Chilean Securities Act
The Chilean Securities Act governs, among other things, the public offering of securities. Private offerings of securities, and public offerings of instruments which do not qualify as securities are, therefore, not within its scope. For the purpose of determining the scope of its provisions, the Securities Act defines the term security as "any transferable instrument, including shares of stock, options for the purchase and sale of shares of stock, bonds, debentures, quotas of mutual funds, savings plans, commercial papers and, generally, any investment or credit instruments".
The Securities Act basically distinguishes between a private and a public offering of securities. An offer of securities constitutes "an offer to the public" when "addressed to the public at large or to a certain sector or specific group of the public". Any other offering constitutes a private offering of securities and, therefore, is excluded from the scope of the provisions of the Securities Act, unless otherwise provided.
Under the Securities Act, no public offering of securities can be made, unless the securities themselves and the issuer are duly registered in the Chilean Registry of Securities, kept by the Superintendency of Securities and Insurance (SVS).
The SVS is vested with the authority to determine, through a general regulation, whether a certain issuance or placement of shares or other securities constitutes or not, a public offering within the meaning of the Securities Act.
The SVS is also vested with the authority to exempt, through a general ruling, certain public offerings from some of the requirements (otherwise applicable) of the Securities Act.
In this regard, on August 10 2000, the SVS issued General Ruling N° 99 on limited offerings of securities issued by local or foreign issuers providing that, when the offerings are addressed to the employees of a company not listed in the Chilean Registry of Securities, they do not entail a public offering.
The SVS has stated that offers for the subscription or acquisition of shares issued by a parent or holding company, or its subsidiaries or affiliates, whether the issuer is a domestic or foreign company, and addressed exclusively to its employees and related to a labour incentive scheme under the policies of the company, do not entail a public offering, provided, however, that the following conditions be met:
- The offering must be a primary offer (an offer of newly-issued shares of stock made by the relevant issuer) or, otherwise, a secondary offering relative to shares of stock held by the same issuer, or by its parent or holding company, or by its subsidiaries or affiliates;
- The offering and placement of the shares concerned must be made by the relevant issuer directly, or by its parent or holding company, or by its subsidiaries or affiliates, without the intervention of intermediaries, brokers or the like. For this purpose, agents, managers and those in charge of carrying out the placement, who work for the issuer or for its parent, subsidiaries or affiliate companies are not considered to be engaging in any brokerage activity in Chile;
- Those to whom the offering is addressed must have a labour relationship with, or be members of the management staff of, the companies involved in the plan;
- At the time the offering is made, there should be no intention or plan to create a secondary market in the country for the public offering of the shares of stock, either on the part of the issuer, or its parent or holding company, or subsidiaries or affiliates, unless the applicable shares are listed in the Chilean Registry of Securities kept by the SVS; and
- The documents supporting the employees' offering, including the subscription and application forms to be delivered and signed by the eligible employees participating in the offering, must clearly state that both the issuer and its shares of stock are not listed in the Chilean Registry of Securities and are not under the supervision and control of the SVS.
If an offer of stock or stock options complies with these requirements, then it will qualify as a private placement not subject to the provisions of the Securities Act. Still, however, the offering documents will expressly state that neither the issuer nor its stock are registered, or otherwise subject to the supervision and control of the SVS. All the above requirements and conditions are also applicable similarly, to any offering of stock options or warrants, and to the employees to whom they are addressed.
Now, if by means of the employee offering, or through subsequent private transactions a Chilean company becomes a publicly held company within the meaning of the Chilean Corporation Act, it needs to comply with the legislation applicable to that kind of company. It should be noted that this new regulation of the SVS does not apply to offers of stock or stock options which are granted by publicly-held Chilean companies or its affiliates.
Exchange control regulations; offshore investments made by Chilean residents
At present, and except for certain qualified business entities governed by special laws and regulations such as banks, financial institutions, pension funds, insurance companies, etc, Chilean residents or entities may freely engage in any type of investments offered or available in the international financial and securities markets, and may for such purpose hold banking, investment or brokerage accounts abroad with no restriction whatsoever. If the local investor has no foreign currency reserves of its own, the necessary foreign currency for the investments can be purchased in the formal foreign exchange market (composed mainly of the banking institutions established in Chile) or, otherwise, in the open market, subject in this case to the availability of foreign currency at that time, and the exchange rates prevailing in the market.
The Compendium of Regulations on Foreign Exchange Transactions issued by the Central Bank of Chile (BCCH), governs investments, deposits and loans that Chilean residents or legal entities can make or grant abroad, whether with foreign currency of their own, or bought at the formal or open foreign exchange markets.
In brief and simple terms, as these regulations are rather complex, under the rules any unregulated local investor can make an equity investment abroad. (This would constitute forming a foreign subsidiary or branch outside Chile, or acquiring in whole or in part an existing foreign company, which includes the acquisition of shares of stock of an existing private or public company abroad.) Alternatively a local investor can acquire any asset, including securities and commercial paper, or make deposits with an offshore banking entity, or grant loans to individuals or legal entities resident abroad (generally, offshore investments), by transferring the necessary foreign currency through the formal foreign exchange market without any restriction, provided, however, that before the remittance of the currency, an affidavit be submitted to the BCCH. In this, the local investor must declare the type of offshore investment it is willing to make, the amount to be remitted and the source of the foreign currency that will be used.
If this procedure is not followed, or the local investor changes the type or nature of its offshore investment, it may become subject, when returning at the appropriate time the proceeds of its offshore investment into Chile, to a one-year period mandatory reserve requirement with the BCCH, imposed at the rate in force at the time or to pay a fee to the BCCH equivalent to Libor plus a certain margin on the amount that would have been otherwise subject to the reserve requirement, for the period during which such reserve should have been maintained. At present, the mandatory reserve requirement rate is 0%. BEN
Based on this, the exchange control regulations in force in Chile, do not prevent, restrict or limit in any way local employees or other local investors from making offshore investments.