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Company Law and Corporate Governance
Limited liability corporations are widely used in Costa Rica. The legal framework for companies is formalistic and thus is easy to use to avoid liability. However, to incorporate one is a tough time-consuming task. Often, companies are incorporated but remain inactive. Companies are often used to avoid application of the law in issues such as liability, legal restrictions, and tax evasion. In most cases, businesspersons, lawyers, and judges consider the limited liability of the corporations to be absolute and hence it cannot be disregarded. In summary, form prevails over substance in Costa Rica’s company law.
Corporate governance principles are not well observed, providing minority shareholders insufficient protection. The Commercial Registry could be more efficient, but governmental restrictions on public expenditure impede improvements at present.
Although Costa Rica seems to be very attractive for foreign investors, the abuse of company law is undermining its appeal. In addition, the time-consuming registration procedure encourages development of the informal economy, which detracts from economic growth.
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