Legal Representatives

“General overview of the legal representative and the associated liabilities”.

In practice, all companies operating in Chile are required by law to appoint one or more legal representatives. Each one must be an individual with residency in the country. The legal representative will be the company’s only point of contact for government authorities and the one with the ultimate signature authority over all official acts the company might undertake.

According to article 1448 of the Chilean Civil Code, what is executed by one person on behalf of another person or company, assuming the correct authorizations are in place, shall have the same legal effect on the party being represented as if that party acted by himself or itself. Therefore, a diligent and responsible legal representative in situ is of extreme importance, as his/her actions legally bind the represented company.

On the other hand, article 44 of the same legal text, requires that the legal representative carries out the commission with the same diligence he would apply to his own business, making him liable for any actions taken outside the powers granted. The law holds legal representatives to a higher standard of care and competence than other personnel.

It is no coincidence that legal representation in Chile is regulated by the rules of the Mandate, which is considered an agreement based on trust (intuito personae) and in specific consideration of the person invested with representation powers. A PoA will stand in effect until it is expressly revoked by the represented party.

The Legal Representative and the Chilean Internal Tax Revenue Service (SII)

In accordance with the general legislation, the SII requires that all foreign investors register a valid legal representative, responsible for all interactions, including maintaining the company’s information up to date, presenting all tax forms (tax statements, affidavits), and being notified in case of an audit. The legal representative will also be considered as the counterpart in a tax court procedure.

Considering the foregoing, the legal representative activities are not restricted to the initial registration of the company’s data. According to the SII Ruling Nº17 from 1995, the taxpayer, via its legal representative, is obliged to inform the tax authority all of the following actions:

a)Change of the company’s name

b)Change of domicile

c)Change of declared business activity

d)Opening or closure of a branch

e)Change of address (notifications)

f)Change of ownership (company rights transference)

g)Capital increase or decrease

h)Change of legal representative

i)Company transformation from individual to corporation

j)Company merger

k)Company divisions

l)Other company transformations

All of the above must be informed to the SII within two months after any change has been made, otherwise the company will be fined according to article 109 of the Chilean Tax Code.

Legal Liability of Legal Representatives

A legal representative also assumes certain personal legal liabilities. For example, if a company fails to pay taxes in Chile, the SII may bring criminal or civil penalties against a legal representative directly. In a civil law suit brought against a company, it is the legal representative who is served to appear in court.

The Chilean Tax Code establishes the eventual responsibility of the legal representative in its articles 98 and 99, as follows:

Article 98: The taxpayer and all of the legally obliged will respond to the application of financial penalties.

Article 99: Fines and other legal forms of pressure, will be applied to those obliged to comply, and for the case of corporations, will be applied to the managers, administrators and those in that position, and also, to the partners responsible for compliance.

It is worth noting that, even though these responsibilities will not be automatically assigned to the legal representative, as Chilean law recognizes the right to a due process, it is in fact a contingency assumed by anyone who holds the legal representation of a third party.

The Legal Representative and other Institutions

With the legal representative acting as the company’s “face” for all of Chilean authorities, liabilities are not only related to tax issues. Legally, it is the legal representative who will be held responsible for labor and social security matters, and for the compliance of municipal obligations such as the business license.

Conclusion

From all of the above, it can be said that legal representation is a two-way street. While the actions of the legal representative bind the represented company, the legal representative takes the risk of being held responsible for the company’s wrongful acts of administration. Therefore, the appointment of a legal representative shall be conducted under the bases of trust, diligence and communication. Thus, for all concerned, it is not a duty to be taken lightly.