Selling Your Ecuadorian Business: A Comprehensive Legal Guide to Structuring the Sale

Navigating the sale of a business in Ecuador, especially for expats, can feel like traversing a labyrinth. The complexities of Ecuadorian corporate law, coupled with the cultural nuances of negotiation and contract execution, often leave business owners feeling overwhelmed and uncertain. As an Ecuadorian lawyer with extensive experience guiding expatriates through these transactions, my mission is to demystify this process, ensuring a smooth, legally sound, and advantageous transaction. This guide walks you through the critical legal considerations for structuring the sale of your Ecuadorian business, from initial considerations to final registration.

Understanding the Legal Framework: Key Ecuadorian Laws

The foundation of any business sale in Ecuador lies within its established legal framework. While the Código Civil governs general contractual obligations, the primary piece of legislation you must be intimately familiar with is the Ley de Compañías, Valores y Seguros (Law of Companies, Securities, and Insurance). This law dictates the formation, operation, and dissolution of corporate entities and is the cornerstone of any share transfer. The Código de Comercio and the Ley de Régimen Tributario Interno (Internal Tax Regime Law) are also critical for commercial and tax compliance.

Types of Business Sales and Their Legal Implications

The structure of your business sale carries significant legal and tax consequences. The two most common structures are:

Asset Sale (Venta de Activos): In this scenario, the buyer acquires specific assets of the business—such as equipment, inventory, intellectual property, or real estate—rather than the corporate entity itself.
- Legal Considerations: Each asset transfer requires separate legal formalization. Real estate demands a public deed (escritura pública) before a notary, which must be registered at the municipal Registro de la Propiedad. This process requires a municipal tax clearance certificate (certificado de no adeudar al municipio). The sale of tangible assets is also typically subject to a 12% Value Added Tax (IVA), a significant cost consideration.
- Buyer's Perspective: The buyer assumes no pre-existing liabilities of the seller's company (unless explicitly agreed upon), making this highly attractive for risk-averse purchasers.
Share/Participation Sale (Venta de Acciones/Participaciones): Here, you sell the ownership stakes of the legal entity. The business continues to operate under the same legal name (RUC number) but with new owners. In Ecuador, the two most common company types are Sociedad Anónima (S.A.) and Compañía de Responsabilidad Limitada (Cía. Ltda.).
- Legal Considerations: The transfer process differs crucially by company type. For a Cía. Ltda., the transfer of participations must be executed via a public deed (escritura pública) and registered with the Mercantile Registry (Registro Mercantil) to be legally valid. For an S.A., the transfer is simpler, effected by endorsing the share certificate and updating the company's internal shareholder ledger. However, both require formal notification and registration of the change in ownership with the Superintendencia de Compañías, Valores y Seguros (SCVS).
- Buyer's Perspective: The buyer acquires the entire entity, including all assets, licenses, contracts, and—critically—all known and unknown liabilities. This necessitates exhaustive due diligence.

Expert Insight: The choice between an asset and share sale is a strategic decision. An asset sale provides a clean break from liabilities but can be administratively complex and trigger IVA. A share sale is simpler to execute but exposes the buyer to all historical risks of the company, including labor and tax liabilities.

The Sale Process: A Step-by-Step Legal Breakdown

A structured approach ensures compliance and minimizes potential disputes.

Step 1: Preliminary Agreement and Due Diligence

While a Letter of Intent (LOI) is common, in Ecuador, a more robust and legally enforceable preliminary document is the Promesa de Compraventa (Promise to Buy and Sell). This binding agreement can be notarized and even registered, outlining the core terms and preventing the seller from entertaining other offers.

This is the phase for exhaustive due diligence (auditoría legal). The buyer will scrutinize your business's legal, financial, labor, and tax standing. Be prepared to provide:

The company's Certificado de Cumplimiento de Obligaciones from the SCVS, proving all corporate filings are up to date. A savvy buyer will absolutely demand this.
Tax clearance certificates from the SRI.
Proof of compliance with the IESS (Ecuadorian Social Security Institute).

Step 2: Drafting the Definitive Sale Agreement

Whether an Asset Purchase Agreement (Contrato de Compraventa de Activos) or a Share Purchase Agreement (Contrato de Compraventa de Acciones/Participaciones), this document is the heart of the transaction. Key clauses specific to Ecuadorian practice include:

Representations and Warranties (Declaraciones y Garantías): Statements of fact about the business. False statements can lead to legal action.
Indemnification: Specifies how the seller will compensate the buyer for losses arising from breaches of warranties (e.g., undisclosed tax debts).
Successor Liability (Responsabilidad Solidaria): A critical clause addressing Article 189 of the Código del Trabajo (Labor Code), which states that a new business owner is jointly and severally liable with the seller for all labor obligations existing at the time of the transfer. This liability cannot be waived and must be addressed through indemnification clauses.
Governing Law and Jurisdiction (Ley Aplicable y Jurisdicción): Explicitly stating that Ecuadorian law governs the contract and designating the courts of a specific city for dispute resolution.

Step 3: Closing the Transaction (Cierre)

The closing involves the formal execution of all documents before a Notary Public (Notario Público), payment of the purchase price, and the physical handover of the business. The notary validates the identity of the parties and the legality of the act, providing essential legal security.

Step 4: Post-Sale Formalities and Registrations

This is where many transactions fail due to administrative unfamiliarity. The deal is not truly complete until all registrations are finalized.

Superintendencia de Compañías, Valores y Seguros (SCVS): All changes in ownership, capital structure, or company administrators must be reported online through the SCVS portal.
Registro Mercantil (Mercantile Registry): Any escritura pública related to the sale (e.g., Cía. Ltda. participation transfer, appointment of a new CEO/Manager) must be inscribed here. The registration fee for a new manager's appointment (nombramiento) is typically around $45.00.
Servicio de Rentas Internas (SRI): The seller must report any capital gain from the sale and pay the corresponding income tax. This is often done via Formulario 108, the form for reporting income from the occasional sale of assets or shares. The company's RUC must also be updated to reflect the new owners and legal representatives.
Registro de la Propiedad: For real estate sales, the new deed must be registered. Before this, the buyer must pay the alcabala (transfer tax) and the seller must pay the plusvalía (municipal capital gains tax).

Common Expat Pitfalls to Avoid

Ignoring Successor Labor Liability: Underestimating the impact of Article 189 of the Labor Code is the single most dangerous financial risk for a buyer. As a seller, be prepared to fully disclose all employee-related liabilities.
"Doing a Handshake Deal": Verbal agreements are unenforceable for business sales in Ecuador. A meticulously drafted, notarized contract is your only protection.
Failing to Get a Certificate of Compliance: A buyer who proceeds without demanding the company's Certificado de Cumplimiento de Obligaciones from the SCVS is inheriting a black box of potential fines and legal problems. As a seller, having this document ready demonstrates good faith and preparation.
Skipping Post-Sale Registrations: Thinking the deal is done after signing at the notary is a critical error. Without registration at the SCVS and Mercantile Registry, the transfer is not legally enforceable against third parties, and the seller may remain the legal owner on public record.

Legal Checklist for Cuenca Expats

[ ] Corporate Health Check: Obtain your company’s Certificado de Cumplimiento de Obligaciones from the SCVS.
[ ] Tax Status: Secure a certificate from the SRI confirming no outstanding tax debts.
[ ] Labor Status: Obtain a certificate from the IESS confirming all social security payments are current.
[ ] Compile Corporate Records: Gather the escritura de constitución, all bylaws (estatutos), and the appointment records (nombramientos) of legal representatives.
[ ] Title and Ownership: Verify clear title for all major assets, especially real estate and vehicles.
[ ] Engage Professionals Early: Retain an Ecuadorian lawyer and accountant before entering negotiations.

⚠️ Legal Alert: When to Stop and Consult an Attorney

The moment you decide to sell. An attorney can help you structure the business for a more favorable sale.
Before signing any preliminary document, including an LOI or Promesa de Compraventa.
When the buyer begins due diligence. Your lawyer should manage the flow of sensitive information.
Before drafting or reviewing the definitive sale agreement. Do not use a template. This document must be custom-drafted.
At the notary's office for closing. Your lawyer should be present to verify all documents before you sign.

The sale of a business is one of the most significant financial events of your life. Attempting to navigate Ecuador's complex legal and administrative systems without expert, localized guidance is an unacceptable risk.

Conclusion: Securing Your Future Through Compliant Transactions

Selling your Ecuadorian business is a major milestone. By understanding the specific requirements of the Ley de Compañías, following a structured process, and proactively addressing critical liabilities under the Código del Trabajo, you can ensure a successful and legally secure transaction. The key is to partner with experienced local professionals who can guide you through the intricacies of Ecuadorian law and protect your interests at every step.

Ready to discuss your business sale with confidence?

Selling Your Ecuadorian Business: A Comprehensive Legal Guide for Expats