The True Types of Corporations: A Legal Gap in Paraguay

Abstract

This research analyzes the deficient corporate regulation in Paraguay, as reflected in the
country’s current economic and business environment—such as the quasi-monopolistic financial activity of commercial banks and the outdated legal framework governing the capital market, combined with the near absence of private companies in securing financing for their objectives. In practice, financing remains an activity almost exclusively controlled by banks and other entities
engaged in financial intermediation. In other words, businesses primarily obtain funding in two ways: through loans from banking institutions and through investments made by natural or legal persons who are not exclusively engaged in financial intermediation. The research follows a documentary method, with a qualitative approach, non experimental design, and descriptive scope. The results indicate that, in practice, at the national level, the deficient or insufficient regulation of the financing method known as the capital market or securities market leads to financing being an almost exclusive prerogative of the banking sector, leaving the capital market largely neglected. The classic division between closely held (closed) and publicly traded (open) corporationsis widely accepted in comparative law, and its regulation has spurred the growth of capital markets and, consequently, the corporate sector in countries that have adopted it. It is concluded that Paraguay, somewhat surprisingly, has not incorporated this distinction into its commercial legislation, but it is still in time to adopt best practices in corporate law in order to foster greater development of its impoverished capital market.