Raising Capital: The Legal Framework for Selling Equity in Your Ecuadorian Company

As an entrepreneur in Ecuador, scaling your business often hinges on securing vital capital. For many, this means selling equity—offering a stake in your company to investors. While the allure of investment is strong, navigating the legal labyrinth of Ecuadorian corporate law can be daunting, especially for foreign business owners. This guide, drafted from years of hands-on experience guiding businesses through this exact process, aims to demystify the legal requirements, outlining the essential steps and common pitfalls to ensure your equity offering is both successful and fully compliant.

Understanding the Legal Landscape: Key Legislation

The primary legal framework governing the issuance and sale of company shares in Ecuador is the Ley de Compañías (Companies Law) and the regulations issued by the Superintendencia de Compañías, Valores y Seguros (SCVS). This foundational legislation dictates company structures, capital requirements, and the rights and obligations of shareholders.

When your company sells equity, you are legally executing an "aumento de capital suscrito y pagado" (increase of subscribed and paid-in capital). This process is strictly governed by the Ley de Compañías, particularly the articles detailing shareholder meetings, pre-emptive rights, and the registration of corporate changes.

Company Types and Suitability for Equity Sales

The most common corporate structures in Ecuador for raising capital from investors are:

• Sociedad Anónima (S.A.): The traditional and most robust structure for companies seeking significant outside capital. Its shares (acciones) are freely transferable (subject to bylaws), and it can issue different classes of shares with varying rights, making it highly attractive to sophisticated investors.
• Sociedad por Acciones Simplificada (S.A.S.): Introduced by the Ley Orgánica de Emprendimiento e Innovación, the S.A.S. is a modern, highly flexible structure. It simplifies many corporate governance requirements and is ideal for startups and growth-stage companies looking to raise capital efficiently.
• Compañía de Responsabilidad Limitada (Cía. Ltda.): Primarily designed for smaller, closely-held businesses. Capital is represented by participaciones, not shares. Increasing capital is possible, but transferring participaciones requires the unanimous consent of all other partners, making it cumbersome and ill-suited for attracting external equity investors.

For most equity-raising scenarios, the S.A. and S.A.S. provide the necessary flexibility and legal framework.

The Step-by-Step Process of Issuing New Equity

Selling equity in your Ecuadorian company is a formal process that demands meticulous adherence to legal procedure. A single misstep can invalidate the entire capital increase.

Step 1: The General Shareholders' Meeting (Junta General de Accionistas)

The process begins with a formal resolution passed at a General Shareholders' Meeting. This is the exclusive domain of the shareholders, as mandated by Artículo 184 of the Ley de Compañías. The official minutes (Acta de Junta General) must be drafted with extreme precision and detail:

• The exact amount of the proposed capital increase.
• The number, class, and nominal value (valor nominal) of the new shares.
• The share premium (prima en emisión de acciones), if any.
• A clear statement on the exercise or waiver of pre-emptive rights.
• The deadline for existing shareholders to exercise their rights and for new investors to subscribe and pay.

Step 2: Pre-emptive Rights (Derecho de Preferencia)

As per Artículo 187 of the Ley de Compañías, existing shareholders have a pre-emptive right to subscribe to new shares in proportion to their current holdings. They can exercise this right within a legally mandated period (typically 30 days). If these rights are not exercised, or are formally waived in the Shareholders' Meeting, the shares can be offered to new, external investors.

Step 3: Capital Payment and Certification

The subscribed capital must be paid in. This is a critical, often mishandled step:

• Cash Contributions (Aportes en Dinero): Investors must deposit the funds into a special bank account called a Cuenta de Integración de Capital (Capital Integration Account) opened in the company's name. The bank will then issue an official certificate verifying the deposit. This certificate is a non-negotiable prerequisite for the notary.
• In-Kind Contributions (Aportes en Especie): Non-cash assets (property, equipment) can be contributed but require a detailed valuation report prepared by an independent, qualified appraiser. This report is scrutinized by the SCVS.

Hyper-Specific Detail: A common error is assuming a simple wire transfer to the company’s operating account is sufficient. It is not. The funds must pass through a designated Cuenta de Integración de Capital, and the bank's certificate is the only valid proof of payment for the notary and the SCVS.

Step 4: The Public Deed (Escritura Pública)

Once the capital is paid, a lawyer must draft the Escritura Pública de Aumento de Capital Social. This document, which includes the meeting minutes, payment certifications, and updated bylaws, is executed before a Notary Public (Notario Público).

Hyper-Specific Detail: Notary fees are regulated by the Consejo de la Judicatura. For a capital increase of around $100,000, expect notary and subsequent registration fees to be in the range of $600 to over $1,500. The cost is directly tied to the capital amount, so it's a predictable project expense.

Step 5: Approval by the Superintendencia de Compañías (SCVS)

The notarized public deed is submitted for approval to the SCVS, typically through their online portal. Before you can even submit the request, the company must be in good standing.

Hyper-Specific Detail: The SCVS system will block your submission if you have not first obtained a current "Certificado de Cumplimiento de Obligaciones" for your company. This digital certificate confirms you have filed all financial statements and complied with all regulations. Forgetting to generate this certificate is a frequent cause of delays.

Step 6: Inscription in the Mercantile Registry (Registro Mercantil)

Following SCVS approval, the resolution and public deed must be inscribed in the Mercantile Registry of the canton where the company is domiciled. This is the final step that makes the capital increase legally effective against third parties.

Step 7: Update Corporate Records

Finally, the company's legal representative must update the internal Libro de Acciones y Accionistas (Share and Shareholders' Ledger) to reflect the new ownership structure. The SRI (Servicio de Rentas Internas) must also be notified of the change in shareholding composition.

Critical Expat Pitfalls and How to Avoid Them

• The Expired Nombramiento: The single most common roadblock. The nombramiento is the legally registered document proving the General Manager's authority to act on behalf of the company. If this document is expired (they are typically valid for 5 years), no notary or government entity will process the capital increase. Verify its validity before starting the process. Re-registering it can take weeks.
• Ignoring the Shareholder Agreement (Pacto de Accionistas): While the law dictates the process, it does not govern the relationship between investors. A robust shareholder agreement is essential. It should cover dividend policies, drag-along/tag-along rights, dispute resolution, and exit mechanisms. Skipping this is a recipe for future conflict.
• Underestimating Timelines: From the shareholder meeting to final registration, a "fast" capital increase process in Ecuador takes 4-6 weeks. A more realistic timeline, accounting for potential administrative queries, is 2-3 months. Do not promise investors a faster closing.
• Tax Oversights: A capital increase is generally not a taxable event for the company. However, if an existing shareholder sells their shares at a profit, they are subject to capital gains tax. Furthermore, foreign investors must be registered with the SRI and understand their potential tax liabilities in Ecuador.

⚠️ Legal Alert: When to Stop and Consult an Attorney

Immediately halt any action and consult an experienced corporate attorney if:

• An investor requests complex share structures, such as convertible notes, SAFE agreements, or preferred shares with liquidation preferences. These are possible but require expert drafting to be valid under Ecuadorian law.
• The investment involves cross-border transactions or funds originating from a country with strict anti-money laundering (AML) regulations.
• There is any disagreement among existing shareholders about the terms of the new investment.
• The SCVS or another entity issues a "providencia" requesting clarification or correction of your submitted documents.

Conclusion: Building on a Solid Legal Foundation

Raising capital is a landmark achievement for your company. In Ecuador, the legal framework is designed to protect both the company and its investors, ensuring transparency and legal certainty. By understanding the Ley de Compañías, meticulously following the established procedures, and anticipating common bureaucratic hurdles, you can navigate this process with confidence. Engaging qualified legal counsel is not an expense; it is a critical investment in the long-term stability and success of your enterprise.