The beach at Salinas Ecuador
Ecuador is located in South America, bordered by Colombia on the north, Peru on the east and south, and the Pacific Ocean to the west. Ecuador has a developing economy that is highly dependent on commodities, namely petroleum and agricultural products. The country is classified as a medium-income country. Ecuador’s economy is the eighth largest in Latin America and experienced an average growth of 4.6% between 2000 and 2006. Oil accounts for 40% of exports and contributes to maintaining a positive trade balance.
Ecuador has a particularly exciting and vibrant business sector. However, starting a business in Ecuador is fraught with risks, complexities and the need for good legal counsel. Below are a few pointers that an entrepreneur needs to consider when starting a business in Ecuador.
The business structure or legal entity
The different options available to entrepreneurs for company setup include the Corporation locally referred to as Sociedad Anonima, the limited liability company and the branch office. When making a decision on which entity to set up, entrepreneurs must choose wisely. For instance, only a Sociedad Anonima can hold government contracts and offer its employees work visas. A professional accountant must be hired to make sure the company is compliant as the company’s books are open to a number of government agencies. Changes in corporate documents, transfers of shares, etc., take time but are handled more easily through the Sociedad Anonima structure. Depending on the type of business you are setting up, other legal structures may work better. Operating as a limited liability company would make sense for small and medium sized companies. Whichever business option the entrepreneur decides to pursue, the guidance of a capable business attorney who can explain the pros and cons of your options is crucial.
Partnering with an Ecuadorian
If you would like to do business with Ecuadorians, having an Ecuador National as a partner contributes significantly to better decision making. The entrepreneur needs to understand the Latin culture and possibly the language. In order to penetrate the market easily and for the business to grow faster, this would be an important consideration when setting up business in Ecuador.
Requirement for a legal representative who has a cedula
The Ecuadorian ID Card is called a cedula. If the entrepreneur does not have one, they will have to hire a legal representative that does. This must be a trusted legal representative who will ultimately be accountable for the company’s paperwork and tax liabilities.
Seek legal counsel
Doing business in Ecuador is fraught with risks and complexities. The need for good legal counsel is imperative. Even if the entrepreneur speaks Spanish, it is highly recommended to hire an attorney who speaks English if you are a native English-speaker. All legal matters require crucial understanding of the issues that affect your business. Do your due diligence in choosing an attorney and check references carefully.
Hiring employees and understanding the company’s responsibility towards employees
In order to hire the right candidates in Ecuador, do not rush. Take time to find the right employees. Advertise widely in newspapers and online. Interview as many candidates as you can. In addition to standard Social Security withholdings, employers are required to pay their employees an additional month’s salary in December, and a half month’s salary in August. This is also referred to as a bonus. Also, make sure you understand minimum wage requirements, which change annually. The government of Ecuador has enforced employee rights that must be understood by the employer.
Image attribution: Bonsairolex under CC BY-SA 3.0.
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