Whereby some articles of the Commercial Code are amended and added, for the purpose of up-dating some of its institutions; Law No.1 of 1984 regarding trusts is amended and other provisions are dictated.

THE PRESIDENT OF THE REPUBLIC

Using his constitutional powers, specifically those granted by Numeral No.4 of Law No. 20 of June 27th, 1997, having received the favourable opinion of the Cabinet Council

D E C R E E S:

ARTICLE 1: Article 11B is added to the Commercial Code, as follows:

ARTICLE 11B: A corporation validly organised under a foreign jurisdiction, may choose to submit to the laws of the Republic of Panama and continue its existence under said laws, as a Panamanian corporation, irrespective of what is established in its law of origin, presenting the following documents for filing at the Public Registry:

Evidence of being organised and in good standing in accordance with the laws of the corresponding country or jurisdiction, issued by a competent authority of said country or jurisdiction or, failing such, by means of a notarised c ertification;

A certification or certified copy of the agreement or resolution of the competent body, containing the authorisation to continue the corporation’s existence under the laws of the Republic of Panama;

Organisation Deed or Articles of Incorporation executed in accordance with the requirements prescribed in the applicable laws of the Republic of Panama, indicating that this deed substitutes the document of incorporation or formation of the foreign corporation.

Documents issued in foreign countries or jurisdictions must be legalized by Apostille or authenticated by a consul of the Republic of Panama or, failing this, by a friendly nation in the country or jurisdiction where the documents were issued.

ARTICLE 2: Article 11C is added to the Commercial Code, as follows:

ARTICLE 11C: After the corresponding documents are filed in the Public Registry, the continuation of the corporation under the laws of the Republic of Panama, shall take effect between the parties and with respect to third parties, as of the date of the initial incorporation of the corporation in the country or jurisdiction of origin.

The corporation shall continue with all its assets, rights, privileges, powers and exemptions, as owner and holder of the same, subject to the restrictions, obligations and duties corresponding to the corporation within its country or jurisdiction of origin, whereby it is understood that the rights of creditors of the corporation and liens over assets thereof shall not be prejudiced by the continuation of the corporation under the laws of the Republic of Panama.

ARTICLE 3: Article 11D is added to the Commercial Code, as follows:

ARTICLE 11D. A corporation validly organised and in good standing under a foreign law may provisionally file in the Public Registry, its continuation in the Republic of Panama, in accordance to the above mentioned provisions, under the condition that said continuation shall be effective, upon the filing a declaration to that effect by the representative or duly authorized attorney-in-fact.

Once completed these formalities, the provisions contained in the previous article shall be applied.

ARTICLE 4: Article 11E is added to the Commercial Code, as follows:

ARTICLE 11E. A corporation organised under the Panamanian law may, where so stated, in the deed of incorporation or amendments thereof, continue its existence under the laws of another country or jurisdiction, if and when the laws of said country or jurisdiction permit the same and the corporation is in good standing with respect to its fiscal obligations within the Republic of Panama.

To this end, the corporation shall present a certification or certified copy of the corresponding decision or agreement, as well as a publicly issued certificate to be filed at the Public Registry, through a lawyer in the Republic of Panama, evidencing that it is duly registered in the jurisdiction to which it is being transferred.

Once the filing is completed, the corporation shall continue with all its assets, rights, privileges, faculties and exemptions, as owner and holder of the same, subject to the restrictions, obligations and duties which corresponding to the corporation, whereby it is understood that the rights of the creditors the corporation and liens over assets of the same shall not be prejudiced by the continuation of the corporation under the foreign country.

The non-registration of the corporation in the other country, duly verified, does not reduce the effect of its registration in the jurisdiction of origin.

ARTICLE 5. Article 38A is added to the Commercial Code, as follows:

ARTICLE 38A. A corporation name may be reserved at the Public Registry, for a term which shall not exceed thirty (30) calendar days, by written request, which shall where availability has been previously verified, be immediately approved by the Public Registry. The name reservation shall legally expire, once the term is completed without necessity to annotate to this respect.

ARTICLE 6. Article 58A is added to the Commercial Code, as follows:

ARTICLE 58A. Business companies may elect to have corporate financial statements, approved by the Board of Directors, partners or shareholders and duly countersigned by a certified public accountant, filed at the Public Registry.

ARTICLE 7: Article 71 of the Commercial Code should read as follows:

ARTICLE 71. Every merchant shall maintain Accounting books, which clearly and precisely indicate the commercial operations, assets, liabilities and equity of the same. The Accounting shall always reflect the amounts of the transactions and the nature of the same.

For the purpose of the provisions of this Title, every merchant may maintain his Accounting and make the entries, using books, electronic means or any other forms authorized by Law, which permit clear determination of the commercial operations executed, providing that the same may be printed.

Likewise, Legal persons may maintain the Minutes and Register Books, using books, electronic means or other forms, as described in the above paragraph.

ARTICLE 8: Article 72 of the Commercial Code shall read as follows:

ARTICLE 72. The number and class of accounting records, as well as the form that they shall take, are left to the discretion of the merchant, as and when they comply with the provisions of generally accepted and applicable accounting rules the Republic of Panama.

ARTICLE 9: Article 73 of the Commercial Code shall read as follows:

ARTICLE 73: The necessary Accounting records, which all merchants shall maintain are: One (1) journal and one (1) ledger. Commercial corporations shall also maintain a Minutes Book, and a Share and Shareholder Register, or alternatively, a Register of the instalments and Contributions of capital or equity participation.

Legal persons whose operations are not completed, consummated or effected within the Republic of Panama, need not maintain, in the Republic of Panama, required Accounting records mentioned in this Article, unless domiciled within the Republic of Panama.

ARTICLE 10: Article 77 of the Commercial Code shall read as follows:

ARTICLE 77: The Accounting records shall be kept accurately and with transparently, in chronological order, indicating the date on which transactions are consummated or the periods which are affected.

It is absolutely prohibited to enter or record transactions in a manner different to that from which they originated, including the settlement date; leaving blank spaces, erasures or crossing out. The reversions, correction of errors and omissions shall also be clearly established and identified as such in the Accounting records.

ARTICLE 11: Article 78 of the Commercial Code shall read as follows:

ARTICLE 78: Every merchant who has a commercial enterprise in the Republic of Panama, without exception with regards to location, shall maintain Accounting records in Spanish and in the currency of legal or commercial tender in the Republic of Panama. Documentation which supports the transactions and correspondence may be maintained in the original language and, in the event that a translation is required by any competent authority, the merchant shall deliver a translation of the same, within a reasonable period and at his expense.

ARTICLE 12: Article 81 of the Commercial Code shall read as follows:

ARTICLE 81. All operations executed by the merchant shall be entered in the record known as Journal in chronological order, clearly indicating the dates, amounts and nature of each, as well as a precise identification of the affected Ledger accounts.

ARTICLE 13: Article 83 of the Commercial Code shall read as follows:

ARTICLE 83. Entries of the transactions made in the Journal shall be transferred to the Ledger, in chronological order, in accounts duly classified as assets, liabilities, equity, income, expenses and suspense accounts, making corresponding reference to the entry in the Journal.

ARTICLE 14: Article 85 of the Commercial Code shall read as follows:

ARTICLE 85: Merchants may maintain auxiliary records of Accounting, which reflect, with additional detail, information necessary to complement the records entered in the Journal and Ledger, provided that it does not detract from the deeds, amounts and nature of the original transactions.

ARTICLE 15: Article 86 of the Commercial Code shall read as follows:

ARTICLE 86. The resolutions adopted in meetings, whether of shareholders, members or directors, shall be recorded in the Minutes Book. The date of the prior notice or waiver of the same, the place and date where the meeting was held and such other circumstances which may assist in precisely establishing the matters agreed, shall be indicated therein. The names of the persons that acted as President and Secretary, , who may certify the content thereafter, shall be indicated in the Minutes which shall be signed by the same.

In case of registered shares, The Share, Shareholder or Quotas of equity or capital participation Register shall detail the names of the holders, and indicate the certificate number, the quantity or percentage which it represents, the amount paid and the nature of the security or right which it represents.

ARTICLE 16: Article 87 of the Commercial Code shall read as follows:

ARTICLE 87. The Accounting of every merchant shall be kept by an accountant or certified public accountant, whose competence shall be accredited by the Accounting Technical Board of the Ministry of Commerce and Industries.

Every merchant shall maintain current accounting records. Accounting records shall be understood as being current when entries are made for a month in the required records, within sixty (60) days following the month in question.

Violators shall be fined ONE HUNDRED BALBOAS (B/.100.00) to FIVE HUNDRED BALBOAS (B/.500.00) per each month that their Accounting is in arrears. The General Directorate of Revenue of the Ministry of Treasury shall be competent to perform the reviews mentioned in this Article and impose the appropriate sanctions.

ARTICLE 17: Article 93 of the Commercial Code shall read as follows:

ARTICLE 93. Every merchant or broker shall maintain the required Accounting records, during the existence of the operations and a further five (5) years after the business is closed.

Ancillary records, vouchers and documentation which support the commercial operations, shall be maintained until the statute of limitations for any action, which may be derived from the same, has expired.

The responsibility to maintain the required Accounting records and to present the same upon request by the competent authorities, shall fall on the merchant, his heirs or assignees. In the case of legal persons, the responsibility shall fall on the legal representative or, in his temporary or permanent absence, the person who legally substitutes him.

The required and ancillary Accounting records and other documents which support the transactions of the business shall be maintained by any authorized means, in the place of business, so that they may be examined by the competent authority. It is prohibited to transfer them out of the country or to places within which are not easily accessible. The violation of this prohibition shall be sanctioned with a fine not more than FIVE HUNDRED (B/.500.00) and successive fines may be applied for continuous violations by r non-attendance to repeated requests.

ARTICLE 18: Article 94 of the Commercial Code shall read as follows:

ARTICLE 94. The merchant or broker who does not maintain the Accounting records referred in Title III, Book I of the Commercial Code, who records transactions in a different manner to the original form and date on which they were done, who distorts the true nature of the same or hide or omit some of them, shall incur a fine of ONE HUNDRED BALBOAS (B/.100.00) to FIVE THOUSAND BALBOAS (B/.5,000.00), and may incur successive and multiple fines, if the violations and faults sufficiently merit the same.

The fines referred to in Title III, Book I of the Commercial Code shall be imposed by the respective Regional Administration of Revenue of the General Directorate of Revenue of the Ministry of Treasury, with the right to request a recourse of reconsideration before the officer of first instance and an appeal before the Appeal Commission of said Directorate. Fines may be imposed on merchants, owners and brokers. In the case of legal persons, to the corporation and, in its absence, on the legal representative, directors, managers and officers, respectively.

ARTICLE 19: Article 95 of the Commercial Code shall read as follows:

ARTICLE 95: Every merchant shall prepare and maintain in his place of business, financial statements which correctly and exactly reflect the results of his annual operations, or fraction thereof for persons who have not completed twelve (12) months of operation. Said reports shall be prepared in accordance with the generally accepted rules and principles of Accounting, applicable within the Republic of Panama.

The basic financial statements, which are required, shall include a general balance sheet, a profit and loss statement, an equity statement, including changes in undistributed profits and a cash flow statement.

Every merchant whose capital exceeds ONE HUNDRED THOUSAND BALBOAS (B/.100,000.00) or whose annual volume of sales is greater than FIFTY THOUSAND BALBOAS (B/.50,000.00) shall present the above mentioned financial statements, countersigned by a certified public accounts. These shall be issued within one hundred twenty (120) days after the end date of the tax period and shall be maintained for review of the competent authorities, who may require an original of the same as evidence for the file of the proceedings effected.

The merchant or broker that fails to comply with the provisions of this Article, commits a misdemeanour penalised with the fines and sanctions described in Article 94 of the Commercial Code.

Certified public accountants that, performing professional services, countersign such financial statements, shall in the case of violation of the provisions that regulate the required Accounting records, ancillary records and pertinent documents, be subject to the penalties described in the legal provisions, which govern their professional performance.

TRANSITORY PARAGRAPH: The obligation of preparing and maintaining financial statements shall be enter into force at the beginning of 1997 and all tax periods which initiate in that year.

ARTICLE 20: Article 142 of the Commercial Code shall read as follows:

ARTICLE 142: All kind of contracts, transactions, trades and other related acts may be performed, on Stock Exchanges, unless prohibited by law.

ARTICLE 21: Article 143 of the Commercial Code shall read as follows:

ARTICLE 143. Securities acts and contracts shall be governed by the applicable law and, in the absence of such, by customs and practices of the trade.

ARTICLE 22: Article 144 of the Commercial Code shall read as follows:

ARTICLE 144. Securities may be represented, for the purpose of issuance or trade on the Stock Exchange, by individual or global certificates or by any other document which formally recognises them, through annotations in accounts or by any other acceptable form in stock-market practice.

Securities may be endorsed in administration, for the purpose of custody, clearing or settlement.

ARTICLE 23: Article 144A is added to the Commercial Code, as follows:

ARTICLE 144A. Registers of Shares and of the holders of other securities traded on the Stock Exchanges, Minutes Books of the corresponding issuers, transfers and other records and legal evidence relating to securities, may be maintained by manual, mechanic, electronic, optic and magnetic means, or any other kind of procedures, which guarantee their trustworthiness, availability and conservation.

ARTICLE 24: Article 146A is added to the Commercial Code, as follows:

ARTICLE 146A. All Securities, whether public or private, national or foreign, which comply with the applicable legal and contractual requirements, and whose issuance and trade have been previously approved by the issuers, and the National Securities Commission in the case of public offering, are subject special undertaking on the Stock Exchanges.

ARTICLE 25: Article 147 of the Commercial Code shall read as follows:

ARTICLE 147. The public offering of securities, whether national or foreign, made by any means, towards, from or within Panama, shall be subject to the authorization and corresponding prior registration with the National Securities Commission, which may require, for its placing in the primary market and trade on the secondary market, certification by an authorised risk certifier.

ARTICLE 26: Article 148 of the Commercial Code shall read as follows:

ARTICLE 148. Acting as an intermediary on the Stock Exchange acts shall be limited to duly authorized, Stock Exchange members and brokerage houses, in accordance with, and subject to, legal rules or special regulations, which govern the material.

ARTICLE 27: Article 149A is added to the Commercial Code as follows:

ARTICLE 149A. Ownership of interchangeable securities may be transferred for a specific price, where the person or new bearer that receives the same, assumes the obligation of transferring back to the transferor or bearer, ownership of the same or other securities of the same or similar issuance, upon expiration of the established period, for a higher price or the same price, plus a premium, commission or interest.

ARTICLE 28: Article 149B is added to the Commercial Code, as follows:

ARTICLE 149B. In stock-market matters, agreements for repurchase options are allowed, within a term which shall not exceed three (3) years.

ARTICLE 29: The title of Chapter IV of Title VI of Book I of the Commercial Code shall read as follows:

CHAPTER IV

Clearing Houses and Custody Centres, Clearing and Settlement of Securities

ARTICLE 30: Article 193 of the Commercial Code shall read as follows:

ARTICLE 193. Stock Exchanges and other financial intermediaries may establish centres for the custody, clearing and settlement of securities, subject to the authorization, supervision and inspection of the National Securities Commission.

ARTICLE 31: Article 203 of the Commercial Code shall read as follows:

ARTICLE 203. Acts and agreements performed by phone, fax or electronic means of communication, shall be understood as being made in person, if the parties, their representatives or proxy holders have been in direct communication.

Likewise, meetings, of any kind, of the Board of Directors, partners or Shareholders, or liquidators of the corporation, in which the participants have been in direct communication by any of the means mentioned in the above paragraph, shall be understood as being in person. In such case, minutes expressing the meeting so held, the approved resolutions and the form in which the participants were in communication, shall be made.

Resolutions of directors, partners, shareholders, managers or liquidators of corporations of any kind shall be valid, when the document has been signed in different places and on different dates.

ARTICLE 32: Article 223A is added to the Commercial Code, as follows:

ARTICLE 223A. Interests to be collected from operations executed, consummated or effected outside the Republic of Panama, shall not be subject to the provisions of Law No.5 of 1933, nor Law No.4 of 1935.

ARTICLE 33: Article 249 of the Commercial Code shall read as follows:

ARTICLE 249. Two (2) or more natural or legal persons may form a company of any kind or one (1) or more of them may be shareholders, directors, officers, managers, proxyholders or liquidators of the same.

ARTICLE 34: Article 275 of the Commercial Code shall read as follows:

ARTICLE 275. Assets contributed to the capital fund cannot be claimed for the payment of personal debts of a partner or shareholder, other than by virtue of a lien established in favour of a third party before they were contributed to the corporation.

The alienation or encumbrance of capital assets shall be effected by the subscribers, partners, shareholder or shareholders, managers or directors, proxy holders or liquidators, as per the Articles of Incorporation and, in the absence of a provision within the Articles of Incorporation, in accordance with the Law.

ARTICLE 35: Article 580A is added to the Commercial Code, as follows:

ARTICLE 580A. A general or special mandate granted by public deed or by private document with certainty of date, shall have effect with respect to third parties, as of its date of execution and may be filed at the Public Registry at the request of the interested party. Nonetheless, the revocation of a previously recorded mandate must be filed at the Public Registry, unless expressly provided in the original document, or in the case of a mandate with an expiration date or granted solely for the completion of an act or event.

ARTICLE 36: Article 820 of the Commercial Code shall read as follows:

ARTICLE 820. In the event of default and where a special form of transfer has not been agreed, the creditor or depository shall have the right to transfer the chattels granted in pledge, providing, in writing to the owner of the same, prior notification not less than thirty (30) calendar days before the date in which the sale shall be executed and subject to the valuation referred to in Article 821.

ARTICLE 37: Article 821 of the Commercial Code shall read as follows:

ARTICLE 821. In the cases established in Articles 820 and 822, the parties should agree upon, in the pledge agreement, the method for determining the value of the chattels pledged, in order to ensure a fair value at the moment of execution of the debt. It its absence, the pledge shall be valued by two (2) appointed experts, one by each party, or by a third person appointed by these, in case of disagreement; or by a judicial authority, in the absence of experts.

In any case, the creditor shall be responsible for damages caused by the application of the provisions contained in this Article or in previous articles.

ARTICLE 38: Article 829A is added to the Commercial Code, as follows:

ARTICLE 829A. Any corporation may grant in pledge assets situated outside of the Republic of Panama, in a general way, without delivering them to the creditor and without diminishing preferred credits which may exist over specific chattels or real property.

A general pledge of assets should be evidenced by public deed or private document authenticated by a Notary Public in its place of execution. Said document shall contain all conditions which the parties consider convenient but, in every case, shall contain the name and address of the grantor, the creditor or creditors and the fixed amount or maximum credit secured.

If said document has been granted outside the Republic of Panama, should be legalized by means of the Apostille or by a consul of Panama, in its place of execution or in the absence of the same, by that of a friendly nation. The public document or the private protocolised document whereby the general pledge of assets is evidenced, shall be filed at the Public Registry and upon filing, shall have retroactive effect to the date of annotation in the journal held at Public Registry for presentation of documents for filing.

Upon completion of all established formalities , the general pledge of assets shall have preference over all credits, which are evidenced by public deed, final judgment, or a private document with certainty of date, which have no special privilege.

A general pledge of assets may be filed temporarily. The form of execution and the effect of the same shall be governed by Executive Decree.

ARTICLE 39: Corporations organised prior to the entering into force of this Decree Law may, at any time, adopt the provisions of this Law and, to this end, a partners or shareholders resolution shall be adopted and filed at the Public Registry.

ARTICLE 40: The last paragraph of Article 9 of Law No.1 of January 5th, 1984 relating to trusts, is modified, as follows:

ARTICLE 9. The trust deed shall contain:

... When a trust is settled by private document, the signatures of trustee and settlor or their agents for settlement shall be authenticated by a Notary Public.

ARTICLE 41: First Paragraph of Article 35 of Law No.1 of 1984, is modified, as follows:

ARTICLE 35. ... First Paragraph: The above exemptions shall not apply in cases in which the assets, money, stocks or securities mentioned in numerals 1, 2 and 3 above were used in operations which are not exempt from tax , contributions, fees or encumbrances within the Republic of Panama, unless invested in housing, housing development projects, industrial malls or urban development within the Republic of Panama, in which case the profits of such investments shall be exempt from income tax.

ARTICLE 42: Article 317-A is added to the Tax Code, as follows:

ARTICLE 317-A. The reservation of a corporation name at the Public Registry requires a payment of TWENTY FIVE BALBOAS (B/.25.00).

ARTICLE 43: The First Paragraph is modified and numeral 5 is added to Article 318 of the Fiscal Code, as follows:

ARTICLE 318. The filing of public or authentic documents, or documents in which a corporation is organised or extended or continues its existence, as the case may be, in the Mercantile Section of the Public Registry shall result in the following fees:

The filing fee of a general pledge of assets shall be ONE HUNDRED BALBOAS (B/.100.00).

ARTICLE 44: All provisions of the Commercial Code or other laws, which refer to Accounting books, shall be understood as referring to the records mentioned in the present Decree Law.

ARTICLE 45: The present Decree Law revokes numeral 7 of Article 57, Articles 74, 76, 79, 80 and 82 of the Commercial Code; numeral 7 of Article 1776 of the Civil Code and Literal q) of Article 2 of Law No.2 of January 16th, 1991; adds Articles 11B, 11C, 11D, 11E, 38A, 58A, 99A, 144A, 146A, 149A, 149B, 223A, 558A and 829A; modifies Articles 71, 72, 73, 77, 78, 81, 83, 85, 86, 87, 93, 94, 95, 142, 143, 144, 147, 148, 193, 203, 249, 275, 820 and 821 of the Commercial Code; adds Article 318-A and modifies and adds Article 318 to Fiscal Code; and modifies Articles 9 and 35 of Law No.1 of January 5th, 1984.

ARTICLE 46: This Decree Law shall enter into force on its date of publication.

TO BE COMMUNICATED AND PUBLISHED:

Executed in Panama City, on the 2nd day of July, 1997.

ERNESTO PEREZ BALLADARES
President of the Republic

AIDA LIBIA M. DE RIVERA
Minister of Health

RAUL MONTENEGRO DIVIAZO
Minister of Government & Justice

MITCHELL DOENS
Minister of Labour & Welfare

September, 2000

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