Entrepreneurs in Paraguay may organize their ventures under several legal forms or vehicles. However, for technology-oriented and investor-backed startups, three structures are particularly relevant:

Corporation – Sociedad Anónima (S.A.)

The S.A. is the traditional and most recognized vehicle for companies with multiple shareholders. It authorizes the issuance of shares, the appointment of a board of directors, and provides considerable flexibility in corporate governance. Therefore, S.A.’s are regulated mainly by the Civil Code (in force since 1987), therefore some of its provisions are outdated and do not provide the number of tools that the current VC market has in other jurisdictions. Nonetheless, it continues to be the preferred form for startups anticipating institutional or large-scale investment, particularly at growth or later stages.

Limited Liability Company – Sociedad de Responsabilidad Limitada (S.R.L.)

An S.R.L. is commonly used for small and medium-sized enterprises, but mostly for family enterprises. It is rarely employed in venture financing because ownership stakes (“quotas”) are not freely transferable and there are limitations on admitting new partners, which can restrict investment flexibility.

Simplified Joint Stock Company – Empresa por Acciones Simplificada (E.A.S.)

Relatively recently introduced by Law No. 6480/2020, the E.A.S. has rapidly gained popularity among early-stage startups due to its simplified and modern framework.

Key features include:

• The ability to incorporate with a single shareholder, whether an individual or legal entity.
• Digital, expedited, and low-cost incorporation, often completed within days via the Ministry of Industry’s online platform (“SUACE”).
• Limited liability and share-based ownership without the need for a board of directors or statutory auditor.

Nevertheless, the E.A.S. currently lacks detailed regulatory provisions regarding multiple-share classes, preferred stock, and complex capitalization instruments.

As a result, many startups may later convert into S.A. once they reach a stage requiring structured investment rounds or institutional participation, unless until the SUACE system and its regulation becomes more amicable and adjusted to the current corporate world.

Also, it is common for enterprises to acquire shelf companies, especially S.A.s, which are fully incorporated and ready to operate within days of acquisition.

Having explained that, it shall be expressed that Paraguay’s venture capital (VC) ecosystem is still in the early stages of development, with limited local funding sources and minimal government-sponsored support. Consequently, standardized VC instruments such as SAFEs are not yet widespread. However, there is a growing trend of foreign investors providing funding for promising start-ups. International VC firms, particularly those from neighboring countries, have begun to express interest in Paraguay’s expanding tech sector.

The following instruments are most frequently used:

Equity Financing (Preferred Shares)

• Venture financing rounds tend to follow regional Latin American practice rather than the U.S. NVCA model.
• Preferred shares may include liquidation preferences and anti-dilution protections, though typically in simplified form.
• Paraguayan law does not explicitly recognize “preferred stock” as in U.S. corporate law; thus, these provisions are usually incorporated via the bylaws and customized shareholders’ agreements.

Convertible Instruments

SAFEs are less frequent, given the absence of a specific legal framework and the limited familiarity of local investors with the “U.S. Y Combinator model”.

Shareholders’ Agreements

These agreements play a pivotal role in replicating venture-style protections such as rights of first refusal, tag-along and drag-along rights, information rights, and board representation.

Usually, the recommendation is to include in the corporate bylaws the largest amount of the agreements on them, but sometimes, for confidentiality matters and other, they remain in the agreement without registering in the Public Records. In this case, enforcement is based on contract law, meaning these provisions must be carefully negotiated and drafted to ensure validity and effectiveness.

Regarding NVCA Standards, Paraguayan venture transactions may often draw conceptual influence from U.S. NVCA documentation, yet diverge in several key aspects:

• Vesting schedules and option pools are less common but are gradually being adopted by technology startups.
• Liquidation preferences are generally set at 1x non-participating, though terms are sometimes loosely defined in early-stage rounds.
• Governance rights -including board seats and veto powers- are typically negotiated on a case-by-case basis.

Given the limited presence of formal VC in Paraguay, startups frequently pursue alternative financing avenues, including:

• Angel investors and family offices, often providing funding through convertible debt or simple equity structures.
• Governmental and development initiatives, such as programs from the Interamerican Development Bank (“I.D.B.”) Lab or the National Council for Science and Technology (“CONACYT”), which provide grants or quasi-equity instruments instead of traditional venture rounds.

In Paraguay, the acquisition for venture-backed startups typically follows one of two structures: equity purchases or asset purchases. Among these, equity transactions are the prevailing market standard because of their procedural and tax efficiency and continuity of operations.

Under an equity purchase, the acquirer obtains all or a controlling stake of the target company’s shares, thereby assuming ownership of the entity along with its assets, employees, rights, and obligations.

The transfer of shares must be duly recorded in the company’s share registry, and for corporations, in most cases, share certificates must be endorsed in favor of the buyer. Comprehensive due diligence (D.D.) is critical to assess risks and ensure compliance mainly because the acquiror shall hold the majority of the company, which holds all corporate and financial liabilities it had from the time of its incorporation.

Indemnification clauses, pledge of shares, guarantee trusts, even escrow deposits -via trusts, are usually applied when contingencies are detected which may affect the transaction price.

Regarding tax consideration, assignment of shares is VAT exempt.

If the seller is a resident entity, the income derived from the sale of the shares is subject to a 10% Corporate Income Tax (CIT) on the net profit realized from the sale and all other taxable income and deductible expenses, during the fiscal year in which the income is accrued.

If the seller is a non-resident, the gain is subject to a maximum of 4.5% of the gross value of the sale price. The 4.5% is a maximum effective rate that comes from the rule of applying the statutory WHT rate of 15% on the lesser of:

• Gross sale price minus nominal value of the shares (here, some planning can be done); or,
• 30% of the gross sale price.

If seller and purchaser are non-residents, the Paraguayan target company, jointly and severally with the seller, is responsible for paying the WHT to the Tax Administration (“T.A.”). Seller must remit the funds to the company; otherwise, it should pay the tax bill from its own funds and then claim it back from the seller.

Equity acquisitions are commonly employed for strategic buyouts, investor exits, or cross-border control transactions, particularly when a foreign acquirer seeks full ownership of a Paraguayan startup or its offshore holding structure.

On the other hand, in an asset purchase, the acquirer selectively purchases specific assets -such as intellectual property, proprietary technology, or client portfolios- without inheriting the target’s liabilities. This approach offers greater flexibility but involves more complex implementation.

The sale of significant assets requires shareholder approval and the individual assignment of contracts and employees to the buyer. Additionally, such transactions may trigger creditor notification obligations under applicable corporate and commercial law.

Asset sales are subject to 10% VAT and 10% CIT on the seller’s gain. From the buyer’s perspective, the acquired assets may be amortized or depreciated for future tax deductions, providing post-acquisition fiscal benefits.

The use of preliminary agreements in Paraguay, such as letters of intent (LOIs), memorandum of understanding (MOUs) and term sheets, has grown in general but in startup-related transactions, particularly where foreign investors are involved.

Although early-stage local deals may still proceed on an informal basis, the growing influence of VC practices and cross-border M&A norms have led to broader adoption of written pre-contractual instruments to clarify expectations and streamline negotiations.

Generally, LOIs, MOUs and term sheets are non-binding with respect to the principal commercial terms. Nonetheless, certain specific provisions within these documents are typically binding and enforceable, including confidentiality clauses, exclusivity obligations, governing law and dispute resolution mechanisms, cost allocation and procedural terms.

This approach is aligned with regional best practices and is fully enforceable under Paraguayan law, provided the intent to create binding obligations is clearly expressed.

Regarding exclusivity, these clauses are a common feature in negotiated and cross-border transactions, granting the prospective acquirer a defined period to conduct D.D. and negotiate definitive agreements.

A breach of exclusivity may give rise to contractual liability, though in practice, recoverable damages are often limited or symbolic unless the parties have predefined liquidated damages or a specific penalty clause, which is the most recommended figure, otherwise, the non-breaching party shall prove to a judge or an arbitrator the effective amount of the damages. Therefore, including a high penalty fee is recommended as it works both as a deterrent, and, in case of contract breach, allows the non-breaching party to know the value of the damage than can be claimed.

In relation to deposits and break-up fees, these are not customary in Paraguayan startup or VC transactions. With some more developed investors (such as I.D.B.) a break-up fee is usually agreed, although the value tends not be related to the amount of the potential transaction but to cover the cost incurred by the parties in the D.D. and negotiation process.

Most acquisitions of venture-backed startups in the local market continue to be cash-based, reflecting the limited liquidity of Paraguayan private companies and the relationship-driven nature of domestic transactions. Equity consideration tends to arise primarily in cross-border or regional acquisitions, particularly when the buyer is a foreign technology company or holding entity seeking strategic integration.

The Paraguayan Stock Market statute (recently enacted Law No. 7572/2025) governs public offerings of securities. Private share exchanges conducted as part of M&A transactions are not classified as public offers and, therefore, do not require registration or approval from the “Superintendencia de Valores” (S.I.V.).

There are no prohibitions on receiving foreign equity or on participation by foreign investors. However, cross-border share exchanges may be subject to reporting requirements before the Central Bank of Paraguay (B.C.P.).

In case of a share-by-share exchange, for tax purposes, it is considered a barter, therefore, each party treats the assignment as a sale, applying the tax rules mentioned above. Furthermore, if the shares of a non-Paraguayan entity are part of the consideration, there are no Paraguay taxes on such side.

The valuation of the buyer’s equity is critical in determining the taxable base and may present practical challenges due to differing accounting standards and limited market comparable.

Because of the small double taxation treaty network that Paraguay holds (currently just six treaties), cross-border share exchanges may potentially result in dual taxation, both in Paraguay and in the foreign jurisdiction involved.

Earn-out mechanisms in Paraguay remains relatively uncommon, though their presence may be increasing in cross-border and venture-backed transactions, especially where valuation is tied to future performance.

Domestic acquisitions generally rely on fixed purchase prices, reflecting both the simplicity favored in local practice and the limited capacity for post-closing performance monitoring.

Where implemented, earn-outs in Paraguay tend to mirror simplified versions of international models, adapted to local legal and operational contexts.

• Performance Metrics: Typically linked to revenue, EBITDA, or growth in users or clients over a 12–36-month period following closing.
• Payment Mechanisms: Earn-outs are most often cash-based, structured as deferred or conditional installments contingent on achieving agreed performance thresholds.
• Governance Protections: Sellers usually seek covenants to prevent acquirers from manipulating operational results, while buyers maintain overall management control of the business during the earn-out period.

Earn-outs are legally enforceable under Paraguayan law as conditional obligations.

Earn-out payments are taxed upon receipt at the standard 10% CIT rate applicable to all the taxable profits of the fiscal year in which they are accrued.

If the recipient is a non-resident, withholding obligations may apply to the buyer under Paraguayan tax law, ranging from 4.5% to 15% depending on how the earn-out was designed.

Earn-out disputes in Paraguay remain rare, largely due to their limited adoption. When they do arise, they typically concern interpretation of performance metrics or calculation methodology.

To ensure predictability and neutrality, parties often opt for arbitration clauses, commonly administered by the Centro de Arbitraje y Mediación del Paraguay (CAMP) or the International Chamber of Commerce (ICC), rather than relying on local courts.

In Paraguay, purchase price adjustments (PPAs) are not yet standard practice in most local startup acquisitions, where fixed-price structures continue to dominate. Nonetheless, when applied, Paraguayan PPAs generally focus on core financial elements rather than full-scale balance sheet reconciliations. The most frequent structures include:

• Working Capital Adjustments: The predominant mechanism in local and regional deals. It reconciles actual working capital at closing with a pre-agreed target, ensuring sufficient liquidity for post-closing operations.
• Net Debt Adjustments: Designed to ensure that the enterprise value reflects any variance in debt or cash balances at closing.
• Completion Accounts: Occasionally adopted in regional or investor-led acquisitions, allowing post-closing verification of financial results -typically within 60 to 90 days of completion- to adjust the final purchase price accordingly.

Lock-box pricing mechanisms remain rare in Paraguay, particularly in startup transactions, mainly because of the limited reliability of historical financial information and the absence of audited financial statements in many early-stage companies.

These structures may occasionally appear in larger, audited transactions involving international acquirers. However, they are not yet part of standard local M&A practice.

Both PPAs and lock-box mechanisms are contractual constructs with no specific restrictions under Paraguayan law. Their enforceability depends on clear drafting and mutual agreement between the parties.

In practice, many Paraguayan startups lack robust accounting systems, which limits the feasibility of implementing complex adjustment models. Where financial verification is required, parties generally refer to International Financial Reporting Standards (IFRS) for SMEs as the accounting benchmark. Although the application of this international standard remains a challenge.

Employee equity participation programs are still uncommon in Paraguay, primarily due to the absence of specific legal and tax frameworks governing instruments such as stock options or restricted stock units (RSUs).

Nevertheless, as the local startup ecosystem evolves and cross-border investment increases, founders are adopting contractual or simplified incentive mechanisms to align key employees’ interests with the company’s growth and value creation.

Structures that can be mentioned as common may be:

• Phantom Equity / Bonus Plans: One may say the most frequently used structure in Paraguay, these plans grant employees a cash payment linked to company valuation or exit proceeds, effectively replicating equity participation without issuing actual shares. They are simpler to implement, avoid corporate governance complications, and can be tailored through contract law.
• Direct Share Ownership: Some startups allocate minor shareholdings to key employees, often subject to vesting schedules and buy-back rights upon termination. However, this approach remains rare.
• Offshore Option or RSU Plans: When a startup’s holding company is incorporated abroad it may implement foreign-law option or RSU programs. These plans allow employees of the Paraguayan subsidiary to participate in the group’s equity under foreign legal frameworks, a common arrangement among cross-border venture-backed startups.

Regarding legal and tax considerations, Paraguay currently has no specific statutory regime regulating employee equity incentives (although there is a regime that allows companies to pay, social contribution free- up to 10% of their profits to all the employees included in the payroll); these are governed by contract law and general corporate principles. Phantom equity or cash bonus payouts are treated as ordinary employment income and taxed upon payment. Share disposals by employees are subject up to 2.4% of Personal Capital Gain Tax on realized profit. Private employee participation plans are not considered public securities offerings and therefore do not require registration from the S.I.V.

Treatment Upon a Sale or Exit Transaction

• Phantom Equity Plans: Typically settled in cash at closing, with proceeds taxed as ordinary income to the employee.
• Direct Shareholding: Employee-shareholders participate in the sale alongside founders and investors, realizing personal income tax subject to the standard 10% tax rate.
• Foreign Option or RSU Plans: Governed by foreign law, these plans generally accelerate vesting or convert into cash or equity upon a change of control, depending on the terms of the global plan. These are also considered as a salary or a compensation for services by the employee, therefore, subject to Personal Income Tax at a maximum rate of 10%.

Local subsidiaries of multinational companies may apply one or more of these programs, nonetheless, formal employee equity programs remain uncommon in Paraguay, while a growing number of startups are adopting hybrid or contractual incentive models to attract and retain talent.

Using normal employee retention mechanisms following a startup acquisition are not yet standardized in Paraguay, as the local venture and M&A ecosystem is relatively young.

Buyers, especially international or regional tech acquirers, do implement retention arrangements, mainly for founders and key employees critical to post-closing integration. These arrangements typically take the form of cash-based incentives rather than equity-based instruments.

Furthermore, Paraguayan labor law establishes a minimum severance package for employees whose contracts are terminated without cause, and if the employee has 10 or more years of service, they can only be removed by mutual agreement with the company, and often, with a severance package equivalent to double the value than what it would usually get.

Therefore, it is usually a part of the transaction covenants or price, that these severances are in charge of the company/seller, whether as a discount of the purchase price or as a condition precedent for closing the transaction.

In Paraguay, works councils are not recognized as a legal corporate body, and unionization is extremely uncommon within the startup sectors. The overall labor environment is characterized by a high degree of flexibility and an employer-oriented framework, particularly in private-sector industries focused on entrepreneurship, where workforces tend to be smaller, younger, and less formally structured.

Although trade unions are legally recognized under Law No. 213/93 (Labor Code), their presence is commonly limited to industrial enterprises, the public sector, and large and traditional employers, not startups or venture-backed companies.

Regarding the tax treatment of founder or key-person holdbacks, it depends primarily on the nature of the deferred payment, specifically, whether it is tied to share ownership or continued service following an acquisition. There is no dedicated statutory framework governing such arrangements, so classification is determined according to the economic substance of the payment.

Capital Gains Treatment

Where the holdback represents a deferred portion of the share purchase price, it is characterized as a capital gain.

• The taxable base is the net profit derived from the sale, subject up to 2.4% of the shares sale income.
• For non-resident sellers, the maximum tax is 4.5% of the gross revenue, and the local buyer or the company, depending on the situation, is required to withhold this tax upon payment.
• These holdbacks are typically unconditional and directly linked to ownership of the shares.

Ordinary Income Treatment

If the deferred payment is contingent on the founder or key executive’s continued employment or linked to post-acquisition performance targets, it is treated as ordinary income.

• Such payments fall under Personal Income Tax for Services, and are also subject to social security contributions if the individual is under the payroll
• The acquiring company (employer) does not act as a withholding agent of the Personal Income Tax for Services, which is self-assessed by the employee. In case social security contribution are applicable, these are withheld by the employer.

Mixed and Cross-Border Structures

In practice, some transactions employ hybrid structures, dividing the holdback into distinct components:

• An unconditional portion, representing a deferred purchase price (taxed as a capital gain); and
• A service-contingent portion, treated as employment income.

In cross-border acquisitions, parties occasionally seek favorable tax treatment by structuring the holdback as deferred consideration under foreign law. However, Paraguayan tax law does not provide a mechanism to recharacterize service-based payments as capital gains, regardless of foreign structuring.

Non-compete and non-solicitation clauses are widely used in Paraguayan startup acquisitions, particularly in agreements involving founders and key executives. However, their enforceability is limited by constitutional guarantees of freedom to work and trade, which restrict overly broad contractual restraints.

These restrictive covenants typically appear in share purchase agreements, employment contracts, or founder exit arrangements.

• Non-compete clauses generally prohibit participation in a competing business for one to three years, limited to a specific industry or geographic area.
• Non-solicitation clauses, which restrict the solicitation of employees, clients, or suppliers, are more readily enforceable, as they do not directly impede professional activity.

Paraguayan law does not contain an explicit statutory framework regulating post-employment non-competes. Nonetheless, such provisions are recognized and enforceable provided they are reasonable in scope, duration, and geographic reach, and, mainly, supported by adequate compensation for the restriction imposed.

Clauses that are overly broad, indefinite, or disproportionate may be deemed null and void. While non-competes are fully enforceable during employment, they must be time-limited and compensated to remain valid after termination.

In practice, breaches of restrictive covenants typically result in contractual damages or the forfeiture of deferred payments. Paraguayan courts tend to favor monetary remedies over prohibitory injunctions. To enhance predictability, cross-border transactions often designate foreign governing law or arbitration mechanisms to govern enforcement.

Closing conditions in the acquisition of venture-backed startups are generally pragmatic in Paraguay, reflecting the small scale and flexibility of local transactions. Nevertheless, in cross-border or investor-led deals, parties tend to incorporate standard M&A conditions modeled after international practice, aligning with the expectations of foreign investors and institutional acquirers.

The most common pre-closing requirements in Paraguayan startup transactions may include:

• Corporate approvals: Authorization by the shareholders or boards of directors of both parties, in accordance with their bylaws.
• Regulatory approvals: If the company is under some regulator, such approvals are required, except from the Antitrust Agency, which usually is a post-closing condition. Although most Paraguayan startups operate in unregulated or barely regulated industries, as technology.
• Accuracy of representations and warranties: Confirmation at closing, often subject to a materiality or knowledge qualifier.
• Compliance with pre-closing covenants: Fulfillment of agreed actions such as document delivery, employee transitions, or reorganization steps.
• Delivery of Closing Documentation: Execution and handover of share transfer instruments, corporate resolutions, and registry updates to perfect ownership transfer.

The concept of a Material Adverse Effect (MAE) is not common in domestic transactions but is increasing in cross-border acquisitions.

A MAE clause allows the acquirer to terminate or renegotiate the agreement if a significant adverse event occurs prior to closing, regulatory sanction, or loss of a major client or contract.

Under Paraguayan law, there is no statutory definition of MAE. Its interpretation is purely contractual, therefore, it is very important to define as detailed as possible what may be considered a MAE, as courts tend to construe such clauses narrowly.

In Paraguayan jurisdiction, representations and warranties (R&Ws) are a standard feature of startup acquisition, although their scope and complexity vary according to the nature and sophistication of the transaction. In domestic deals, R&Ws tend to be simplified and pragmatic, whereas cross-border or VC-driven acquisitions typically mirror international M&A standards, incorporating more detailed and risk-allocation-oriented provisions.

a.  Data Room Disclosure

The concept of “deemed disclosure”, where all materials contained in a virtual data room are automatically treated as disclosed against the seller’s representations, is not yet widespread in Paraguayan domestic transactions. Local sellers generally rely on specific disclosure schedules attached to the share purchase agreement, explicitly listing exceptions to the R&Ws.

Such provisions are legally valid under Paraguayan law, provided they are expressly agreed by the parties and clearly drafted to identify the scope of disclosure; and it can be said that are increasing to some extent.

b. Knowledge Qualifiers and Risk-Shifting Representations

Knowledge qualifiers, phrases such as “to the best of the seller’s knowledge”, can be considered common in Paraguay for startup transactions, in particular for operational or factual representations where founders cannot fully verify the accuracy of all underlying information.
These clauses are consistent with the principle of good faith under Paraguayan law and serve to balance liability by limiting the seller’s responsibility to matters within their actual or constructive knowledge. Nonetheless, the recommendation is to be as explicit as possible.

Risk-shifting representations, in which sellers accept full responsibility for uncertain matters, are common in local transactions until closure date. Furthermore, they are more frequently encountered in foreign-led acquisitions, typically accompanied by knowledge or materiality qualifiers to moderate exposure.

Establishing indemnification provisions is a standard component of startup acquisition agreements in Paraguay. Nevertheless, their scope and complexity vary according to the size of the transaction and the profile of the investors. In domestic deals, indemnity clauses tend to be straightforward, focusing on core liabilities and basic warranties. Conversely, venture-backed and cross-border acquisitions typically adopt structured indemnification frameworks, reflecting international M&A standards that distinguish between categories of representations, impose liability caps, and define specific survival periods.

Indemnification obligations generally extend to several key areas:

• Fundamental representations: Include corporate authority, valid ownership of shares, capitalization, and title to assets. These are often uncapped or subject to higher limits.
• General representations: Cover operational, financial, and compliance matters. Liability for these is usually capped and time-limited, reflecting proportional risk allocation.
• Pre-closing tax and employment obligations: Frequently addressed through specific indemnities, ensuring coverage for tax, labor, or social security liabilities arising before completion.
• Covenant breaches and identified risks: Such as pending litigation, intellectual property issues, or regulatory exposures, typically governed by customized indemnity clauses tailored to the risk.

The limits of indemnification are usually negotiated based on deal complexity and investor expectations:

• General representations: Liability is often capped.
• Fundamental representations: Commonly uncapped.
• Specific indemnities: Determined case by case and often uncapped.

While “de minimis” thresholds and basket provisions are unusual in smaller domestic deals, they are becoming more common in transactions involving foreign or institutional buyers, reflecting the gradual adoption of international M&A risk-allocation mechanisms.

In relation to survival periods, the duration of indemnification obligations also depends on the nature of the representation:

• General representations: Commonly survive 12 to 24 months following closing.
• Fundamental representations: May survive indefinitely.
• Tax and labor liabilities: Usually follow the statutory limitation period of five years under Paraguayan law.
• Specific indemnities: Survive for the duration of the underlying exposure, as expressly defined in the agreement.

In Paraguay, indemnification provisions in startup acquisitions operate within the principles of the Civil Code, which grants parties broad contractual autonomy while establishing limits on recoverable damages and imposing a duty of good-faith mitigation.

Under Paraguayan law, both actual damages and lost profits can be recovered, provided that the latter can be proven with reasonable certainty. Courts generally reject speculative or multiple-based claims unless such methods are explicitly defined and contractually agreed by the parties.

The duty to mitigate losses derives from the overarching principle of good faith in Paraguayan contract law. A party that fails to take reasonable steps to minimize damages may see its recovery reduced proportionally. To succeed in an indemnification claim, the claimant must demonstrate a direct causal relationship between the breach and the loss.

Parties may limit or exclude liability by agreement, but such limitations cannot extend to fraud, gross negligence, or willful misconduct. Contractual exclusions must be clearly articulated to be enforceable. Liability caps, baskets, and other threshold mechanisms may be valid expressions of the parties’ autonomy.

In practice, Paraguayan law supports negotiated indemnity frameworks, provided they remain consistent with good faith and proportionate to the actual harm suffered.

The use of Warranty & Indemnity (W&I) or Representations and Warranties -insurance (RWI) are exceptionally rare in Paraguay. The local insurance market does not currently offer such products, and there are no domestic underwriters providing this type of coverage, unless very few exceptions in which the amount warranted is held in escrow with the insurance company or backed by a cash collateral. Nonetheless, they are very rare if not inexistent.

As a result, most acquisitions, particularly those involving startups or early-stage ventures, rely on contractual indemnities, escrow arrangements, or holdback mechanisms to manage post-closing exposure.

RWI coverage appears only in cross-border, typically where a foreign investor or private equity fund acquires a Paraguayan startup through a foreign holding structure. In such cases, insurance is arranged through international underwriters, with Paraguay included as part of a multi-jurisdictional policy.

The limited adoption of W&I or RWI insurance in Paraguay stems from several practical constraints:

• Absence of local providers, requiring reliance on offshore insurers and reassurance companies willing to underwrite the risk.
• High premium costs relative to transaction size, making coverage uneconomical for smaller deals.
• Stringent underwriting standards, including requirements for audited financial statements and formal legal and tax D.D., which many early-stage startups cannot meet.
• Governing law considerations, as foreign insurers often hesitate to cover transactions governed by Paraguayan law, given the scarcity of local precedent and judicial experience in this area.

Regarding tax coverage and exclusions, some international RWI policies extend coverage to tax-related risks, generally limited to pre-closing liabilities and conditioned upon the completion of independent tax D.D.

However, standard exclusions remain broad and typically encompass the following: known or disclosed issues; financial projections and forward-looking statements; environmental and labor-related contingencies; transfer pricing and indirect taxes; fraud, intentional misconduct, and cybersecurity risks.

Paraguay’s competition and merger control framework is governed by Law No. 4956/2013 (Competition Defense Law) and its Decree No. 1490/2014, both administered by the National Antitrust Commission (CONACOM). The system prohibits anticompetitive conduct and requires pre-closing notification of M&A that exceeds defined domestic turnover thresholds.

A notification to CONACOM is mandatory when:

• As a result of the transaction, a share equal to, or greater than, 45% of the domestic market for a given product or service, or of a defined geographic market within it, is acquired or increased up to; or
• The total gross turnover in the Republic of Paraguay of all the parties involved exceeds 100,000 minimum monthly wages (currently equivalent to around USD 1.5 million) in the last accounting period.

Once submitted, CONACOM performs phase I reviews of the filing, lasting up to 30 days. If potential competition issues are identified, CONACOM may open phase II, extending the review by an additional 60 days. Noncompliance with the imposed measures may result in fines and the potential nullification of the transaction.

Most startup acquisitions in Paraguay, including those backed by VC, do not meet the notification thresholds, given their relatively modest domestic revenues and limited market share. However, notification requirements may be triggered when a foreign acquirer with substantial operations or market power in Paraguay acquires control of a local technology company or platform with growing market influence.

To date, CONACOM has not applied heightened scrutiny to mergers in the technology economy sector. Its enforcement efforts have primarily focused on traditional industries such as retail, telecommunications, and manufacturing. Nonetheless, Paraguay’s participation in regional competition initiatives under MERCOSUR reflects a growing recognition of digital market concentration risks. This trend suggests that future oversight may extend to platform-based and data-driven transactions as the local tech ecosystem matures.

Regarding foreign direct investment, Paraguay maintains a liberal and investor-friendly FDI regime, characterized by equal treatment of foreign and domestic investors and the absence of prior approval or screening requirements for foreign acquisitions or new investments. The system is primarily governed by Law No. 117/91 (Investment Law) and recent Law No. 7548/25 (Investment Incentives Law), both of which promote capital inflows and ensure regulatory stability for investors.

Foreign investors may own 100% of Paraguayan entities across virtually all sectors, including technology, fintech, and digital services. There are no monetary or ownership thresholds that trigger foreign investment filings or reviews. Administrative formalities are minimal and consist mainly of procedural registrations, including:

• The target must have a Tax ID (RUC);
• The target must file and update, on a yearly basis, its UBO and the details of the legal entity;
• The target must send statistical investment information to the B.C.P. upon request; and
• AML filings with the Secretariat for the Prevention of Money Laundering (SEPRELAD), when applicable.

These steps are mostly declarative rather than approval-based, ensuring a streamlined process for establishing or acquiring a business.

Moreover, Paraguay actively encourages foreign investment through a range of tax and regulatory incentives, including:

• Law No. 7548/25, which grants tax exemptions for agribusiness, industrial, entertainment, tourism, and export-oriented projects;
• The Maquila Regime (Law No. 7.547/2025), offering a 1% sole tax applicable on the gross export value or the local purchases of every month, whichever the highest. Maquila projects are oriented for export manufacturing and service companies; and
• Free Trade Zones (Law No. 523/95), which provide customs and tax benefits for logistics and technology operations, with 0.5% sole tax applied on every export.

These incentive programs are frequently exploited by foreign technology, fintech, and service companies establishing regional hubs or back-office operations in Paraguay.

The regulatory landscape for technology company acquisitions in Paraguay is considered light-touch and flexible, with no overarching approval requirements beyond merger control and standard corporate registration procedures. However, sector-specific authorizations may be required when the target operates in regulated industries.

Some fintech companies must be licensed by the B.C.P. and notify or, in certain cases, obtain prior approval for changes in ownership or control.

All payment service providers and electronic money issuers are also subject to anti–money laundering regulations under Law No. 1015/97, including registration and reporting with the SEPRELAD.

Entities that provide telecommunications or internet services must be licensed under Law No. 642/95 and secure prior authorization from the National Telecommunications Commission (CONATEL) before completing any share transfer or control change.

By contrast, smaller connectivity or hosting providers without formal licensing requirements are typically subject only to simplified registration or notification duties.

Particular attention should be given to cross-border data transfers, ensuring that personal data continues to receive adequate protection; and maintenance of user consent, especially when integrating or migrating customer databases. When writing this chapter, Paraguayan Congress was in the final stages of discussion of a comprehensive data proception legislation, following Europe’s GDPR.

If the target company remains as such, no further communication is required to the employees or any employment authority.

And, if the target company operates facilities with environmental impact, notifications to the Ministry of Environment and Sustainable Development (MADES) may be required.

In Paraguayan startup acquisitions, intellectual property (IP) typically constitutes one of the core assets of the target company. However, ownership irregularities and registration deficiencies are common, reflecting the informal practices that characterize many early-stage ventures.

Paraguay’s IP system -administered by the National Directorate of Intellectual Property (DINAPI) under Law No. 1328/98 (Copyright), Law No. 1294/98 (Trademarks), and Law No. 1630/00 (Patents)- is consistent with international standards, but its effectiveness depends largely on proper documentation.

Common IP Challenges:

• Unregistered or misassigned rights: It is common for founders to hold trademarks, domains, or software copyrights personally. Confirmatory IP assignment agreements shall therefore be required prior to closing to consolidate ownership under the target entity.
• Employee and contractor ownership: In the absence of written employment or service contracts, creators under Paraguayan law retain ownership of their works, including code, designs, and creative assets. Buyers must verify that all relevant employment and contractor agreements include clear IP transfer clauses to ensure valid ownership.
• Open-source software (OSS) compliance: Many startups integrate open-source components without maintaining compliance records, potentially exposing acquirers to copyleft or license-violation risks.
• Trademark and Domain Registration: Brand assets are often unregistered or registered in the name of individual founders, requiring formal assignment and re-registration in favor of the company.
• License Transferability: Some types of startups may depend on third-party software or cloud licenses that are non-transferable or subject to consent upon change of control, requiring early coordination with licensors.

In M&A practice, acquirers typically require:

• Detailed IP representations and warranties covering ownership, registration, and absence of infringement;
• Execution of confirmatory assignments to perfect title to software, trademarks, and related assets; and
• Post-closing portfolio alignment, ensuring that all IP registrations and domains reflect the buyer’s or target’s corporate structure.

IP D.D. further extends to data protection and privacy compliance under current Law No. 6534/20. However, as mentioned above, a new law on the matter is about to be passed and enacted.

Paraguay’s data protection regime is currently governed by Law No. 6534/20 (Personal Credit Data Protection Law). This law presents the main issue of referring specifically to credit data protection, not personal data in general, even though in some parts it mentions personal data but without clearly including it under its protectional provisions. Therefore, its application to protect personal data in general shall be seek by analogy or indirectly.

Nonetheless, as mentioned in the previous answer, a new personal data protection law is being studied, and it is already in the final stages of the process to become effective.

This new law will introduce modern privacy principles inspired by the EU General Data Protection Regulation (GDPR) and provide a solid legal framework.

Of course, this means that enforcement of effective personal data protection is to be develop in Paraguay. However, with this new law, the development is near.

The new law will establish fundamental rules for personal data processing, including mainly:

• Processing must be based on a lawful ground and, in some cases and/or circumstances, the data subject’s consent;
• Data must be collected for legitimate, specific, and explicit purposes;
• Individuals have rights to access, rectify, update, and delete their personal information; and
• Data controllers are accountable for maintaining appropriate security, confidentiality, and traceability measures.

Organizations must also ensure that processing activities respect the principles of proportionality, transparency, and purpose limitation.

Employment relations in Paraguay are governed by the Labor Code (Law No. 213/93) and supervised by the Ministry of Labor, Employment, and Social Security (MTESS).

The framework is generally protective of employees, and in the context of startup acquisitions, challenges often arise from informal hiring practices, misclassification of contractors, and non-compliance with social security obligations.

Key Employment Issues

Contractor misclassification: It is common for startups to engage personnel as independent contractors to minimize employment costs and administrative burdens.

However, if the relationship exhibits elements of subordination, exclusive service, or continuous direction, authorities may reclassify such contractors as employees, resulting in liability for:

• Unpaid social security contributions to the Social Security Institute (IPS);
• Retroactive severance and benefit payments; and
• Associated penalties for non-compliance.

Social Security and Tax Compliance: Employers must register all employees before the IPS and accurately report their monthly compensation. Non-registration or underreporting of salaries can lead to retroactive assessments and fines. Additionally, the tax authority (DNIT) may impose certain reporting obligations.

Employment Continuity in M&A Transactions:

• In share acquisitions, employment relationships remain unchanged, as the employer entity continues to exist.
• In asset acquisitions, employees must either be transferred with seniority preserved or terminated and rehired, in which case full severance compensation must be paid before rehiring.

Documentation and IP Rights: Startups frequently lack formal employment contracts, pay slips, and confidentiality or intellectual property assignment clauses. This creates uncertainty over ownership of software, inventions, or trade secrets. Buyers typically require confirmatory IP assignments and formalized employment documentation as pre-closing conditions.

Parties to M&A in Paraguay enjoy broad contractual autonomy in selecting their preferred dispute resolution mechanisms. While local court proceedings remain the default for small domestic transactions, arbitration is the preferred method for medium to large-scale or cross-border deals, particularly in the technology and VC sectors, where neutrality, confidentiality, and enforceability are essential.

In this sense, it shall be mentioned that Paraguay is a signatory to the New York Convention and enforces foreign arbitral awards under Law No. 1879/02 (Arbitration and Mediation Law). Proceedings may be seated locally, under the Centro de Arbitraje y Mediación del Paraguay (CAMP), or internationally. The parties often choose foreign governing law to ensure neutrality and predictability, particularly in complex or high-value transactions.

Litigation before civil or commercial courts is more common in smaller domestic acquisitions.

Another available option is multi-tiered provisions, requiring good faith negotiation or mediation before arbitration. This approach is particularly favored in technology acquisitions involving founder retention or post-closing performance obligations, as it facilitates the preservation of commercial relationships.

Frequent challenges in M&A dispute resolution include:

• Misalignment between governing law and jurisdiction, leading to procedural uncertainty;
• Vague or incomplete arbitration clauses, which can complicate enforcement; and
• Difficulties executing awards when a seller’s assets are in Paraguay.

Currently, in practice, arbitration remains preferable for cross-border enforceability, as foreign arbitral awards are generally easier to recognize and execute than foreign court judgments.

Paraguayan courts may also grant interim measures in support of ongoing arbitral proceedings.

To minimize enforcement risks and jurisdictional conflicts, is recommendable to:

• Select arbitration as the default dispute resolution method;
• Ensure consistency between the governing law, arbitral seat, and institutional rules; and
• Clearly define the scope of arbitration.

M&A transactions in Paraguayan jurisdiction shall comply with notarization and registration, formalities to ensure the validity and enforceability.

The procedures are generally straightforward, but proper planning is essential to prevent administrative delays at closing.

Notarization Requirements

Several acts, as the corporate amendments in mergers for example, must be executed before a Paraguayan Notary Public and incorporated into a public deed. When documents are executed abroad, they must be:

• Apostilled in accordance with the Hague Convention or consularized in the country of origin of the documents and legalized in Paraguay, and
• If it is written in another language, translated into Spanish by a certified public translator in Paraguay.

These steps are mandatory for the documents to be recognized by local authorities and accepted for registration.

Registration Procedures

Some documents related to M&A transactions must be registered before the Public Records, such as power of attorneys, bylaws amendments, mortgages, pledge of quotas (for S.R.L.) or other registrable good.

Registration renders the transaction opposable to third parties.

Applicable administrative fees and judicial fees are relatively modest -typically around 0.5% to 1% of the transaction value- making the process cost-effective but procedurally indispensable.

Corporate Recordkeeping

All share transfers must also be duly reflected in the company’s shareholder ledger and, when applicable, on physical share certificates. For the E.A.S., ownership updates are processed electronically through the SUACE online platform. Maintaining accurate and up-to-date corporate books is critical to ensure the legal enforceability of ownership changes and subsequent corporate acts.