notice of meetings can be
given no less than 10 and no more than 60 days before the date
of the meeting, and record dates can be fixed up to 40 days
before the meeting. If there is no time to give proper notice,
Panama's general corporation law allows shareholders to waive
notice of meetings before, during and after meetings. The
default quorum to hold a meeting is a majority of issued and
outstanding voting shares, but a higher or lower quorum can be
established in the articles of incorporation or bylaws of the
corporation. Ordinarily, decisions of shareholders are adopted
by a majority of the issued and outstanding shares entitled to
vote on the matter under consideration, but a supermajority
vote for specific matters can be established in the articles of
incorporation of the corporation. Shareholders' resolutions can
be adopted either at meetings or by written resolutions in lieu
Shareholders have broad powers to control the corporation.
Almost any rights can be reserved for shareholders in the
corporation's articles of incorporation. Even if the articles
of incorporation do not grant shareholders any specific powers,
the following corporate decisions are reserved by law for
shareholders: the appointment and removal of directors; the
amendment of the articles of incorporation; the granting of
security interests on corporate assets for the benefit of third
parties; the transfer of all or substantially all of the
corporation's assets; a merger of the corporation; and the
dissolution and winding-up of the company.
Shareholders' agreements are lawful in Panama and are
frequently used in joint-venture corporations and other
investment corporations to establish rights among various
classes of shareholders, particularly between controlling and
minority shareholders. There is no need to file shareholders'
agreements with the Public Registry Office or any other
governmental agency in Panama.
f) Transfer of shares
Transfer of stock
Shares of stock in a Panama corporation can be easily
transferred, and generally no transfer restrictions or
limitations apply. Bearer shares can be transferred by simple
delivery of the share certificate. Shares issued in registered
form are transferred by assignment and delivery of the share
certificate (usually by means of blank stock powers) and an
annotation of the transfer in the corporation's share registry.
No filings with the Public Registry Office or governmental
consents are required for the transfer of shares of a Panama
corporation. Where a structure or a transaction requires that
limitations be imposed on the ability of shareholders to
transfer their shares of the corporation, such limitations are
possible, provided that they are included in the articles of
incorporation of the corporation or in a shareholders'
Right of first refusal
There is no statutory and mandatory right of first refusal
in Panama. However, where a structure or a transaction requires
that shareholders be given rights of first refusal or other
similar options to purchase the stock of a selling shareholder,
such rights can be lawfully established either in the
corporation's articles of incorporation or in a shareholders'
Tag-along and drag-along rights
Other common rights associated with the transfer of shares
and control of a corporation, such as tag-along rights and
drag-along rights, are commonly used and lawful in Panama.
These rights can be established either in the corporation's
articles of incorporation or in a shareholders' agreement.
g) Board of directors
The board of directors must be comprised of at least three
members, but a higher number of directors is permitted as
provided for in the articles of incorporation or bylaws. There
are no nationality or residency requirements for directors, nor
are directors required to be shareholders of the corporation.
Panama's general corporation law does not impose qualification
requirements on directors, but when such qualifications are
desirable they can be established in the articles of
incorporation of the corporation. Alternate directors can be
used if provided for in the articles of incorporation.
Staggered and classified boards are lawful in Panama.
Election and removal
Directors are elected and removed by shareholders, although
vacancies can be filled by a resolution of the remaining
directors. Directors are usually elected by all shareholders,
although the articles of incorporation may provide that a
particular class of shareholders have the right to elect a
specific number of directors. Directors are elected by general
vote, but supermajority voting and cumulative voting are also
allowed for the election of directors. Directors can be removed
from office by shareholders with or without cause.
Duties and powers
Panama law entrusts the control, management and supervision
of the business and affairs of a corporation to its board of
directors. As a general rule, the board of directors exercises
all corporate powers that are not expressly reserved for
shareholders by law or in the articles of incorporation or
bylaws of the corporation. Notwithstanding these broad
corporate powers, when a structure or transaction requires that
the powers of the board of directors be limited or that certain
of these powers be transferred to shareholders, this can
generally be achieved in the articles of incorporation.
Under Panama law, directors may become jointly and severally
liable to the corporation, its shareholders and creditors if
they do not discharge their duties with the care that
ordinarily prudent men usually exercise in the discharge of
their own affairs. Besides being liable for breach of their
general duty of care, directors are also expressly liable for
false capitalisations, for insufficient funds to pay declared
dividends, for keeping accounting books improperly and for
authorising acts that violate the articles of incorporation,
the bylaws, resolutions of shareholders or the law.
Notwithstanding the foregoing, Panama's director protection
statute shields directors from personal liability, unless
shareholders approve the commencement of an action against the
directors. This protection, however, is not accorded in three
cases: unlawful declarations and payments of dividends;
unlawful capital reductions; and materially false statements on
reports issued on behalf of the corporation. Panama law does
allow the corporation to indemnify directors and officers
against personal liability and permits D&O insurance,
except in cases of gross negligence or wrongdoing.
Meetings of the board of directors can be held anywhere in
the world. There is no requirement to hold a minimum number of
meetings per year. Directors are entitled to receive notice of
all meetings, but there is no statutory minimum notice period.
Directors can waive notice of meetings before, during and after
meetings. The default quorum to hold a meeting is a majority of
the directors then in office, but a higher or a lower quorum
can be established in the articles of incorporation or bylaws
of the company. Decisions of the board of directors are adopted
by the favourable vote of the majority of the directors present
at the meeting, but boards can be classified to give directors
representing a specific class of shareholders the veto or right
to vote on certain matters. Directors' resolutions can also be
adopted by written resolutions in lieu of meetings.
Panama's general corporation law allows the board of
directors to create committees and approve their charters.
Committees are commonly used in Panama by publicly-held
corporations and corporations in regulated industries, such as
The board of directors also has responsibility for
appointing and removing the corporation's officers.
Corporations usually have a president, a secretary and a
treasurer, but can have any such other officers as the board of
directors may determine. Officers need not be directors.
Dividends are declared and paid by resolution of the board
of directors. Dividends can be paid in cash, stock or kind.
Directors can declare and pay dividends out of net earnings or
from the surplus of the corporation's assets over its
liabilities and capital. In addition, dividends cannot be
declared or paid if, after giving effect to such dividend, the
corporation's assets are less than the sum of the corporation's
liabilities and capital.
i) Books, accounting and filings
Corporations are required to keep a share registry and
corporate minutes. Records can be maintained in physical or
electronic form, and may be kept in Panama or any other place.
There is no need to register or file corporate records in
Panama. If the corporation does not engage in business or trade
within Panama, accounting records can use any accounting
standard approved by the board of directors.
Panama also has one of the most flexible trust laws in Latin
America. Panamanian trusts are frequently used to create
collateral trust arrangements to hold a wide variety of assets,
including real property and chattel, stocks and accounts, for
the benefit of lenders and creditors in connection with secured
loans and note offers. Panamanian trusts have also been used as
issuing vehicles in connection with the securitisation of
toll-road receivables and residential mortgages. Other common
uses of Panamanian trusts include voting trust agreements,
retirement and pension funds, real estate investment funds and
Trusts are established in Panama by execution of a trust
agreement between a settlor and a trustee. There is no need to
file the trust agreement in Panama, unless the trust owns real
property located in Panama. Under Panama's trust law, the
trustee becomes the owner of the record of all trust assets,
while beneficiaries only retain a beneficial interest. The
trustee is required to own the trust assets and use them
strictly in accordance with the terms of the trust agreement
and may be liable to the settlor and the beneficiaries for
negligence in the discharge of its obligations as trustee.
Modeled after the Liechtenstein Family Foundation, Panama's
private interest foundation is the most recent offshore vehicle
added to the list of alternatives offered in this jurisdiction.
However, foundations have rapidly become a vehicle of choice
for establishing asset protection and estate planning
Panama foundations offer a simple, affordable and structured
alternative to attain the preservation and transition of an
estate to future generations. They essentially reconcile the
wishes of any person to maintain control over his assets, with
the two basic priorities of any estate planning: (i) to protect
the estate; and (ii) to ensure that the estate serves specific
purposes beyond the existence of its owner.
In connection with the protection of assets, a foundation is
a legal entity that is separate and independent from its
founder. Consequently, assets transferred to a foundation are
not subject to seizure or attachment as a result of claims for
risks inherent in the personal or professional activities of
the founder or the obligations of the members of its foundation
council, its beneficiaries or third parties.
Perhaps one of the most attractive features of the
foundation is the fact that, as opposed to the trust, where the
settlor must transfer ownership and control of trust assets to
the trustee, in a foundation the founder can keep control of
the administration and the assets of the foundation during his
Limited liability companies
Panama limited liability companies have become popular in
recent years with US taxpayers as they qualify for an entity
classification election, commonly referred to as a
check-the-box election, which allows the limited liability
corporation to be treated as a disregarded entity for US tax
The increasing use of limited liability companies has
motivated an initiative to have its regulatory framework
reviewed to align it with the requirements of the changing
international environment. A bill is now being discussed at the
National Assembly for this purpose.
Ricardo M Arango
Arias Fábrega & Fábrega
Ricardo M Arango joined Arias Fábrega &
Fábrega in 1987 and became a partner in 1995. He
is a member of the firm's executive and operations
committees. He is also head of the firm's capital
markets and banking practice group. Ricardo's practice
focuses on securities regulations, banking and finance,
mergers, acquisitions and joint ventures, corporations
and tax. In the area of capital markets and banking,
Ricardo regularly advises clients in connection with
medium-term note programmes, commercial paper
programmes, syndicated term and revolving loan
agreements, 144-A Reg-S notes, securitisations and
initial public offerings. He has also acted as lead
counsel in connection with the largest M&A
transactions in the country. Ricardo has a Master of
Laws from Yale Law School, a Master of Laws from
Harvard Law School and a Bachelor of Laws from the
University of Panama.
Tel: +507 205 7000
Arias Fábrega & Fábrega
Gian Castillero joined Arias Fábrega &
Fábrega in 1994 and became a partner in 2008. He
was the resident lawyer of our London office from 1994
to 2000. Gian is head of the firm's offshore services
practice group and oversees the activities of our
network of offices abroad. In the area of offshore
services, Gian has extensive experience in representing
private clients in connection with the organisation and
management of companies, philanthropic entities and
foundations in different jurisdictions, estate
planning, international tax planning and asset
protection structures. Gian has a Master of Laws from
The London School of Economics and a Bachelor of Laws
from Santa Maria La Antigua University. Gian is
chairman of the Panamanian International Lawyers'
Tel: +507 205 7014