Incorporation of foreign companies in Honduras

Within the most common legal structures in Honduras for conducting commercial operations, we have the establishment of a local company and the incorporation of a branch of a foreign company.

Through the establishment of a local company, a new legal entity is created, which is subject to rights and obligations and is authorized to carry out commercial acts, for profit, throughout the territory of the Republic of Honduras.

Honduran legislation allows mercantile companies established abroad to operate commercially in the country by registering their articles of incorporation with the Mercantile Registry and appointing, at least, one legal representative who must reside permanently in the country. This means that it will be the same legal entity; however, the accounting for operations conducted in Honduran territory will be different from that of operations carried out at the foreign domicile of the foreign company.

Through Decree No. 51-2011, the Law for the Promotion and Protection of Investments was published, which, in its article 55, establishes that mercantile companies established abroad may incorporate in Honduras by simply accrediting before the Mercantile Registry of the corresponding jurisdiction their existence in the country of origin. This can be done through an apostilled copy of the registration certificate, the assembly agreement (or another body with sufficient powers), in which the decision to incorporate a branch in Honduras is made, and the appointment of a representative who is a permanent resident in the country, and, if applicable, the bylaws or articles of incorporation. The branch may or may not have a share capital, which will be defined in the incorporation agreement. In case it has capital, registration expenses must be paid.

This relates to the fact that Honduran legislation allows a mercantile company established abroad to operate commercially in the country by registering its articles of incorporation with the Mercantile Registry. In this way, it would adhere to Honduran legislation and the appointment of a legal representative with general management powers who must reside permanently in the country.

That said, one of the main advantages of incorporating a branch is that the same structure of the foreign company can be maintained, as long as operational capital is designated for the country and a legal representative resident in Honduras is appointed.

The first and main implication is that such an entity is subject to all obligations corresponding to a legal person, in this case, during the development of its commercial activity, and its assets are precisely affected by them. In this sense, the branch is subject to liability, and the same rules (fiscal, administrative, mercantile, labor, etc.) applicable to merchants organized as mercantile companies or individual merchants apply to it.

As the branch derives its legal personality from a company established abroad, it is accepted that the principle of limited liability in favor of partners or shareholders is equally applicable. There are specific regulations in banking and insurance matters that regulate branches of foreign companies engaged in such activities, always under the aforementioned framework and with some specific implications in particular matters. The branch presents the particularity that, not having its social organs in the country to be incorporated, it is not subject to corporate governance rules.

Foreign companies can conduct business in Honduras through the branches of their parent company provided the following requirements are met:

    1. Resolution of the shareholders’ assembly or another body with sufficient powers in which the decision to incorporate a branch in Honduras and appoint a permanent resident representative in the country that is made. This document must be duly apostilled, and if not in Spanish, translated into Spanish.
    2. Certified copy of the articles of incorporation of the company to be incorporated in Honduras and all its amendments.
    3. Registration certificate issued by the supervisory institution of the country of origin.
    4. Power of attorney in favor of local agents who will carry out procedures after the incorporation of the branch into Honduran legislation (this document must be sent subsequently to the registration of the branch in the corresponding Mercantile Registry).

All the aforementioned documents must be duly apostilled and translated into Spanish if not already.

In our experience, some situations in commercial and tax matters have not been entirely resolved due to the proper legal nature of the branch not being defined in this field, so this form of organization is generally recommended only when necessary.

If the foreign company wishes to participate in any state tender, it is at a disadvantage since there is a margin of national preference contemplated in the state procurement law. In the event of litigation, both national and foreign legal entities can be parties to a civil proceeding. Legal entities, except by express submission, must be sued in the place of their domicile, and the branch of a foreign company, by provision of the Civil Code, must have a fixed domicile regarding the business conducted in the country.

It is possible, then, to sue the branch of the foreign company, under the understanding that it is not a separate legal entity and that, ultimately, the defendant company is essentially the same parent company. It is worth analyzing and evaluating the business scope to establish a local company (subsidiary), but if it is necessary for other reasons to register a branch, that alternative also exists.