agreements with two multi-national corporations, Wartsila Diesel and
Mitsubishi, for the generation of electrical power. In addition, a
Spanish firm was contracted through the CDE that provided technical
and administrative support to the CDE for a year (1994-1995) in
hopes to turn things around.
The government’s last attempt to solve the problem was through
legislation. Law 14-90 was a government promotion the sale of
electricity generated by private plants and creating the National
Council of Power Development [Aristry, Dominican Republic]. This law
was later revoked by a tax code passed in 1992. Privatization is still desired for the CDE.
-Compania Dominicana de Aviacion (CDA): this is the national
airline. It was at one time a high priority on the privatization plan
because neither the airline had the necessary equipment to cover the
routes nor the funds needed to pay its debts. Fortunately, the CDA
signed an agreement in 1993 with Air Europe. This private group
operates five flights per week. It has also received an offer by the
Russian airline, Aeroflot, but nothing definite.
Included in the privatization of the national airline was the
Aeropuerto Internacional de Las Americas (AILA). This is the
country s largest airport. This achieved privatization of the ramp and maintenance services. They were bought by a subsidiary of American Airlines in 1991. Other services that have been privatized are baggage handling, ground transportation and airplane maintenance.
-Garbage Collection: this service was sold to the private company
Attwoods Dominicana, S.A., a subsidiary of a British company.
Nevertheless, the government due to problems with the company and
the Santo Domingo City Council again seized control of this service.
The mayor of the city accused the private enterprise of deception and
Mafia techniques”. Thus, the company was not paid several monthly
quotas agreed upon for garbage collection [Giraldez, J.].
The privatization process has begun in the Dominican Republic
but at a very slow, unorganized rate. It seems like it has been
occurring spontaneously, without any planning or future agenda.
Their first step towards the ability to privatize is the development of a concrete plan. Included in that agenda is a total restructuring of the government to facilitate a growing and efficient economy. This will necessitate legal reforms and regulations. Without them public monopolies will be replaced by private ones having the same
difficulties and inefficiencies.
Puerto Rico is much farther in the privatization race as well as total industrialization and development. They have both voiced a
desire for it and have instilled plans to attain it. Its future
privatization focus will be on improved lines of communication
between the public and private sectors. This governmental shift will
then allow an alternate source of capital, less responsibility for the
country s GDP status, free market competition, and increase
employment. The government will be able to focus on public and
socioeconomic responsibilities.
The Dominican Republic has only acknowledged the concept of
privatization and had signs of it without intention. They have more
constraints due to its stage of growth. The country must also reform
legislation to include the reduction of foreign investment restrictions to allow equal treatment to domestic and foreign investors, the deregulation of the transfer of public assets (currently rigid limits), and the creation of anti-trust laws that will stimulate private ownership.
Corporate Acquisition and Merger Policy
The conditions for foreign investment in Puerto Rico follow
those of the United States. Of course they are not identical, but
without certain bank policy differences, it compares with the United
States by not placing restrictions on foreign investor actions.
International investors are given the same general rights as domestic
ones.
The Dominican Republic, however, regulated foreign investors
by Law Number 861, also known as the Foreign Investment Law, until
1995. This law required foreign businesses to register themselves
with the Central Bank before official approval to invest [Mera, O.]. It also contained other regulations including a twenty-five percent limit on profits accrued from registered foreign investments, which can be repatriated [Gomez, R.]. The new law encourages greater investment in the country by allowing foreign investment in all areas of economic activity, not requiring investors to register with the Central Bank.
This law also expands the ability to withdraw funds from the country in freely convertible currency. Another enhancement is the easing of previous restrictions on technological transfer agreements.
Puerto Rico has a corporate law mandating corporations to
register by filing a sworn statement, a balance sheet, and a corporate
charter. In order to do business on the island, enterprises have to
keep business records and file an annual report with the state
department.
The only time there have been difficulties in entering Puerto
Rico was with foreign banks. Licensing requirements exist mostly for
financial enterprises. Otherwise foreign investors have minimal
barriers to entry in the market for both corporate acquisitions and
formation of new organizations. However, banks have usually been
denied applications to operate in Puerto Rico unless the bank sets up
conditions where it will contribute to the nation’s economy. Other
licensing rules are present for mortgage lenders, small personal loan
and personal property leasing companies.
Mergers in Puerto Rico are achieved through the approval of
shareholders and board of directors of each of the participating
corporations. The revamped or new corporation can be either a
domestic or a foreign business. If the surviving company is foreign, it must be qualified to do business in Puerto Rico to continue its
operation. Besides the corporate law, no other special regulations
regarding mergers exist.
Laws on acquisitions vary based on if the company acquired is
private or public. The public acquisition is a rather complicated
procedure. Looking at the process of the government who has been
attempting to sell many public enterprises it owns, the government
starts the selling process by requesting bids. That is followed by
separate negotiations with the bidders. The sale cannot just go to the entity with the highest bid. The authorization of legislature is
required. Because of the many factors that are included in the
business deal (employment levels, etc.), both delays and even denials
are likely.
The acquisition of private businesses can be done through the
purchase of stock or assets in that company. The buyer can be
anyone from a single individual to another company or business.
Only foreign corporations have to register in Puerto Rico. Generally,
the government does not play a role in private acquisitions unless the
conduct of business requires a license (financial enterprises). The
exception to this rule is with hotel operated casinos. These hotels
mandate a complete investigation by the Puerto Rico Justice
Department to ensure illegal connections do no exist.
The Dominican Republic does not place specific regulations on
business mergers besides what is listed in their Code of Commerce.
A minimum of seven stockholders is required in the starting of a
business by law. Also, there are fiscal and advertising requirements
that must be agreed upon or the merger process is terminated.
The most common mergers take place in the banking sector. In
this sector, a merger requires the union of two or more banking
organizations as a condition for the provision of multi-banking
systems. If the merger is with two bank entities, they must each have
U.S. $5 million in capital available; three or more entities require U.S. $3 million each [Mera, O.] In addition, the banks to be merged as well as the resulting bank must be identified in some kind of
documentation which contains a description of the manner in which
the merger is being done. Other minor things are needed such as
audited financial statements, business transaction records, and
stockholder meeting information.
Acquisitions in the Dominican Republic involve the purchase of
the entire stock of the corporation on sale. The agreement also
identifies all parties involved, includes the total corporate worth, the purchasers commitments as far as the new corporations liabilities and the court’s role in the case of default.
Another way of acquiring a company is to purchase the
corporate assets only. This way the purchasing party is not liable for the corporation. Buying just the assets involves organizing a
company to purchase the assets and an agreement that in case of a
purchase of a well-known company, that the name can be changed to
avoid public confusion. Once bought by way of either stocks or
assets, there are not any legal ties to publishing or recording the
transaction.
Special considerations exist in both the Dominican Republic
and Puerto Rico regarding corporate acquisitions and mergers. First,
labor laws must be reviewed and accepted. There may be difficulties
with enterprises being able to follow or adhere to the labor laws in
Puerto Rico because they are very protective of its people. Employees
are granted rights to severance, vacation, sick and overtime pay [Work
Force]. In the Dominican Republic, businesses are faced with the
employees’ ability to unionize and collectively bargain.
Taxation is another vital issue. Under the taxation code in the Dominican Republic, two percent of the value of shares assigned
trader will be retained as tax [Mera, O.]. Therefore it will be deducted from the total amount of the sale of the stock. The submission of a retention statement to the internal revenue department must follow this. In Puerto Rico, the tax laws are similar to the U.S. and control many factors of an acquisition. Concerns would be with the liabilities of the intended company, the tax base of the stock or asset being acquired and other taxes (income, excise, property, license, etc.). It should be recognized that Puerto Rico uses U.S. currency and corporations operating in Puerto Rico only have to comply with U.S. taxation on income deriving from the U.S. or connected with business operations in the United States. Puerto Rican corporations and businesses do not pay U.S. tax as well as foreign companies that do business in Puerto Rico.
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