Private Universities Under State Control

1. Background

In the Organic Code of the Social Economy of Knowledge, Creativity, and Innovation, published in Official Register Supplement No. 899 on December 9, 2016, the Organic Law on Higher Education was amended in order to regulate the internal economic operation of private universities, introducing excessive and unconstitutional prohibitions.

2. Related Parties and Disproportionate Sanctions

Article 39

Relationships arising between related parties are subject to sanctions of various kinds.

For the university, these may include:

  • An economic fine of up to 10% of the university’s annual income;

  • Loss of tax exemptions and benefits for up to 5 years;

  • Reduction or freezing of tuition and fee increases for up to 5 years.

For directors and related parties, sanctions may include:

  • A fine of up to 10% of the amount of the contracts;

  • Removal from office;

  • Disqualification for up to 10 years from holding public office or being linked to a university.

The following are considered related parties:

  • Promoters, rectors, directors, and members of the highest collegiate body;

  • Their spouses and relatives within the fourth degree of consanguinity and second degree of affinity;

  • Legal entities in which they hold any representative role or management position;

  • Legal entities in which the related persons hold at least 25% of the share capital.

3. Prohibition of Profit

Article 161

In addition to prohibiting private universities from entering into contracts and transactions with related parties, the constitutional prohibition on profit-making is reaffirmed, with limitations regarding indebtedness, the allocation of financial surpluses, and transactions with entities located in tax havens.

4. Deadline for Disassociation

Private universities and their authorities have a period of one year, counted from the publication of the amendments in the Official Register, to comply with the provisions of Articles 39 and 161 of the amendments to the Organic Law on Higher Education.

5. Private Universities with State Funding

Shortly after the aforementioned amendments, the Law for the Closure of Universities Suspended by CEAACES entered into force. It was published in Official Register Second Supplement No. 913 on December 30, 2016.

This Law did not modify the amendments to the Organic Law on Higher Education. Instead, it introduced further reforms to the LOES in order to control private universities that receive state contributions, such as PUCE in Quito, under the pretext of regulating the use of state allocations.

EditorComment