Comparative: Corporations vs. Private Interest Foundations

1. The main difference between both figures lies in that while corporations (S.A.) are constituted to carry out commercial activities in a habitual and direct manner, Private Interest Foundations (PIF) cannot carry out commercial activities habitually or directly, but only through corporations. PIFs must be constituted for the purpose of asset protection, holdings, ownership of any kind of assets, and others.

2. The S.A. are constituted by a share capital divided into shares, while in the PIF there is share capital, but it is not composed of shares, rather of contributions from the founder.

3. The S.A. must be composed of a Board of Directors made up of three (3) natural persons of any nationality (President, Secretary, Treasurer). The PIF must be composed of a Foundation Council, which may be made up of one (1) legal entity or three (3) natural persons of any nationality (President, Secretary, and Treasurer).

4. The S.A. are composed of a Shareholders’ Meeting; the shareholders are considered the owners of the corporation and will be liable according to the percentage of their shares. The shareholders are not registered in any public document. In the PIF there are no shareholders; there exists the figure of the beneficiaries, who are not considered the owners of the foundation; however, they are legally entitled to receive the profits of the PIF according to what is established in the foundation regulations and in the charter.

5. In the PIF there exists the figure of a Protector who supervises the acts of the Foundation Council; in the S.A. such a figure does not exist.

6. In the PIF, a document called foundation regulations is issued, which is a private document where the main and secondary beneficiaries are established, as well as what would happen in the case of the death of the main beneficiary. In the S.A., only share certificates exist, whether nominative or bearer. In the case of bearer shares, the owner is the holder of the shares; in the case of nominative shares, in order to be transferred they must be endorsed. In this case, if the shareholder does not endorse the certificate and dies, a probate or intestate succession process must be initiated. This is avoided with the figure of the PIF. For this reason, it is advisable that when a client operates through an S.A., a PIF is also constituted to serve as the holding of the shares of the S.A.
   
   

The Choice Between a Corporation (S.A.) and a Private Interest Foundation (PIF)

The choice between a Corporation (S.A.) and a Private Interest Foundation (PIF) can be crucial for any entrepreneur, investor, or person seeking to protect their assets. Each of these legal figures offers specific advantages and disadvantages, adapting to different needs and objectives.

In this complete guide, provided by the prestigious law firm Delvalle & Delvalle, we will explore the main differences between S.A.s and PIFs, helping you make an informed and strategic decision.

Panama Legal Lab, with its vast experience in corporate and tax law, has advised numerous clients in the incorporation and management of Corporations and Private Interest Foundations. Its deep knowledge and personalized approach guarantee that each client receives the necessary guidance to maximize benefits and minimize risks associated with these legal structures.

Fundamental Differences

Commercial Activities

The main difference between a Corporation (S.A.) and a Private Interest Foundation (PIF) lies in their ability to carry out commercial activities.

S.A.s are constituted to carry out commercial activities habitually and directly, making them ideal for those seeking to operate businesses actively.
PIFs, on the other hand, cannot carry out commercial activities habitually or directly, but only through corporations.

This restriction positions PIFs as a more suitable option for asset protection and the holding of diverse assets.

Panama Legal Lab recommends carefully evaluating the main purpose of the entity before its incorporation. If the intention is to participate actively in commerce, an S.A. is the appropriate structure. However, if the objective is asset management and protection, a PIF can offer significant benefits.

Share Capital

Another crucial difference lies in the structure of the share capital.

S.A.s are constituted by share capital divided into shares, allowing for transfer and shared ownership among multiple shareholders. In contrast, PIFs do not have shares; instead, the share capital is composed of the founder’s contributions.

Panama Legal Lab advises its clients to consider how they wish to structure ownership and the transfer of assets when deciding between an S.A. and a PIF.
The flexibility of shares in an S.A. can be advantageous for those planning to attract investors or share business ownership, while PIFs provide a more controlled and centralized structure.

Structure and Composition

Board of Directors and Foundation Council

S.A.s must be composed of a Board of Directors, which requires the participation of three natural persons of any nationality: President, Secretary, and Treasurer. This structure allows for a clear separation of roles and responsibilities within the entity.

PIFs, on the other hand, are managed by a Foundation Council, which may be composed of one legal entity or three natural persons of any nationality. This flexibility in composition can be useful for those foundations that prefer a simpler or more centralized structure.

Panama Legal Lab suggests that clients consider the best form of governance for their specific needs. The choice between a Board of Directors and a Foundation Council may depend on factors such as the size of the entity and the nature of its operations.

Shareholders’ Meeting vs. Beneficiaries

In an S.A., the Shareholders’ Meeting is composed of the shareholders, who are considered the owners of the corporation. The shareholders have responsibilities proportional to their percentage of shares and are not registered in any public document, which provides a level of privacy.

In contrast, PIFs have no shareholders. Instead, there exists the figure of the beneficiaries, who are not considered the owners of the foundation but have the right to receive the benefits of the PIF according to what is established in the foundation regulations and the charter.

This fundamental difference in the ownership structure can significantly influence the choice between one entity and the other.

Panama Legal Lab highlights the importance of understanding the legal and fiscal implications of each structure. The shareholders of an S.A. enjoy direct and clear ownership, while the beneficiaries of a PIF benefit from a structure that offers greater protection and flexibility in asset management.

Documentation and Supervision

Regulations and Certificates

In Private Interest Foundations (PIF), a document called foundation regulations is issued. This is a private document in which the main and secondary beneficiaries are established, as well as the provisions in the event of the death of the main beneficiary.

This regulation is essential for the operation and administration of the PIF, providing clarity and structure to the distribution of benefits.

In Corporations (S.A.), there is no similar regulation. Instead, S.A.s issue share certificates, which can be nominative or bearer:

• Bearer shares grant ownership to the holder.

• Nominative shares must be endorsed for transfer.

If a shareholder dies without endorsing the certificate, it is necessary to proceed with a probate or intestate succession process to transfer ownership.

Panama Legal Lab advises clients to consider these aspects when choosing between an S.A. and a PIF. The clarity and privacy of the foundation regulations in a PIF can avoid legal complications compared to the transfer of shares in an S.A.

In addition, they recommend that clients operating through an S.A. also establish a PIF to serve as the holding of the shares of the S.A., ensuring greater security and estate planning.

The Figure of the Protector

A distinctive feature of PIFs is the figure of the Protector. The Protector is an entity or individual designated to oversee the acts of the Foundation Council, ensuring that the decisions and actions align with the foundation’s objectives and regulations.

This role adds an additional layer of supervision and security to the administration of the PIF, protecting the interests of the beneficiaries.

In Corporations, there is no equivalent figure. The supervision and oversight of the actions of the Board of Directors and shareholders fall mainly on the internal organs of the S.A. and, in some cases, on external audits.

Panama Legal Lab emphasizes the importance of this figure in PIFs for clients seeking a structure with greater internal control and supervision. The presence of a Protector can offer additional peace of mind to founders and beneficiaries, ensuring that the foundation is administered according to their wishes and established regulations.

Conclusion

Both Corporations (S.A.) and Private Interest Foundations (PIF) offer distinct legal structures, each with its own advantages and disadvantages.

• S.A.s are ideal for those seeking to participate actively in commercial activities, with a share-based capital structure and a well-defined Board of Directors.

• PIFs are better suited for asset protection and management, with private foundation regulations and the figure of the Protector to ensure proper administration.

Panama Legal Lab has proven to be an invaluable ally in advising and establishing these entities, providing clients with the guidance necessary to choose the most suitable structure according to their specific needs.

Its deep knowledge in corporate and tax law ensures that every decision is supported by a clear understanding of the legal and fiscal implications.

For those who are still unsure which structure is most appropriate, consulting with Panama Legal Lab can be the first step toward safer and more efficient financial and estate planning.

Its experience and personalized approach guarantee that each client receives the necessary support to maximize benefits and minimize risks — whether through the incorporation of an S.A., a PIF, or both.