Panama: Business & Tax Haven of the Americas Table of Contents

Law on Limited Liability Companies

LAW 24
(of February 1, 1966)
Regulating Enterprises of Limited Liability

FIRST SECTION
The Limited Liability Companies
CHAPTER I
General Provisions

ARTICLE 1. - The limited liability companies must use a trade name, denominate itself by its purpose, or bear the name that the partners agree to denominate it, but in all cases the words "Sociedad de Responsabilidad Limitada", or initials S. de R.L." or the abbreviation "Sdad, Ltda." must be added or placed before the name. (Initials "Ltd." are acceptable). The omission of such requirement in the company charter or any subsequent act of the company, shall hold all its administrators and its partners personally and severally responsible, without any limitation whatsoever, over obligations contracted by the company. No trade name or denomination shall be the same as, or similar to that of another entity previously registered, whether or not of limited liability, that may be lend to cause confusion.

ARTICLE 2. - Excepting the dispositions in Article 43 of the Commercial Code, any person that without being a partner, allows that his name appear within the trade name, shall respond solidarily for the amount of the social obligations up to the total amount of the contributions made or promised by the partners.

ARTICLE 3. - The limited liability companies shall always be considered as mercantile entities, therefore being ruled, whatever their purposes may be, by the laws and uses of commerce. They may carry on any kind of lawful operations, civil or commercial, which are not reserved by law to other kind of entities.

ARTICLE 4. - In the limited liability companies, the minimum number of partners shall be two (2) and the maximum twenty (20). However, if two partners are to be spouses, the minimum number of founding partners shall be three (3), the company not being able to operate with less than such number while such circumstance subsist.

ARTICLE 5. - The paid-in capital shall be integrated by the contributions of the partners. It shall not be less than two thousand dollars ($2,000.00) nor more than five hundred thousand dollars ($500,000.00), and it shall be represented in social participation or non-negotiable quotas, accruable and divisible. The participation or quotas may be of different value but, in any case, they shall be of one hundred dollars ($100.00) or of a multiple of one hundred.

ARTICLE 6. - Upon constitution of the limited liability company the capital must be fully suscribed, and paid, at least, 50% of the value of the contributions in money, that must be completed in the maximum term of five (5) years. The contributions in specie must be made in its totality and should the value of the contribution would not reach the quotas assigned, the difference shall be completed with money. The sums of the contributions made at the time of the constitution of the company cannot be less than two thousand dollars ($2,000.00).

ARTICLE 7. - Whenever, by any circumstance the limited liability company may deem convenient that the number of partners be more than twenty (20), or its paid-in capital be more than five hundred thousand dollars ($500,000.00), it must adopt the necessary resolutions to be transformed into a corporation in accordance with the dispositions in Article 12 of this Law.

To carry out the mentioned change, the partners that do not wish to make use of the power granted to them in Article 23 of this Law, shall place on record their intent by way of a public deed, which shall contain the corresponding corporate charter and the express declaration that the corporation created shall assume all charges and obligations of the (Limited Liability) company that is being transformed.

CHAPTER II
Constitution of the company

ARTICLE 8.- The limited liability company shall be constituted by means of a public deed, that must be registered in the Public Registry and published. All its partners shall subscribe such deed personally or through special attorney-in-fact, and by the administrator, or the administrators designated in the same, should they not be partners. The mentioned deed shall state:

1. - The names, surnames, nationalities, civil status, occupation (profession), identity card or of any other document of identification of each one of the executing partners.

2. - The denomination of the company, or the trade name.

3. - The domicile of the company, stating its complete address and the place or places where it is proposed to be established, or may already have established its main operations office, as well as its branches or agencies, should the latter has already been decided.

4. - The duration of the company, as well as the manner in which such term is computed, and how to extend it, should the partners deem it convenient.

5. Explicit indication of the activity or activities that shall constitute the purpose of the company. It cannot, on a permanent basis, carry out operations that are not included in the objectives of the constitution charter, nor change to others without proceeding, in any case, to an amendment of the constitution charter.

6. - The amount of the capital stock expressed in balboas, the contributions or quotas in which it is divided, and the value of each one.

7. - The money, the assets or rights that each partner contributes, indicating in these latter cases, the concept in which it is made; the value attributed to the contributions which are not in cash, as well as the reasons to justify such estimation; the exact period and the manner in which the contributions in money not yet totally satisfied shall be completed, and the contributions or quotas assigned to them.

8. - Appointment of the person or persons that shall be in charge of the administration and representation of the company, which may be partners, or not, indicating if desired, the term for which they are appointed. Lacking such indication, it is understood that they have been appointed for an indefinite period.

9. - The manner in which the General Assembly of partners deliberates and adopt resolutions, as well as the manner of organizing it and the date, or dates in which it shall meet.

Should the number of partners be five (5), or less, it will not be necessary to hold general assemblies; but in such case, it must be clearly stated in the constitution charter, the manner in which the partners shall be consulted and the manner in which they shall express their opinion, in writing, concerning the matters submitted to them.

10.- The other lawful agreements and the conditions that the partners may esteem convenient to establish, provided that they shall not be opposed to the dispositions of this Law. It is prohibited to stipulate in the constitution charter additional benefit consisting of work or personal services of the partners.

ARTICLE 9.- It may be specified in the constitution charter that the partners or some of them, shall have the right to receive an annual interest of 7% on contributions made, even if there are no earnings; but only for the period of time necessary for the execution of the works that, in accordance with the mentioned deed, must precede the outset of its operations, but in no case such period must exceed three (3) years. Such interest shall be charged to general expenses.

ARTICLE 10.- The deed of constitution of the company must be registered in the Public Registry within thirty (30) days following the date of execution. In a like term the transfer of real estates that the partners, or some of them, may have contributed to the company, must also be registered, evidencing the same by means of the corresponding marginal note on the previous registration.

Within thirty (30) days following the date of the last above mentioned registrations, an excerpt of the corporate charter must be published in three (3) consecutive issues of a newspaper of ample circulation, as provided in articles 471 and 472 of the Commercial Code. The administrators shall be personally and severally responsibly, without any limitation whatsoever, before the persons with whom they could have contracted with in the name of the limited liability company, prior to the registrations and publications aforementioned.

ARTICLE 11.- Whoever subscribed the deed of constitution of the company and whoever organized it, or formed part of it, shall respond in a personal and solidary manner, before third parties for that part of the capital that has not been fully paid with money, and for the value attributed to the contributions made in specie.

ARTICLE 12. - The limited liability company may vary the content of the constitution charter, abiding by the same rules that have been indicated for its constitution. Unless the constitution charter provides otherwise. the amendment to the same shall require the consent of two third of the partners that may represent, at least, two third of the paid-in capital. However, the unanimous consent of the partners will be necessary for any amendment to the constitution charter that may imply for them compulsory additional contributions, or any form of extension of their responsibility.

The variations referred to in the first four (4) paragraphs of article 14 of this Law, shall not mean, by themselves, an amendment to the corporate charter.

ARTICLE 13.- The paid-in capital of the limited liability company may be increased or reduced by means of an amendment to the constitution charter. Nevertheless, the reduction of the paid-in capital cannot be carried out in the following cases:

1.- Should there be well-founded opposition of any creditor or any interested person, which shall be legalized before the respective Circuit Judge within the term of thirty (30) days from the date of the last publication referred to in article 10 of the present Law.
Such opposition shall stop all effects of the projected reduction until it is withdrawn, or resolved by the Court.

2.- If on account of the reduction, the assets of the company would be less than twice the liabilities, not including the paid-in capital.

3.- If after the reduction the paid-in capital would be less than two thousand dollars ($2,000.00).

ARTICLE 14: - The following must be registered at the Public Registry in a term of thirty (30) days:

1.- All transfers of capital contributions that may imply variation in the persons (holding) of the partners.

2.- The changes that the company may agree in respect to its administrators, special attorneys-in-fact, representatives and liquidators.

3.- The establishment or closure of branches and agencies.

4,- The change of address of the company, even if it is within the same town (location).

5.- The other agreements adopted by the partners in general assemblies or in writing.

CHAPTER III
Rights and duties of the partners

ARTICLE 15.- Unless the constitution charter provides otherwise, in case of an increase in the paid-in capital each partner shall have the right to subscribe a proportional share as to the quotas held. ARTICLE 16.- Each partner shall have the right to receive from the company, a certificate signed by the administrator, or any of the administrators, which shall certify:

1.- The name of the company.

2.- The paid-in capital.

3.- Precise indication of the registration (data) of the constitution charter in the Public Registry.

4.- Name of the partner.

5.- Value of the partner's participation, expressed in balboas, with indication, if such is the case, of the sums paid and the date in which the (balance of the) contribution must be completed.

6.- Date and place in which the certificate is issued.

ARTICLE 17.- Each partner shall have at least the right to one vote in the deliberations of the company, provided not being in default in the total payment of its contribution. Should the partner´s quota be for a multiple of one hundred dollars ($100.00), it shall have the right to one vote for each one hundred dollars ($100.00), unless the constitution charter may have provisions restricting in any manner the number of votes.

The right to vote, however, will not be exercised by the partner in the cases in which the partner has an interest opposed to that of the company. Neither are able to vote the administrators that are partners, whenever it is tried to reach agreements that may be related with his administration, or otherwise may affect them.

ARTICLE 18.- Unless otherwise provided in the constitution charter in the cases where the assembly must meet, any partner may be represented by and attorney-in-fact freely designated through a public or private document, with or without a clause of substitution.

ARTICLE 19.- The partners shall have the right to participate in the earnings that the company agree to distribute and in the part corresponding to the liquidation when the company is dissolved, in the proportion that may have been established in the constitution charter, or otherwise, in proportion to the contributions made, bearing in mind the provisions of Articles 266 and 267 of the Commercial Code.

ARTICLE 20.- Whenever a capital participation which cannot be divided may be owned by various persons, these shall designate, through communication in writing, addressed to the company, who shall exercise the rights inherent to such participation, without prejudice that all participants in solidum will meet the obligations of the partner towards the company.

ARTICLE 21.- In case of usufruct of capital contributions, the category of partner corresponds to the owner (partner) subject to usufruct. The usufructuary shall have the right to participate in the net earnings obtained by the company during the period of the usufruct and to sue before the Judge the nullity of all agreements adopted that may damage its interest. The exercise of the other rights correspond to the owner (partner) subject to usufruct, unless otherwise provided in the constitution charter or agreed upon between the interested parties. Any agreement between the owner (partner) subject to usufruct and the usufructuary that may confer to the latter more rights than those that are herein recognized, must be communicated to the company in writing so that the corresponding annotation be made in its register of partners.

ARTICLE 22.- In case of pledge of capital contributions, it shall correspond the owner of same to exercise the owner's rights, unless otherwise provided in the constitution charter or by agreement between the parties.

The constitution of pledge on capital contribution must be evidenced through a public deed that must be registered in the Public Registry. The content of the aforementioned public deed and any agreement between the parties that may confer special rights to the holder of the pledge, must also be communicated to the company.

ARTICLE 23.- Should the company agree to extend its duration beyond the limit determined in the constitution charter, or in a subsequent agreement; to vary its social purposes; to increase or reduce its paid-in capital; to change into a different company, or to merge with another company or companies, any partner that did not contribute with its vote to the aforementioned agreement, shall have the right to withdraw from the company demanding the corresponding payment due on the net worth of the company.

Likewise, any partner not performing the office of administrator of the company, may use this right, if during three (3) consecutive years the earnings distributed by the company would not reach to represent 4% of the real value of its quotas.

ARTICLE 24.- The exercise of the rights mentioned in the previous article must be attempted (made) by the partners dissenting on the amendments indicated within thirty (30) days following the date on which the corresponding agreement had been registered at the Public Registry, or within sixty (60) days following the date in which the last balance sheet had been presented, communicating in writing, their determination to the company.

The company will have, in both cases, a term of six (6) months from the date on which notification is received from the partner, or partners, to satisfy their petition. Should this not be done within the term indicated or, in another instance, within the term agreed by the company with the claimant partner or partners, the Judge, at their request, must decree the dissolution of the company and appoint a liquidator.

ARTICLE 25.- The quotas reimbursed to the partners that made use of the rights that are recognized to them in the two previous articles, shall be offered to the other partners at the price settled (paid) by the company. Those not acquired by the partners may be offered to third parties; but if within a period of two (2) months they have not been disposed of, the company shall proceed to reduce its paid-in capital as necessary, keeping in mind, in any case, the provisions on the matter in Article 13 of this Law.

ARTICLE 26.- The partners whose contribution do not consist of money, are obliged to the eviction and disencumbrance of those things object of the contribution, in accordance with provisions in the Civil Code, in respect to the seller.

Should the contributions consist of credits, the contributor shall respond, in any case, to the legality of same and of the solvency of the debtor.

ARTICLE 27.- No partner may carry out, on his own, or for others, similar businesses to that of the company or any that, in any manner , may hinder the development of its operations, nor be a part of other companies that are in the same business. The partners that infringe this provision, those that do not make timely payments on the balance due of their contributions and those that, in any form paralyze or try to hinder the development of the business operations, may be excluded from the company, withholding the latter all portions that may correspond to them in the net worth of the company, without prejudice to initiate against the same the necessary actions to obtain the proper indemnization of the case.

ARTICLE 28.- In the suppositions that are mentioned in the previous article, the exclusion of partners may be agreed upon by decision of a general assembly especially convened to consider the case. But if the company is made of (2) partners, the Judge, at the admissible petition of the other must decide the on exclusion of any of them. The same rule shall be followed when the partners (subject) of the intended exclusions have an aggregated economical participation, higher than that of the soliciting partners. The partners excluded by the company, that may consider such decision unjust, may appeal to the Judge within a term of thirty (30) days from the date the agreement was communicated to them, filing the claims deemed in order.

ARTICLE 29.- Excepting dispositions in Article 11 of the present Law, the economic responsibility of each partner for the obligations contracted by the company, shall be limited to the amount of its contribution, made or promised.

CHAPTER IV
Transfer of Quotas

ARTICLE 30.- Any partner may transfer, through a public deed, the totality of his participation, or part of it, bearing in mind the dispositions in Article 4 of this Law, and that the remaining quota of the transferor partner, if any, not be less than one hundred dollars ($100.00).
The constitution charter may establish special restrictions for the transfer of quotas between partners.
Otherwise, they shall be transferred freely.

ARTICLE 31.- The partner that intends to transfer in total or in part its participation in the company to a non-partner, must communicate it to the administrator or to any of them, expressing (disclosing) the name of the purported purchaser, if there is any, the number of quotas that are intended to be transferred and the price of same.
The administrators of the company, in a term of fifteen (15) days, shall also notify, in writing, the proposed intention to the rest of the partners, who may opt to purchase within thirty (30) days following the date of the notification, expressing (indicating) the quotas they would like to acquire and if they are in agreement with the price. Should there be several (parterns) interested in the acquisition, it shall be distributed among them in proportion to their respective participation. When this is not possible, they shall be adjudicated by drawing by lot. In the cases referred to in Article 25 of this Law, it shall be proceeded in the same manner.

ARTICLE 32.- Lapsed the term of thirty (30) days mentioned in the previous article, the partner shall be free to transfer the capital contributions not acquired by the other partners to the person designated in his communication, or, should there be no designation, to whoever he deems convenient.

ARTICLE 33.- For the exercise of preferential right to purchase granted to the partners in the preceding articles, the sale price of the quotas, in case of a discrepancy, shall be fixed by three (3) appraisers appointed thus; one (1) by the seller, another one by the partner or partners interested in the acquisition and a third by common consent, or should this not be obtained, by the Judge.

The appraisers mentioned shall have access to the accounting books of the company and shall be able to obtain the additional reports they may require to reach a judgment having to pronounce judgment in a non-extendible term of thirty (30) days from the date on which the last one of them was designated.

The procedure herein indicated shall be applicable, in any case, with the pertinent variations, when there being a discrepancy in respect to the real value of the quotas, it must then be resorted to an expert appraisal.

ARTICLE 34.- Should the quota not be totally satisfied (paid) by the transferring partner, it shall be severally obligated with the transferee, towards the company, for the payments that the latter must make when required to do so. Such responsibility shall cease upon expiration of the term indicated in the constitution charter to demand that payment of the partially paid quotas be completed.

The transferor, that by virtue of the previous provision, should have to make any payment to the company, shall be co-owner of the quota in proportion to what had been paid, without prejudice of the actions that may correspond against the transferee. The rights that in this case correspond to the transferor, shall be limited to participate in the distribution of earnings while the payments made are not satisfied (reimbursed), and in the quota of liquidation, should the company be dissolved before.

ARTICLE 35.- The transfer of any paid-in contribution due to death, confers to the heir or legatee of the deceased partner the category of partner, unless it is provided in the constitution charter that same shall be dissolved in any case due to the decease of a partner, or that it shall continue along with the surviving partners. In these cases, the heirs or legatees of the deceased partner may only have the right to receive that part in the company that would have corresponded to their constituent.

ARTICLE 36.- Notwithstanding the disposition in the previous article, the partners have the right to acquire for themselves the participation that corresponded to the deceased partner, being applicable here, with the pertinent variations, the procedure indicated in Article 33 of the present Law. The same rule shall apply in cases in which the creditors of a partner attempt to collect his credit (debt) from the paid-in quotas of the debtor.

ARTICLE 37.- Should the heir or legatee of the deceased partner, or any of them, in case there are several, would not wish to form part of the company, they shall have the right to demand from same payment of the value of the partner´s contribution in the manner and in the terms that have been indicated in article 24 of this Law.

CHAPTER V
Company Bodies
First Section

ARTICLE 38.- Whenever the number of partners is more than five (5), and when it is provided for in the constitution charter, it shall be necessary to call a meeting of the general assembly, prior notice of the meeting by the administration, which shall be sent to each partner, in writing, well in advance, not more than sixty (60) days nor less than ten (10), along with copy of the balance sheet, profit and loss account, the proposal of distribution of earnings and the report referred to in article 53 of the present Law.

The mentioned notice of meeting, which must be published three (3) consecutive times in a newspaper of ample circulation within the same terms established, shall specifically express the day, the place and the time in which the assembly shall be held, and the list of the matters to be discussed.

ARTICLE 39.- Unless the constitution charter provides that more frequent general assemblies must be held, these shall be held ordinarily at least once a year, and on the date established in accordance with dispositions in paragraph 9 of Article 8 of this Law.

ARTICLE 40.- Extraordinary general assemblies may be held when the administrators, or any of them, may consider it convenient and whenever the partners representing at least, 25% of the paid-in capital request it in writing. In the latter case, the partners requesting the extraordinary assembly, shall clearly indicate the reasons for their petition, and the matters that, to their judgment, must be resolved.

Should the assembly so requested would not be called by the administration in the term of thirty (30) days, the corresponding notice of meeting shall be made by the Judge, at the demand of the partner or partners that requested it, at company's cost.

ARTICLE 41.- It is of exclusive faculty of general assemblies:
1.- Decide on the amendments to the constitution charter.
2.- Approve or disapprove the balance sheet, the report from the administration, profit and loss accounts and the report from the distribution of earnings that may have been proposed.
3.- Decide on the proper actions to be taken against the administrators, after their removal from office, and also against certain partners, due to damages that the company may have sustained because of them.
4.- Appoint and remove administrators and determine their compensation.
5.- Appoint consultants and the special attorneys-in-fact or representatives that the company may deem convenient or necessary, determine their powers and revoke their designation.
6.- Decide on the dissolution, merge or transformation of the company, and to adopt any other resolution that the constitution charter may have reserved for it.

ARTICLE 42.- The general assembly shall be deemed constituted when, having been duly convened, there is present personally, or by proxy, half plus one of the partners, representing at least, half of the paid-in capital.

If in the first notice of meeting the mentioned quorum should not be obtained, a second notice shall be given, for a date encompassed between the following eight (8) and thirty (30) days, in the same manner mentioned in Article 38, clearly establishing that the general assembly that shall convene shall adopt valid resolutions whichever, (regardless of) the number of partners are present, or are being represented thereat

ARTICLE 43.- Notwithstanding the disposition in the previous article, whenever all the partners are together, they may constitute a general assembly on their own initiative and validly adopt the resolutions in order.

ARTICLE 44.- In cases where it is not necessary to hold general assemblies, consultations with the partners for them to express their opinions in writing, shall be made by cable. telegram or registered mail and with acknowledgment of receipt, within the terms indicated in Article 38 of this Law, clearly stating the matters consulted.
When requesting a vote from partners, in matters requiring categorical answers, consultations shall be made in such a manner that the questions may be answered affirmatively or negatively.
The answers received from the partners by cable or telegram shall be authenticated by the recipient office and shall be duly filed and maintained by the company, drawing up the minutes of the contents of same, which shall be certified by the administrator or the administrators. The answers received by letter shall also be filed and maintained by the company and its contents included in the aforementioned minutes.

ARTICLE 45.- The resolutions of the company shall be adopted by the majority.

Unless otherwise provided in the constitution charter on what this Law establishes for special cases, it shall be understood that there is a majority, when on first notice of a meeting, or in cases in which the partners express their opinion in writing, at least, half plus one of the partners, that may represent half of the paid-in capital or more. vote in favor of the resolution.

On the second notice of a meeting the favorable vote of half plus one of the partners present personally or by proxy, shall suffice, provided that the capital contributions of same (the voting partners) amount to at least, half of the paid-in capital represented in the general assembly.

ARTICLE 46.- The resolutions adopted by the partners in a general assembly shall be recorded in minutes that shall be signed by the partners in attendance or by their proxies, and certified by the administrator or administrators. The aforementioned minutes as well as those (minutes) reflecting the opinions of partners expressed in writing, shall be protocolized and registered within a term of thirty (30) days in accordance with provisions in ordinal 5 of Article 14 of this Law.

ARTICLE 47.- Any partner, or administrator, in any case, shall have the right to take exception against the resolutions adopted by the company contravening the provisions in the constitution charter, being able to file suit to nullify the resolutions adopted, before the respective Circuit Judge within a term of thirty (30) days from the date or registration of the corresponding minutes in the Public Registry. The nullity of resolutions adopted contravening the dispositions of law, may be fixed at any time.

Second Section

ARTICLE 48.- The administration and representation of the company shall correspond to the natural person or persons designated to the office in the constitution charter, or by a subsequent resolution, who shall have the necessary legal capacity to practice commerce.

The appointment of administrator shall be effective, in respect to the company and the partners, upon the registration of the constitution charter, or in another case, when the person appointed accepts the office; and in respect to third parties, when the constitution charter or corresponding resolution has been registered in the Public Registry.

ARTICLE 49.- The administrators shall remain in office for the entire time that they have been designated, unless an early resignation is justified, and they may be re-elected.

Even when the administrators have been designated for indefinite periods, the company may resolve on their removal whenever deemed fit, and designate others.

ARTICLE 50.- Each one of the administrators, independently from the others, may validly carry out all the acts and contracts that may correspond to the normal operations of the company and represent it in all judicial and extrajudicial matters, third parties being able to address to anyone of them the actions they may intend against the company.

If it is established in the constitution charter that the administrators must proceed in agreement, they shall proceed thus, unless the delay may imply a risk to the company, without prejudice of the validity of the contracts indefindently entered into in good faith with third parties.

ARTICLE 51.- Each one of the administrators shall have the right to object the acts or contracts proposed by the others, communicating his opinion, and reasons for it. The aforementioned objection shall suspend provisionally the execution of the proposed act or contract, unless it deals solely with the conservation of the company´s property, until the company resolves on its convenience or inconvenience.

For which, the dissenting administrators shall obtain the written opinion of the partners, regardless of their number, with the urgency that the case may require unless the importance of the problem raised, may indicate the necessity of holding an extraordinary general assembly. In such case, any of the administrators may convoke it.

ARTICLE 52.- Any restriction that may limit the powers of the administrators, shall be invalid in respect to third parties, without prejudice of special powers that the company may grant to any person, which powers shall be determined by (in) the respective deed. Notwithstanding, the administrators must be authorized through a special power-of-attorney of the company to carry out businesses that may exceed the limits of the normal businees activity, to transfer the company assets in trust, or to pledge or mortgage them in guaranty of company debts.

ARTICLE 53.- It is the responsibility of the administrators to prepare well in advance, a complete and detailed balance sheet duly reflecting the financial situation of the company, with profit and loss accounts and the proposed distribution of earnings, along with a report explaining the progress of the company businesses, with observations and suggestions deemed pertinent.

ARTICLE 54.- Besides the accounting books required by Law, the administrators should ascertain that the company carries and maintain the register of partners and minutes book, in which record shall keep in detail of all resolutions adopted by the company, and of the opinions expressed and the votes cast.

ARTICLE 55.- The administrators shall have the right to receive their compensation as determined by the company for the performance of their duties and the additional bonuses granted to them annually. Such bonuses, however, cannot be granted, or received by the administrators, if the earnings distributed by the company does not exceed 7% of the real value of the quotas.

ARTICLE 56.- The administrators shall be responsible before the company, before the partners and before third parties for damages they could have caused by fraud, gross negligence, violation to legal provisions, noncompliance of clauses in the constitution charter or of resolutions adopted by the company and, in general, for the bad performance of the duties entrusted to them. The responsibility shall only affect the administrators that, due to their action or omission, may have caused the damages or losses. Should the responsibility affect two (2) or more administrators, these shall respond severally.

The provisions contained in article 27 of this Law are applicable to the administrators, whether they are partners or not.

CHAPTER VI
Dissolution and Liquidation

ARTICLE 57.- Limited liability companies shall be dissolved:

1.- In the cases provided in the constitution charter.

2.- By agreement of the partners.

3.- By the fullfilment of its objectives or by the evident impossibility of continuing with the operations for which it was constituted.

4.- By the expiration of the term established in the constitution charter.

5.- By merge with another company or companies.

6.- By judicial sentence, pursuant to the provisions in Article 524 of the Commercial Code, and Article 24 of this Law.

7,- Due to the reduction of the net worth of the company to less than half of the paid-in capital established in the constitution charter, due to loss, or of a lesser loss, if such net worth would be less than two thousand dollars ($2,000.00). In such cases, however, the partners may prevent the dissolution if they would agree to refund the mentioned loss within a term of thirty (30) days from the date the causal occurred.

ARTICLE 58.- The bankruptcy of a limited liability company does not determine in any way its dissolution, unless it is qualified as fraudulent, being able consequently, to enter into agreements with its creditors, pursuant to the pertinent provisions of the Commercial Code.

ARTICLE 59.- Except in cases in which dissolution of a limited liability company is resolved by the Judge, the administrators of same shall act as liquidators, unless the company decides to appoint other persons in such office before or after initiation of the liquidation. The corresponding proceeding shall be adjusted to the provisions contained in the constitution charter for such a case or to the rules established in Chapter XII, Title VIII, and Book First of the Commercial Code.

ARTICLE 60.- The limited liability company may be transformed into any type of corporation, without the necessity of its liquidation, by resolution adopted pursuant to the provisions that may be contained in the constitution charter in this respect, or by decision, if such is the case, of two third of the partners that may represent, at least, two third of the paid-in capital, following for this, the proceedings indicated in Article 7 of this Law, with the pertinent variations. Likewise, any type of corporation may be transformed into a limited liability company, complying with the provisions of the present Law.

ARTICLE 61.- A limited liability company shall be considered as partially liquidated, in the following cases:

1.- Due to reduction of the paid-in capital when such measure shall be necessary because of the application of provisions in articles 25 and 37 of the present Law.

2.- Due to the paying-off of quotas, as a result of a resolution of the company.

When the partial pay-off of quotas is agreed, the measure shall include all the partners, in the same proportion.

The total pay-off of a certain number of them, must be verified by drawing by lot, unless the funds available for this operation are enough to satisfy the partners that may wish to withdraw from the company. In these cases, the total pay-off quotas may be replaced by participations in benefits, in the manner and with the rights that the company may deem convenient.

ARTICLE 62.- Whenever the number of partners of a limited liability company is reduced to two (2) that are spouses, it shall be necessary to dissolve and liquidate it, unless one of them, in a term of thirty (30) days, would opt to transform it into an individual limited liability enterprise, pursuant to the provisions contained in Section Second of this Law. The previous provision shall be applicable in case a limited liability company is left with only one partner.

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