Incorporating a Company in Colombia: A Step-by-Step Guide

Incorporating a company in Colombia may seem daunting, but the process is actually quite straightforward. In this comprehensive guide, we will outline the critical steps you need to take to register a company in Colombia. It is worth considering Colombia as a destination for expanding your business operations. In 2016, The Economist named Colombia the “Country of The Year,” and it has consistently attracted foreign direct investment (FDI) since then. In 2022, FDI reached USD 17.05 billion, continuing the upward trend. Additionally, Colombia offers better investor protection compared to many other countries, with a higher ranking of 7.6 (as of 2022) than the US, Germany, and Israel.

Why Choose Colombia to Incorporate/ Form a Company?

Before diving into the details of incorporating a company in Colombia, let’s first explore why Colombia is an excellent choice for doing business. Colombia offers numerous advantages that businesses can leverage:

• Strategic Location: Colombia’s location in South America provides easy access to regional and international markets.
• Rapidly Growing Economy: Colombia’s economy is witnessing significant growth, making it an ideal spot for innovation.
• Competitive Labor Costs: The country boasts a large pool of skilled, young workers, resulting in affordable labor costs.
• Favorable Business Climate: Colombia has implemented regulatory reforms that simplify bureaucratic processes and provide incentives for foreign investment. Tax incentives and free trade zones are examples of incentives offered by the government.
• Abundance of Natural Resources: Colombia is rich in natural resources, especially in sectors such as agriculture, mining, and renewable energy, which are relevant to various industries.
• Improving Infrastructure: The country’s infrastructure and transportation networks are continuously improving, facilitating smooth business operations.
• Promising Market: Colombia’s diverse and expanding consumer base offers a promising market for domestic and export-oriented companies seeking growth in Latin America.

Step-by-Step Guide to Incorporating a Company in Colombia

1. Establish the Foundations of the Company

To incorporate a company in Colombia, you must first check the availability of your desired company name. Note that your legal business name and trademark may differ. Additionally, prepare and present your company’s bylaws, which should outline essential information such as its functioning and activities. In Bogota, you can complete the process of obtaining a Tax ID at the Chamber of Commerce. However, if you plan to establish your company in another city, additional steps will be necessary. You need to apply for a provisional Tax ID first and then proceed to apply for the final Tax ID from DIAN. This step is crucial.

2. Understand the Available Legal Structures for New Company Formation

Colombia offers three legal structures for companies:

• Limited Company
• Joint-Stock Company
• Simplified Stock Company (SAS)

The SAS is the most recommended option for most foreign investors due to its simplicity and fewer formalities. The SAS was established by law in 2008 and remains a popular choice for both local and foreign entrepreneurs.

3. Register your Company at Public Institutions

During the incorporation process, you will interact with three primary institutions:

• Chamber of Commerce
• Colombian Tax Authority
• Local bank of your choice

The Chamber of Commerce regulates the creation of new companies in Colombia. It ensures compliance with legal structures and policies and provides a certificate that proves your company’s existence and legal status. This certificate will be required by various private and public entities once your business is operational. The Colombian Tax Authority registers your business in the tax system, assigning a unique tax number (NIT) for identification and mandatory tax declarations. You will also need to open a corporate bank account for operational purposes and receiving foreign investments.

4. Open a Corporate Bank Account

Opening a corporate bank account is a straightforward process. You need to present the following documents: the Existence Certificate from the Chamber of Commerce, the Tax ID certificate (RUT), the legal representative’s ID, and the opening balance sheet of the company. It’s important to note that some banks may have specific requirements for account opening.

5. Create an Entity Incorporation Document

An entity incorporation document is necessary, outlining the names and personal information of all partners involved in the business, the company’s name, and its planned activities in Colombia. This document should also cover other crucial details, including capital structure, the board of directors, partner responsibilities, and causes of termination.

6. Hire a Legal Representative

Every company in Colombia must have a legal representative who can be different from the company owners. The legal representative is responsible for the company’s operation, authorizing tax declarations, and signing all contracts and legal documents.

7. Understand the Laws Regarding Hiring Employees

When incorporating a company in Colombia, it is essential to understand the laws regarding hiring employees. You will need to register your business with the Family Compensation Fund, the Colombian Family Institute, and the Governmental Learning Service, and fill out a unique form for each agency. You must also ensure that your employees have public health coverage by registering them with their chosen healthcare provider. Your company must affiliate with a pension system, allowing employees to select their preferred fund. Lastly, registering your business with the Labor Risks Administrator is crucial to cover professional illness and workplace injury cases.

Common FAQs when forming a company in Colombia

Here are answers to some common questions regarding company formation in Colombia:

1. Can a foreigner own a business in Colombia? Yes, both legal entities and individuals can own a business in Colombia.
2. How long does it take to register a company in Colombia? The registration process typically takes approximately four weeks.
3. What does LTDA mean in a company name in Colombia? LTDA refers to “Sociedad de Responsabilidad Limitada” or Limited Liability Company. It offers partners limited liability for the company’s debts beyond their investment.
4. What does S.A.S mean in a company name in Colombia? S.A.S stands for “Sociedad por Acciones Simplificada” or Joint Stock Company. It is a commercial company with independent legal personality and assets.

Incorporating a company in Colombia opens up exciting opportunities in a thriving business environment. By following the step-by-step guide outlined above, you can successfully establish and register your company in Colombia.

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