- Any employee of the company or volunteer third-party can become a legal representative, as long as they are over 18 and a permanent resident or citizen.
- Foreigners can not act as legal representatives of a company (even if they own a majority of the company), until they have obtained full permanent residency status.
- A legal entity cannot become a legal representative, it must be an individual.
- When a legal representative is appointed, the powers are typically given by a formally notarized document.
- The will and intent of the signers is considered settled at the time the document is signed before a notary public and it’s binding on the parties. Third-parties are legally protected if they act on that document.
Legal liability for the company
The representative is the legal “face” of the company with ultimate signature authority over all official acts the company might undertake. This can lead to power concentrated in the hands of few for companies in Chile and the potential abuse of power. There have been many cases of power abuse by legal representatives where the representative decided to sell company assets or even seized full control of the company.
In the most severe cases, the legal options for the owners were very limited as they have given unrestricted power to the legal representative. Foreigners with possibly limited language skills and limited understanding of Chilean law should be very careful when choosing who will be the legal representative of their company along with what powers they will be allowed to exercise and under what conditions.
Legal liability for the legal representative
Assuming the role of legal representative, however, exposes the individual to certain personal legal liabilities as well. If the company fails to pay taxes, the Chilean Internal Revenue Service (Servicio de Impuestos Internos de Chile) may bring criminal or civil penalties against the legal representative directly. If a civil lawsuit is brought against the company, the legal representative is served to appear in court. Because of these associated risks, legal representation can be relatively expensive compared to other countries in the region.
When drafting the articles of incorporation in Chile, and/or any related contracts regarding the powers of the legal representative, make sure that the powers given to the legal representative are properly restricted. Require an authoritative signature from the partners or shareholders for the sale of any real estate assets. Restrict the amount of money that can be transferred without authorization.
However, the restrictions should not be so limiting that the legal representative can not properly fulfill the role. Try to find a balance between what powers are needed for the legal representative to efficiently execute the mandate given to him/her and the restrictions that are necessary to protect the company’s owner, partners, and shareholders.