Government Control of Corporations: New Amounts

Section 299 of General Companies Law No. 19,550 ("LGS" after its acronym in Spanish) provides that in certain cases, in addition to the government control upon incorporation, local corporations are subject to an inspection carried out by the relevant authority of their legal domicile during its operation, dissolution and winding up. One of the situations that may give rise  to this permanent government control is the amount of the corporate capital (subsection 2). Additionally, being included in the scope of Section 299, subsection 2) of the LGS also has consequences in certain cases for other corporate structures, such as limited liability companies (which, for example, in that case must have a statutory supervisor).

The LGS provided in  Section 299 subsection 2) an equity threshold for companies to be subject to  permanent government inspection. Such guideline must be adapted to the changing economic reality; that is why the Executive Branch is authorized to update said amount at every opportunity that is considered necessary.

The last modification to the threshold provided in Section 299, subsection 2) of the LGS was in May 2006, when said sum was set at ARS 10,000,000.

Since then, the depreciation of the Argentine Peso led to an increase in the number of local corporations that were included into said permanent governmental inspection, although the public interest that justifies it did not exist in all cases.

That is why Resolution No. 529/2018 issued by the Ministry of Justice and Human Rights (the "Resolution") established the amount of Section 299, subsection 2 of the LGS at ARS  50,000,000, on the understanding that this threshold makes an adequate balance between the cost reduction needs raised by the private sector, and the control of legality that public power must exercise.

This decision has a significant impact on day-to-day corporate law practice, since local corporations (and in some cases limited liability companies) that, as a consequence of the Resolution are no longer included in Section 299, subsection 2) of the LGS, will be subject to more flexible rules at the time of the preparation and filing of financial statements, and will not be required to have a statutory supervisor or a board of directors, among other issues.