Are You Operating Your Business in Colombia Without Being Formally Incorporated? Risks and Solutions

Many entrepreneurs start their commercial activity in Colombia without legally registering their company. Although this may seem faster or cheaper at first, operating without formalization involves legal, tax, and financial risks that can become very costly.

In this article, we explain what being informal means, what consequences you could face, and how you can formalize your business in Colombia safely and strategically in 2025.

The Risks of Operating Without Formalizing Your Business in Colombia

1. Legal Risks: Fines, Closure, and Personal Liability

• Fines of up to 100 SMMLV for operating without commercial registration or without being registered in the RUT.
  
  
• Closure of the commercial establishment by the DIAN or the local Mayor’s Office.
  
  
• Unlimited personal liability: if a legal issue arises, you are responsible with your personal assets.
  
  
• Inability to contract with public or private entities.
  
  

Example: If you sell design services without being registered and a client fails to pay, you won’t be able to initiate effective legal action.

2. Tax Risks: Penalties, Account Blocks, and Loss of Benefits

• You cannot deduct expenses, which increases your tax burden.
  
  
• You may face tax evasion penalties, including closures and asset seizures.
  
  
• You cannot issue electronic invoices or register VAT, limiting your growth.
  
  
• The DIAN may classify you as a “recurrent tax evader,” affecting your tax record.
  
  

3. Commercial and Banking Risks

• You cannot open corporate bank accounts or access commercial credit.
  
  
• You won’t be able to participate in bids or strategic partnerships with other companies.
  
  
• You lose growth opportunities due to the lack of legal or financial reputation.
  
  

What Is the Solution? Formalize Your Business in Colombia

1. Create a SAS Company: The Most Flexible Model

The Simplified Stock Company (SAS) is the most commonly used legal structure by entrepreneurs in Colombia. According to Law 1258 of 2008:

• You can create it with only one shareholder.
  
  
• Limited liability: your personal assets are protected.
  
  
• It does not require a public deed (only registration with the Chamber of Commerce).
  
  
• You can establish customized internal rules (bylaws).
  
  

2. Register with the Chamber of Commerce and DIAN

• Commercial registration: gives your company legal existence and allows you to operate.
  
  
• RUT (Single Tax Registry): required to file taxes and issue invoices.
  
  
• Define your economic activity code (CIIU) correctly to avoid future tax penalties.
  
  

3. Activate Your Electronic Invoicing

• Since 2022, all formal companies must issue electronic invoices.
  
  
• Work with authorized technology providers approved by the DIAN.
  
  
• Automate your accounting and enhance your company’s image.
  
  

4. Get Banked and Access Financial Benefits

With your SAS company, you can open corporate bank accounts, receive card payments, access credit, and participate in digital platforms.

Benefits of Formalization

• Protection of your personal assets.
  
  
• Access to credit, contracts, and markets.
  
  
• Reduction of legal and tax risks.
  
  
• Greater reputation and trust among clients.
  
  

Conclusion: Formalize, Grow, and Protect Yourself

Operating informally a business in Colombia may seem convenient, but it exposes you to penalties, limits your growth, and leaves you without legal protection. On the other hand, formalizing as a company (SAS) opens the door to large clients, financial stability, and a solid business in Colombia’s future.

📩 Are you ready to formalize your business in Colombia? At Nexo Legal, we help you create your company step by step, register your brand, and get up to date with the DIAN — no hassle, no headaches.