To remain in the market in the medium and long term, it is necessary that SMEs are acquainted with and implement the best practices in their internal structures and processes, to administrate organization efficiently and under the applicable norms and standards. In other words, we return our sights onto the systems of internal control and take up/apply our principles of efficiency and effectiveness to achieve this.
One can understand the corporate government as a system of internal control which integrates all areas of the firm. It is designed to watch out for the fulfillment of the strategic objectives of the board of directors and improve the performance and transparence of the firm and its environment (*).
(*) Owners, shareholders, investors, executives, auditors, suppliers, society, environment, and other groups which are affected by the endeavors of the firm.
Law concerning the protection of the minority investor
As of October 4th, 2016, the law concerning the protection of the minority investor (ley de la Protección al Inversionista Minoritario) is in effect. Therefore, as of this date, all SMEs in Costa Rica must adhere to this law, whose purpose is to provide more rights to investors and especially minority shareholders within Costa Rican societies, to safeguard their interests and assure that majority shareholders follow through with their obligations and responsibilities.
The third article of the new law, adds to article 32 of the commerce code, which comes to be the most important reform of the law since it introduces the institution named “corporate government,” into the code of commerce. Corporate government can be defined as a collection of policies, norms and internal bodies through which the management of an entity is controlled and directed. One can understand the relations being between shareholders or associates, the board of directors or equivalent bodies, executives, their support committees, units of control, management, and audits, both internal and external.
This article 23 counts on three sections which come to determine the functioning of the corporate government, which every company should have. It is therefore considered necessary that these aspects come specified in an internal code for each firm, which establishes everything related to the relevant institute, especially and as a minimum the relevant code should contain aspects related to:
a. The obligation that every transaction of the firm that involves the acquisition, sale, mortgage or forfeit of assets with the general manager, with any member of the board of directors or with parts related to these, should be previously reported to the board as to clarify who is involved in the transaction.
b. The approval of the board of directors or an equivalent body, serves as a prior requisite for the execution of those transactions which involve the acquisition, sale, mortgage or forfeit of assets of the company which represent a percentage equal or superior to 10% of the company’s total assets.
c. The obligation of disclosing the results in the annual exercise/report in which the administrators present the transactions concerning the relevant fiscal year.
This new law certainly exists to protect the minority shareholder, whilst safeguarding and widening his/her rights. Additionally, the law comes to introduce a new figure, the corporate government, which was already regulating and necessary in other supervised entities (banks, insurance companies, Pension schemes), but now extends/applies to all commercial companies in the country. In other words, one could have a higher control of the administrative policies of the firm as well as the relations between the responsible persons of the administration, to safeguard the interests of the shareholders.
Through our partner lawyer and director of the corporate law department, the attorney of law Eugenio Vargas, we at allaboutbusiness can gladly advise and provide you with more information on this relevant topic if desired and in the case of requiring an implementation of the corporate government code, we can advise you on what you will require from the very moment the law comes into force.