Quite often when we ask our clients or their attorneys for the legal books of their corporations, in 90% of the cases we hear: “We do not have legal books!”

We do not blame them! Many attorneys interpret the law in such a way that they believe that inactive corporations do not require legal books, but some do, and please notice that I said “interpret” since the law is not clear about this issue.

But, what on earth are Legal Books?

Every registered corporation must be legalized, which means that for Sociedades Anonimas, a set of six books must be sent to the Tax Administration for them to stamp the books and make them an official source of information for both accounting and legal purposes.

1. Journal
2. Ledger
3. Inventories and Statements
4. Board of Directors Minutes
5. General Assembly Minutes and
6. Shareholders Registry for ..

And for Sociedades de Responsabilidad Limitada? A set of five books:

1. Journal
2. Ledger
3. Inventories and Statements
4. General Assembly Minutes
5. Shareholders Registry

This means that every accounting entry must be hand written on the accounting books (Journal, Ledger, Inventories and Statements) and every change to the board of directors, legal representations, proxies, changes to the original articles of incorporation, shares endorsing, etc must be also entered manually on the legal ones (Board of Directors Minutes, General Assembly Minutes, Shareholders Registry).

To rent or buy this one hour video with Costa Rica Tax Expert Randall Zamora, please visit our Video On Demand page here.

Any transaction or change that is not entered on those books will not be considered as official.

“I’ve never seen any of those.” You say…. “What should I do?”

There is where the confusion arises. Back in May 2010, the tax administration officially confirmed that “all the inactive corporations MUST have the legal and accounting books legalized“, through the resolution Nº DGT-09-2010, however, last August 12th, 2010 they said “the legal books are not mandatory for inactive corporations” through the resolution Nº DGT-12-2010.

This means that from now on, it is not mandatory for inactive corporations to have the accounting and legal books legalized at the Tax Administration, if you or your attorney already did that, no problem just keep them safe.

But wait, what is exactly an inactive corporation?

Simple! An inactive corporation is any Sociedad Anonima or Sociedad de Responsabilidad Limitada with absolutely no commercial or economic activity whatsoever, the perfect example: A corporation that you use ONLY to own real estate in Costa Rica and for no other purpose.

Oops! The Tax Administration did it again!

Right, as I said before the Costa Rican Tax Administration has been poorly managed and this is a perfect sample, since as I said at the beginning of this article the legal books are necessary when, for instance, the President of the Board of Directors is changed or the Shares are endorsed (Sociedad de Responsabilidad Limitada) since those entries must be done on the legal books of the corporation, so the attorney can notarize them and take them the Public Record Office when necessary, so we are back to where we started, since the Tax Administration was not clear enough when they said back on August that the legal books are not mandatory for inactive corporations.

What they should have said was:

“The accounting books are not mandatory,” since ask yourself, what are you going to if you sell your property in Costa Rica and you need to transfer the shares to the buyer and change the entire members of the Board of Directors? Well, surprise, the attorney will need the legal books for that!

My Final Recommendation.

Keep in mind that I am not an attorney, but I deal with this situations every day and while the Tax Administration comes up with another confusing patch, my recommendation is that AT LEAST have your legal books Board of Directors Minutes, General Assembly Minutes, Shareholders Registry for Sociedades Anonimas and General Assembly Minutes, Shareholders Registry for Sociedades de Responsabilidad Limitada legalized so that in the future, if you need to make a change to the original articles of incorporation or endorse your corporation’s shares you don’t have to wait one more week to close the deal while the books are ready.

Written by Randall Zamora who is the President and CEO of CostaRicaABC.com, former CFO and Head of Accounting Department of multinational companies like Four Seasons Resort Costa Rica, active member of the Interamerican Accounting Association, Pro Bono Local Partner of The World Bank and contributor to their yearly publication “Doing Business Report.”

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Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.