From a legal perspective, doing business in Panama is like doing business in most other countries. From forming legal entities and obtaining the necessary business licenses to preparing enforceable contracts, there are a number of preliminary steps involved in getting up and running. Then, once you have established your business and are starting to develop intellectual property assets, deal with customers, and take on employees, you need to undertake ongoing and proactive measures to make sure that you, your company, and your company’s key assets are all adequately protected.
If this sounds like a lot, it is. Properly forming and running almost any type of business – especially one in a foreign country – is going to require that you maintain a close relationship with an experienced attorney. With the right help, taking care of the legal aspects involved in doing business in Panama does not have to be particularly time-consuming or expensive.
Key Legal Considerations for Doing Business in Panama
The following are five of the primary legal considerations involved in starting and running a successful business in Panama:
1. Forming a Business Entity
The most common business entity used in Panama is the Panama corporation (also referred to as an “international business corporation”). The process of incorporating in Panama is quick (usually five to seven days), and forming a corporation has numerous important benefits. The most significant of these benefits is what is known as the “limitation of liability.” When properly formed and managed, the corporate structure will shield individual owners from personal liability for the company’s debts.
The basic requirements (and recommendations) for forming a corporation in Panama include:
- Filing Articles of Incorporation with the Panama Public Registry
- Establishing bylaws that govern the corporation’s internal affairs (bylaws can, but need not, be registered)
- Preparing shareholder agreements to establish the rights and duties of the corporation’s owners
- Designating a registered agent to accept service of process on the corporation’s behalf
- Paying annual franchise taxes (failure to pay these taxes can result in penalties and loss of corporate status)
Besides forming a Panama corporation, there are other options, as well. These include partnerships, foundations (a concept that is somewhat unique to Panama), and foreign-registered entities. In limited circumstances, it may be a viable option to conduct your business as a sole proprietor (without forming a business entity), but the decision not to form an entity should only be made after fully considering all of the potential risks involved.
2. Business Licenses
In order to provide services in Panama, your company must obtain an appropriate license from the Panama Ministry of Commerce. This should be done as soon as possible after forming your business entity to ensure that you do not operate without a license or face delays in opening for business.
3. Protecting Your Company’s Intellectual Property
Taking appropriate steps to protect your company’s intellectual property (IP) should be a top priority, as well. Even if you currently operate in the US, you will need to separately register your intellectual property in Panama. This includes:
- Utility Models
- Industrial Designs
Addressing intellectual property matters early is important for two key reasons. The first is asset protection: If you do not take appropriate measures to protect your intellectual property assets in Panama, you could risk losing your exclusive rights.
The second is equally, if not more, important. In the simplest terms, you need to make sure that someone else has not beaten you to the punch. Certain intellectual property rights, such as trademarks and patents, are exclusive – and this exclusivity is country-specific. If you choose a trademark (even a trademark that you have already registered in the US), it is entirely possible that someone else is already using it (or already planning to use it) in Panama. If you wait to register your IP, you could end up being legally prohibited from using it, and you could face expensive litigation if you infringe on another company’s intellectual property rights.
4. Labor Laws
If you will be hiring employees, you will need to make sure to understand and comply with Panama’s labor laws, as well. You may also want to consider having employment contracts prepared that comply with Panama law.
5. Industry-Specific Legal and Regulatory Compliance
Like the US and other countries, Panama has various laws and regulations that apply to companies doing business in specific industries. Being home to the Panama Canal, the maritime industry is one in particular where companies need to be sure that they comply with local law. Other industries that are subject to industry-specific laws and regulations in Panama include, but are not limited to:
- Real Estate
If you intend to operate a business in a regulated industry, it is important to proactively address any compliance issues to make sure that you will not run into roadblocks that could bring your company’s growth to a standstill.
Checklist for Forming a New Business in Panama
Of course, beyond the strictly legal considerations, there are various financial, risk-management, and other considerations, as well. With this in mind, the following is a basic checklist of 10 steps most companies will want to take before doing business in Panama:
- Form a business entity (such as an international business corporation, partnership, foundation, or foreign-registered entity)
- Obtain any necessary business licenses
- Create a business plan (you may need this to obtain a business loan or venture financing)
- Conduct clearance research and secure appropriate intellectual property registrations
- Address any labor, industry-specific, and other legal compliance issues
- Open a bank account in the name of your new business entity
- Obtain insurance coverage appropriate for your industry and the size of your company
- Prepare employment, customer, and vendor contracts that are enforceable under Panama law
- Carefully review agreements with service providers to make sure that you are getting what you expect
- Negotiate the lease or purchase agreement for your office location
Other Considerations: Real Property Ownership in Panama and International Estate Planning
As a business owner, it is important to protect not only your company’s assets, but your personal assets. As we mentioned above, forming a corporation or other limited-liability entity to operate your business is one important step toward insulating yourself, should your company go into debt or face a substantial lawsuit. However, outside of the business realm, there are other important steps that you should be taking, as well. These include:
- Being smart about real estate investments
- Developing a personal asset protection plan
- Making sure that your cross-border estate plan will be effective in both the US and Panama
Contact Jiah Kim & Associates for More Information about Starting a Business in Panama
At Jiah Kim & Associates, we represent entrepreneurs and seasoned business owners in corporate, asset protection, and estate planning matters. Our practice is focused on serving clients with cross-border needs, and we have particular knowledge and experience dealing with the laws of Panama. If you are planning to start a business in Panama, or if you already have a business in Panama and want to make sure that it is protected, call us at (646) 389-5065 or request a consultation online today.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.