Financial Companies -resgistration law

What is a Financial Company under Panamanian Law?

Law N°42 of July 2001, which regulates the operations of financial companies registered in Panama defines them as those engaged in offering loans or financing facilities to the public no matter if that company includes in its name or denomination the word financing company.

This law does not regulates the following: the company that finances operations from its own sales; the lending operations that are regular in banking activities or any other entity regulated by the Superintendence of Banks, the insurance and reinsurance companies, co-operatives, mutualist funds and savings and loans associations.

2. What is the Financial Company Directorate?

According to the Panamanian Law, the Financial Company Directorate of the Ministry of Commerce and Industries will be the entity in charge of supervising and regulating the Financial Companies in Panama. This Directorate is also in charge with the obligation to guard by the appropriate fulfillment of the law.

All companies interested in leading financial companies activities have to register with the Financial Company Directorate that is invested with the authority to perform all the necessary investigations in order to approve or denied a registration. If the application filed with the Financial Company Directorate is complete the registration procedure do not have to take longer than a month to be completed. The exception for the previous statement are those companies that already exists or are about to be incorporated, and are willing to engaged in financial company’s activities although their articles of incorporation do not contemplate these activities. In these cases the Financial Company Directorate will provide a temporary permit for a 90 days term in which the public notary will have to protocolize the modifications to the article of incorporation, follow up by the proper registration at the Public Registry.

3. What do you need if you want to register a Financial Company in Panama?

To register a Financial Company you must fill-out the application provided by the Financial Company Directorate. The application includes the name of the applicant and his/her general information; the name of the company and its registration information; the paid-in and subscribe capital of the company; the number of tax payer registry (RUC), the name and identity document number of its Directives, Legal Representative and Attorney in fact, if applicable. Also the application must include the date in which the company is planning to initiate operations, the address, P.O. Box, phone number and e-mail address of the company.

Documents you should file with your application:

1. Power of attorney,

2. An authenticated copy of the articles of incorporation and its modifications, if applicable,

3. A Public Registry certification that confirms the information provided in the application form,

4. A certification by an authorized public accountant of the paid-in capital of the company that should not be less than USD 500,000.00,

5. A certified check in favor of the Ministry of Commerce and Industries of USD 1,000.00 to cover all the investigation expenses of the application,

6. A Feasibility Study, performed by an accredited economist, of the Economic Objective and Financial Projections of the Company,

7. A copy of the standard contract that will be used on the day to day operations by the company, which must include the following:

7.1. Date and place of the transaction,

7.2. Accurate identification of the parties and general information,

7.3. Terms and the applicable nominal interest rate,

7.4. The number of payments, regularity, quantity, and the date in which the payments must be made effective by the debtor,

7.5. Method to calculate the applicable interests,

7.6. Method to calculate the devolution of interest in case of anticipated cancellation depending on the method of calculation of interests used by the company,

7.7. Amount that the debtor will receive before cancellations and financing,

7.8. Amount of the expenses and commissions charged and retained for the company,

7.9. Amount of the expenses and commissions charged in favor of third parties,

7.10. Amount of the interest,

7.11. Total amount of the obligation,

7.12. Detail of the amounts paid to third parties by authorization or instruction of the debtor,

7.13. Net amount receive by the debtor before cancellations and refinancing,

7.14. Effective interest rate applicable,

7.15. Percentage of surcharge for delay on the payments,

7.16. Expressive acceptance on part of the debtor of the conditions and terms of the contract,

8. A authenticated copy of the identity documents of the directors, dignitaries, legal representative and attorney in fact, if applicable (at this point is important to mention that all the directives of a financial company registered in Panama must be Panamanians), and

9. The criminal and police record of all the directors, dignitaries, legal representatives and attorney in fact, if applicable.

4. About the Description of Objectives and Economic and Financial Projections of the Company

The Description of Objectives and Economic and Financial Projections of the Company must be certified by an economist of its equivalent under the Article IV of Law N°7 of 1981 by which is regulated the profession of the economist in Panama. The study must be a detail description of the following:

Market Demand

A general description of the offer and demand of services provided by financial companies in the area in which the company is planning to practice. This part should provide information that allows the Financial Companies Directorate to evaluate the knowledge of the financial company business in matters such as number of companies, alternative sources of financing, area of the market targeted by the company and general situation at the economic level.

Market Strategy

Including location, orientation or destination for the loans that the company will provide, targeting strategy, characteristics and/or conditions pre-established to select the clientele of the Financial Company.

Organization, Financing Sources and Expenses Structure

The Financial Companies Directorate requires that in this section the applicant states a detail organization scale, financial resources, expenses strategy including all generals, administrative, financial and loans management expenses.

Investment

All the information relating to the initial investment, such as furniture, office equipment rent or purchase of the offices, transportation, organization and initial amount for financing operations.

Financial Analysis (At least a three years projection)

This section must include cash flow, situation balance and income statement

Evaluation

An evaluation with the proper documentation regarding Present Net Value (PNV) andInternal Revenue Rate (IRR)

Determination on the Rentability of the Project

In this study it is important to note the expected results of the productive process of the company and how it is planning to approach the needs of its clients and fulfill them appropriately according to the law and the better practices of the financial company’s business.

5. The registration at the Financial Company Directorate.

Once the Financial Company Directorate has review the application and confirmed that all documentation is in order it would enact a resolution approving the registration of the Financial Company and this authorization will be registered at the Financial Company Registry with the following information:

1. Number of the resolution,
   
2. Date of enactment,
   
3. Name, address and phone numbers of the company and its legal representative,
   
4. Commercial name and exact address of the establishment where the financial company will operate,
   
5. The paid capital that will support the business and the date when the financial company will initiate operations.

In case of changes or modifications on the registration information the legal representative must inform the Financial Company Directorate within the next fifteen days after the date of the change or modification in order for the Directorate to perform the proper habilitation.

Notes

1. Law N°42 of 2001

2. Ministry of Commerce and Industries, Financial Companies Directorate Application Form and Requirements.