The term corporate governance is usually associated with large corporations or multinationals. However, Costa Rican SMEs, which account for more than 90% of the national business sector according to the Ministry of Economy, Industry and Commerce (MEIC), can also benefit from incorporating these practices in a proportional and simple way.
In an environment where many family-owned or closely held businesses face challenges of financing, growth, and succession, corporate governance should not be seen as a luxury but rather as a tool for sustainability and competitiveness.
What is corporate governance?
It is the system of rules, processes, and structures that regulate the relationship between shareholders, managers, and other stakeholders. Its purpose is to promote transparency, efficiency, and sustainability in business management. In simple terms:
- Who makes the decisions.
- How those decisions are documented.
- What mechanisms exist to protect the shareholders and the company itself.
In Costa Rica, there is no specific law on “corporate governance” applicable to all companies. However, the Commercial Code establishes the foundations for the operation of corporations (sociedades anónimas) and limited liability companies (sociedades de responsabilidad limitada), including rules on assemblies, boards of directors, managers, and corporate books. Likewise, case law has reinforced the duties of diligence and loyalty of managers toward the company.
The reality of SMEs in Costa Rica
Many SMEs operate with legal informality, which can create long-term risks. The most frequent problems include:
- Incomplete or nonexistent corporate books: important decisions are never recorded, are poorly drafted, or confuse what belongs in each book, undermining legal certainty.
- Mixing personal and business finances: complicates accounting and may generate tax penalties.
- Lack of defined roles: multiple partners sign contracts or make decisions without formal order, opening the door to nullities or disputes.
- Absence of internal policies: conflicts of interest, hiring of relatives without clear rules, or misuse of corporate assets.
- Unplanned succession: in family businesses, the death or retirement of a key partner can jeopardize business continuity.
These gaps often come to light when the company seeks financing, undergoes audits, or faces shareholder litigation.
Accessible good practices for SMEs
Corporate governance does not imply implementing complex committees or expensive external audits. There are simple and low-cost measures that can make a significant difference:
- Shareholder and manager meeting minutes: document key decisions at least once a year, clearly and with signatures. In the case of a corporation (sociedad anónima), board meetings should be held to review company performance and decision-making.
- Conflict of interest policy: prevent a partner from contracting with the company without the authorization of the others.
- Definition of powers: grant and register notarial powers clearly defining who can open accounts, sign contracts, or represent the company.
- Separation of bank accounts: avoid mixing personal income with company income.
- Use of digital tools: adopt simple platforms to store minutes, contracts, and financial statements.
- Succession plan: anticipate scenarios where a key partner retires or passes away, regulating the transfer of shares.
- Basic audits: although not mandatory, an annual review of accounts by an external accountant can prevent larger problems.
Explore GLC’s core practice areas that support these measures: Business Law, Labor Law, Immigration Law, and Real Estate Law.
Meet the GLC Legal team or contact us for tailored SME guidance.
Tangible Benefits
Implementing basic corporate governance provides immediate advantages:
- Access to credit: banks value formal documentation and clarity in roles and powers.
- Investor confidence: a company with clear rules is more attractive for strategic partnerships or capital investment.
- Reduction of conflicts: documented decisions reduce disputes over verbal agreements.
- Business sustainability: the company transcends the figure of a single partner or manager, ensuring continuity.
- Improved reputation: clients and suppliers have greater confidence in organized and transparent companies.
Corporate governance is not a luxury exclusive to multinationals. SMEs in Costa Rica can benefit enormously from applying good practices tailored to their size and capacity, thereby strengthening their structure, reputation, and sustainability.
With proper legal support, the cost of implementing them is low, but the return in trust, legal security, and access to opportunities is very high. In a country where SMEs are the backbone of employment and economic development, adopting these practices is also a commitment to the stability and future of Costa Rica’s business sector.
Author: Diego Elizondo
For more details on this topic, as well as other corporate law matters, you may contact diego@glcabogados.com.
