Let's start by stating that it is indeed possible.
According to the General Corporations Law, Law No. 26687, every company must have a general manager to represent it, a person who will exercise the powers established by the company's bylaws. These powers usually involve conducting acts and contracts to ensure the implementation of the business strategy, representing the company as stipulated by the Civil Procedural Code, attending sessions of the highest bodies of directors of the company with voice - but no vote, among other faculties. The same law establishes the possibility of appointing a legal entity as a general manager, adding that "this legal entity must appoint an individual to represent it for this purpose."
This practice dates back several decades and is becoming more common, although the proportion of companies applying it in Peru is small; we might find predominantly large and/or sophisticated companies in terms of their organizational structure and business management among them.
Why outsource management to other companies?
The reasons are based on various strategies and depend on how advantageous it is or not to delegate this responsibility to a third party. In some cases, it will be to leverage the know-how and experience that such companies have, accessing the best market practices and achieving greater process standardization. In other cases, the main criterion might be to access state-of-the-art resources and technology. It could also be that the strategy follows a management and cost-saving approach, tapping into economies of scale. And so, there could be some other reasons.
An example of this can be found in economic groups that separate their business lines into different companies, finding no reason for each to have its own general manager. Instead, they opt to establish a company that manages all the others through its own general manager. In practice, an individual holds this role across all companies.
Another example occurs with foreign companies that need to establish a subsidiary in the country. When incorporating the local company, they appoint a provisional general manager for the implementation period. This manager, whether a legal entity or an individual, who is in charge of managing permits and licenses for the company to operate, signing the initial support contracts, and/or setting up the physical office from which operations will be carried out. In this case, the concept of interim management is used, where individuals with the necessary knowledge and experience handle these processes for a limited time.
An additional example arises with foreign junior mining companies that outsource the entire management of the local subsidiary to specialized companies in mining exploration.
In conclusion:
A legal entity may be appointed as the general manager of another, with the designated representative of the former performing the role on its behalf. Furthermore, the convenience of hiring a legal entity lies in not relying solely on a natural person. Typically, legal entities, in addition to their legal entity lies in the fact that it does not depend exclusively on a natural person. In general, legal persons, in addition to their expertise, have greater support and mechanisms for business continuity. However, it's crucial to ensure that the contracted company has the necessary knowledge and experience for the intended tasks.
Are you interested in appointing a General Manager for the pre-operational stage of your company? Do you have any clients who could benefit from the permanent availability of individuals who would assume management when such an appointment falls on a legal entity? AlterEgo is the ideal partner to address your needs. Contact us to learn about our general management service through this link.
Author: Kenneth Olsen | August 25, 2023
