Carlos Fernando Dassum, a former student of the Master's Degree in Law, Business and Justice at the Universitat de València, successfully defended his Final Master’s Degree Project (TFM) on the Law of Unipersonal Limited Liability Companies of Ecuador on 20 July.
5 september 2016
A one-man company is, without any doubt, a subject that in many jurisdictions, especially in Europe, has already been completely overcome and almost nothing is being discussed. This is not the case in Ecuador, where it is still a controversial issue that is little accepted and which generates a lot of resistance, despite the fact that there is already a law in place since 2006 that has created the sole proprietorship of limited liability.
This One-Man Limited Liability Companies Act (LEURP) was created to establish the possibility that trade may be conducted with the benefit of liability limits. In a highly multiple-member Board jurisdiction such as Ecuador, where it necessarily requires two people to create a society and even more where it requires two people to enter into a contract, this law was an innovation that brought its own characteristics that in the present work are studied to find out how to improve, since the sole proprietorship in Ecuador has been a resounding failure.
This work uses the propositive legal method since it seeks not only to be a source of study, but also to provide solutions to a law that has many errors and that must necessarily be modified, and here we propose the improvements that should be made.
The reforms that are intended to be made are those characteristics of the sole proprietorship. Currently, Ecuador has this failed concept of a one-man company that instead of providing solutions and dynamism to the economy, what it generates is the search for the contractual simulation of societies. The proposed reforms are, among others, the following:
The constitutional process, which is currently being conducted before a civil court, needs to be reformed. It is necessary to reform the fact that all corporate actions have to be approved in the courts, and this involves not only a much higher cost than limited and public limited companies, but also implies that the time to carry out each step is much greater.
As for the minimum capital, the sole proprietorship requires a minimum capital of at least ten unified basic remunerations of the worker in general; this generates two facts that have to be modified: the first that the minimum capital required is up to ten times greater than that of the corporation and Limited Liability Company. And the second point is that a company would necessarily have to make a capital increase every year that the value of the unified basic remuneration is increased, otherwise it would be cause for dissolution and liquidation, without mentioning that the capital contributions both for incorporation and for increases have to be made only in cash, or through the capitalization of reserves and profits.
Nowadays, Ecuador has a failed concept of a one-man company
The figure of the Owner Manager, being a novel implementation of this law by means of which the owner of the company is obliged to exercise legal, judicial and extrajudicial representation in a nondelegable manner, also makes the characteristic move the entrepreneurs away from this figure and towards another kind of partnership.
Finally, the fact that the limited liability sole proprietorship is prohibited from entering into contracts with related parties and family members up to the fourth degree of consanguinity and the second degree of affinity means that this figure has so far only 10 companies incorporated and is a complete failure.
These and other reforms are implemented in a work, well written, well studied and above all quite interesting, that gathers ideas from various European systems to provide solutions and combat simulation and promote economic dynamism.
