Companies Act 19,550 · Article 18 — Unlawful corporate purpose

Companies with an unlawful purpose: absolute nullity (LGS art. 18)

Section 18 of the General Companies Law subjects companies with an unlawful purpose to absolute nullity. Members may not rely on the company's existence or claim the return of contributions or profits; good-faith third parties may. Once nullity is declared, the company is liquidated, the surplus passes to the State, and members and managers are jointly and severally liable without limit for liabilities and damages.

Source: Act 19,550

What article 18

Section 18 subjects a company with an unlawful purpose to absolute nullity and establishes its effects: liquidation, destination of the surplus, and aggravated liability.

Official text · Act 19,550, art. 18

Companies having an unlawful purpose are absolutely null and void. Good-faith third parties may assert the existence of the company against the members, and the members may not raise its nullity in defense. The members may not assert the existence of the company, even for the purpose of suing third parties or claiming restitution of contributions, division of profits or contribution to losses.

Liquidation. Once nullity has been declared, liquidation shall be carried out by the person appointed by the court. After realizing the assets and discharging company liabilities and the damages caused, the surplus shall pass to the State for the promotion of public education in the relevant jurisdiction.

Liability of managers and members. The members, managers and persons acting as such in the management of the company shall be jointly and severally liable without limit for company liabilities and the damages caused.

Source: Law 19,550, art. 18 - InfoLEG (updated official text)

Commentary

An unlawful corporate purpose (contrary to law) is incompatible with the protections of company law: the sanction is the most severe one, absolute nullity, not subject to limitation or confirmation. It differs from a lawful purpose accompanied by unlawful activity (art. 19) and from a purpose prohibited for the chosen company form (art. 20).

The effects are severe and deterrent: the members cannot shelter behind the company, the liquidation surplus does not return to them but goes to the State (education), and everyone who managed the company is jointly and severally liable without limit. Good-faith third parties, by contrast, are protected.

Distinctions often confused

Unlawful purpose (art. 18) is not the same as Unlawful activity with a lawful purpose (art. 19). Article 18 sanctions the unlawful corporate purpose itself; article 19 applies where a company with a lawful purpose carries on unlawful activity, with partly different consequences.

Practical impact

The corporate purpose must be lawful and well defined: an unlawful purpose results in absolute nullity and personal liability of members and managers. Drafting the purpose clause is not a mere formality.

Frequently asked questions

What happens to a company with an unlawful purpose?

It is absolutely null and void: it is liquidated, the surplus passes to the State, and the members and managers are jointly and severally liable without limit for liabilities and damages.

This page is informational and does not constitute legal advice nor replace professional consultation. It quotes the official text of the rule; for its application to a specific case, consult a licensed professional.

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