March 30, 2017 – Executive Order #62
Rules for Non profit Organizations: associations & foundations
This Order was issued by the Ministry of Government (“MinGob“), regulating Non Profit Organizations, such as associations and foundations.
Examples of such Not-for-Profits are:
- private not-for-profit foundations
- religious churches, congregations or communities
- federations or other entities which are not tied with cooperatives, sports, agriculture or other types which have special legislation.
In simple terms, this Executive Order establishes the basic requirements for registering a Not-For-Profit with MinGob, who is in charge of granting “legal status”, which is later published and made known through the Public Registry of Panama. Unlike companies, which receive their legal status simply through the filing at the Public Registry, in the case of Non Profit entities, it is MinGob who grants them legal standing.
It is easy to present the papers to MinGob, but you will require the services of a lawyer. The basic requirements are:
- Power of attorney and Application by the lawyer
- Articles of Association, establishing the Board of Directors and approval of the Bylaws, signed by the President and Secretary
- List of the members of the Board of Directors (at least 3 members) – natural or legal persons. If you include a legal person, this entity must approve (shareholders or stakeholders) participation in the Board of Directors.
- The Bylaws, which should be duly signed by the President & Secretary
- Two full sets of copies of the entire set of documents.
The entity must not have private beneficiaries and may in no way dish out income or donations received to members, board members or founders. It may, however, hire staff.
Bylaws of Non Profit Organizations
The Bylaws of the Not-For-Profit Organization should contain the following:
- Name – in Spanish or with a translation to Spanish
- Registered Address in Panama (changes must be notified)
- Geographic area in which it will operate
- Detailed objectives – is it philanthropic, union or other nature
- Initial capital or donations to the entity and money raising actions
- Will it require quotas? If so, who sets the quotas?
- How to become a member, how human rights are upheld, and other basic Constitutional rights
- Losing membership
- Rights and duties of members
- Governing bodies: General Assembly, Board of Directors
- Who is the legal representative?
- Changing the bylaws?
- How the accounts will be registered? Manner in which you will record funds received and spent?
- Can branches or chapters be set up? How is this to be done?
- What is the process for dissolving and liquidating? How will the funds be used on dissolution?
If there are mistakes or errors in the documents handed in, you have 60 days to fix them (once notified), otherwise the request will be denied.
Members of the Board must be residents of Panama: natural or legal persons, Panamanian or immigrants. Embassy staff, diplomats, and other State or international entity envoys, may also be members. Global Non Profit bodies may also help establish local Not-For-Profit bodies and appoint resident board members, such as:
- Chambers of Commerce
Order #62 regarding Non Profit Organizations also covers other matters like:
- Review and Inquests
- Use of funds – prudence and purpose
- Changes of Bylaws
- Setting up branches of foreign bodies
- Dissolving and liquidating
- Supervision, follow-up and reviews
For more information regarding setting up a Non Profit Organization, please contact Betsy Moran. She will assist with the registration process, and follow up to get all of the permits, including tax exemption status.
Last year Panama had many changes in the financial sector: the Panama papers scandal lead to greater international pressure for OECD compliance and exchange of information. Months later the Clinton list added Waked and Grupo WISA (affecting some 6000 local employees), including two newspapers. The US alleged money laundering, although these allegations to date have been ruled unfounded by the courts. Nevertheless, these measures have resulted in company liquidations, interventions and sell-offs. There was also increased regulations introduced for lawyers and law firms, regarding bearer shares and due diligence, with registration of firms both with the Supreme Court of Panama and also with the Intendent that supervises Professionals (such as Realtors, Accountants, Casinos, Money Exchanges, Free zone and others). Furthermore, the pressure has increased against Panama to require all companies to provide accounting records.
As of January 1, 2017, Panamanian corporations that are open and operating, are required to have accounting records. They will need to notify their Registered Agent in Panama where these records are being kept.
Accounting Records for Offshore Companies & Foundations
The new rules adopted by Law 52 (2016) are for those offshore companies and foundations, even though they hae no direct business transactions in Panama.
- Offshore corporations – irrespective of whether or not they have bank accounts, are holding property or their purpose and function. If the company is in good standing, it is required to keep accounting records
- Private Interest Foundations – irrespective of what assets or holdings the foundation have
- Holding companies – even companies whose sole purpose is to hold share in other companies are required to have accounting records
Accounting records in Law 52 are described as “that data that clearly and precisely indicates the commercial operations that the entity has, its assets, liabilities and capital contributions.” In the Commercial Code of Panama, we find that the accounts are described as being essencial the the “Diario” and the “mayor”, and the supporting documentation. The “mayor” is the ledger , and the “diario” would be the book where you register the day to day transactions . The supporting documentation would be the invoices, cheque stubs, banking statements, contracts for sale or purchase, or other documentation. All of this data should ensure that the company can provide an updated balance sheet at any time of assets, liability and capital.
The law does not specify “how” these records are to be kept, but in Panama the Commercial code establishes 2 principal ways of keeping your accounting records – manually (in accounts books) or digitally. In this second case, Panama does not recognise Excel sheets as being an acceptable digital form. It is recognised that Excel can be easily modified and does not have a double-entry system. Sage / PeachTree is typically used by businesses in Panama to run their accounting or tailored accounting programs for this purpose.
What is important is that the information MUST be kept up to date – i.e. no more than 60 days after month end.
Panama does not require that these records be maintained physically in Panama or that you hire or retain a Panamanian accountant or book-keeping firm to maintain the accounts. Nevertheless, each company must inform the registered agent which officer/director/agent (natural person, not a company) will be responsible. The company must inform where these records will be physically located. In the event of any changes (the person moves or changes), the registered agent must be informed in no more than 10 days of said change.
For how long?
These records must be kept for no less than five years after the period ends, even in the event that the company is closed down.
What does Gray & Co. expect from clients?
All clients have been sent an Accounting Records declaration form, in which the client is required to indicate:
- who is the person that will be responsible for keeping these accounting records?
- where will the accounting records be kept?
- how will the accounting records be kept – format?
The Registered Agent’s responsibilities:
The registered agent of a company is expect to:
- Have from each client that does not have their accounting records with the law office, a sworn declaration as mentioned above
- In the event of a request for accounting records from a duly authorised Panamanian official, notify the client that they have 15 days in which to comply and provide the records
- Should the client fail to comply in these 15 days, the registered agent is required by law to resign.
Other books & registers
After you have considered the matter of accounting records, you might also turn to look at other documentary requirements. Panamanian corporations are also required to maintain the following books and registers:
- Minutes book – all minutes of meetings of the Board of Directors or Shareholders – these should be in chronological order and should include signed originals. The Company Secretary should hold these.
- Shareholder Register – the register which shows who is(are) the current shareholder(s), and any previous shareholder(s). This should include details such as:
- the number of shares issued
- the share certificate number
- the payment made for the shares (fully paid or partially paid)
- the date of issue
- the name and address of the shareholder
If the company still has bearer shares, these must now be held in custody (since December 31, 2015). For more information, please see our article Bearer Share Custody. If you had bearer shares, and failed to make the change to registered shares, then you need to contact your registered agent to get the company records into order.
For more information regarding these requirements and how Gray & Co. can serve you, please contact us.