Investing in a Costa Rican Company: What Are You Actually Buying?
Jeff Bezos invested in Google before it became Google. Peter Thiel entered Facebook during its early stages. Ryan Reynolds and Rob McElhenney acquired Wrexham AFC when few could have anticipated the club’s transformation.
We remember these stories because we know how they end. Psychology calls this hindsight bias: once a venture succeeds, the original decision appears more obvious than it really was.
From a legal standpoint, this is a more complex matter. The essential question is:
What were they actually acquiring? Paying money does not make you an owner.
In Costa Rica, transferring money to a company does not automatically make someone a shareholder or quota holder. The payment may be a capital contribution, a loan, an advance toward a future capitalization or the purchase of an existing participation. Each creates different rights and tax consequences.
Many transactions nevertheless begin informally. Someone transfers money, the parties exchange messages and everyone understands that the new participant owns a percentage of the business. The problem appears when the corporate records say otherwise.
If the shares or quotas were not properly issued or transferred, the required approvals were not obtained or the transaction was not recorded in the corresponding corporate book, the ownership may never have been legally completed. The money was transferred. The legal position was not.
A percentage is not enough
Owning ten percent does not explain who controls the company, what information the investor will receive or what happens when more capital is required. A minority investor should understand:
Who manages and represents the company.
What financial information must be provided.
Which important decisions require special approval.
Whether future capital increases may cause dilution.
What happens if another owner wants to sell.
How the investor may eventually exit.
Costa Rican law provides certain minority protections. Shareholders representing at least twenty-five percent of the capital of an S.A., for example, may request that the administrators call a shareholders’ meeting to consider specified matters.
Statutory rights, however, are only the starting point.
Why a shareholders’ agreement matters
A properly drafted shareholders’ agreement converts expectations into enforceable obligations.
It may regulate access to information, capital contributions, profit distributions, management appointments, restrictions on transfers, preferential acquisition rights and the entry of new shareholders. It can also establish what happens when an owner dies, stops working, breaches an obligation or wishes to leave.
Minority protection does not mean allowing a minority shareholder to manage daily operations. It means identifying the decisions that could fundamentally affect the company and determining whether they require greater transparency or special approval.
The agreement must also be coordinated with the company’s articles of incorporation, corporate resolutions and statutory books. These documents must tell the same story.
Foreign concepts such as vesting, convertible investments or drag-along rights cannot simply be copied and translated. They must be adapted to the Costa Rican entity and implemented in a manner consistent with local law.
Compliance, tax and real estate
A change in ownership may affect the company’s information in the Registry of Transparency and Beneficial Ownership, or RTBF. Its corporate tax, tax filings, accounting records, municipal obligations, social security responsibilities and operating permits should also be reviewed.
Tax must be considered before transferring the funds. A capital contribution is different from a shareholder loan. Purchasing existing shares is different from subscribing for new ones.
Dividends and gains from a later sale may also generate taxation. In Costa Rica, capital income and capital gains are generally subject to a fifteen-percent rate, although exceptions may apply. Additional caution is required when the company owns real estate.
Buying shares in a company that owns property is not the same as purchasing the property directly. The company retains its history, including its debts, contracts, tax obligations, litigation and regulatory issues.
The review must therefore cover both the company and the property, including title, liens, cadastral information, access, zoning, permits, water availability, taxes and environmental restrictions.
Sound advice before signing
Trust and optimism are natural at the beginning of a business relationship. They are not substitutes for proper documentation.
Sound legal advice should begin before the money is transferred—not when a disagreement arises. The lawyer’s role is not to predict whether the business will succeed. It is to determine what the client will acquire, confirm that the transaction can be legally implemented and identify the rights and liabilities that accompany it.
The first question should be:
If I transfer the money, what will Costa Rican law recognize that I own—and what comes with it?
SEBASTIAN JIMENEZ
Attorney at Law
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