Incorporating in Mexico

Partner Contribution – Rodriguez Rueda, S.C.

2021-02-27

General overview.

Mexican General Law of Business Organizations (“Ley General de Sociedades Mercantiles” or “LGSM”) provides for six types of business entities, however, the most prevalent in Mexico are: (i) the “Sociedad Anónima” (“S.A.”) or stock corporation; and (ii) the “Sociedad de Responsabilidad Limitada” (“S. de R.L.”) or limited liability corporation. Both types of entities provide for limited liability of the shareholders (S.A.) or partners (S. de R.L.), which liability may not be assessed beyond the amount of their respective shareholdings or interest holdings. The S.A. is the most common entity used in Mexico for all types of business purposes, but certain foreign entities (particularly those residents in the United States) have adopted the S. de R.L. in order to opt for tax treatment abroad as a partnership. Considering that the commercial differences between the S.A. and the S. de R.L. are minor and that in Mexico both entities have the same tax treatment, our following comments are related to an S.A.

Shareholders – In accordance with the LGSM, to incorporate an S.A. a minimum of two (2) shareholders are required. Such shareholders may be either individuals or corporate entities.

Capital and Shares – There is no minimum capital for incorporating an S.A. The capital is represented by nominative shares which have equal economic and corporate rights. However, preferred shares with limited voting rights may also be issued if so established in the corporate by-laws. The company may issue different series of shares with specific rights per series (typically done in cases of joint ventures). At the time of incorporation or at any time thereafter, the company may adopt the modality of “variable capital”, in which case it becomes a “Sociedad Anónima de Capital Variable” or “S.A. de C.V.”. Under the variable capital modality, the company may increase or decrease the variable part of the corporate capital in an easier and less expensive process. Shares of an S.A. may be transferred freely; however, the corporate by-laws may provide that any proposed sale or transfer of shares must be authorized by the Board of Directors. Likewise, the by-laws can provide for preferential rights, drag along and tag along rights, among others.

Shareholders’ Meetings – In accordance with the LGSM, the maximum authority of an S.A. is the General Shareholders’ Meeting. General Shareholders’ Meetings may be (i) Ordinary (dealing with basic, on-going corporate issues) and/or (ii) Extraordinary (usually dealing with special issues which may imply fundamental changes to the company). A General Annual Ordinary Shareholders’ Meeting must be held within four months following the close of the company’s fiscal year (December 31). Special series of shares may hold Special Shareholders’ Meetings. Shareholders may personally attend the Meetings, or they may be represented by special attorneys-in-fact pursuant to simple proxy letters; however, members of the Board of Directors and Inspectors may not represent shareholders at such Meetings. Minutes of the meetings must be recorded in the Shareholders’ Meetings Minutes Book and signed at least by the President and Secretary of the Meeting.

Management – Management of an S.A. may be conferred to a Sole Administrator or to a Board of Directors (two members or more), who are appointed (and/or ratified) by the General Shareholders’ Meeting. The Sole Administrator or the members of the Board may be or not shareholders of the Company, they may be Mexicans or foreigners and they do not need to reside in Mexican territory.

Surveillance – The Company must appoint one or more Inspectors (“Comisarios”). Such Inspector is usually a certified public accountant in Mexico who oversees the actions of the Sole Administrator/Board of Directors and files an annual report with the General Shareholders’ Meeting regarding management’s compliance with all applicable Mexican legislation and the corporate by-laws, as well as regarding the veracity and accuracy of the annual financial statements.

Incorporation process.

 Incorporation Permit – The incorporation procedure requires a permit from the Mexican Ministry of Economy (“Secretaría de Economía”), which essentially reserves a corporate name (not already in use or easily confused with others) for a particular type of business entity.

Drafting of Charter of incorporation and By-Laws – In accordance with Mexican law, the charter of incorporation and the corporate by-laws are usually drafted and contained in one single document known as the “acta constitutiva”. Such document provides for all the basic structural aspects of the Company (i.e., name, domicile, duration, purpose, capital and shares, management, calls to shareholders’ and board of directors’ meetings, attendance and voting quorums, shareholders’ rights and obligations, dissolution, and liquidation).

Formalization before Notary Public – The charter of incorporation and by-laws (“acta constitutiva”) must be formalized before a Mexican Notary Public. At the time of formalization, the initial shareholders appear either in person or represented by attorneys-in-fact appointed pursuant to special, limited powers of attorney and, essentially, hold the first Shareholders’ Meeting to subscribe and pay the corporate capital, appoint members of the Board and grant powers of attorney in favour of officers/representatives of the Company. In the event the shareholders are represented at the time of incorporation by attorneys in fact (usually members of this Law Firm), the respective powers of attorney that we will prepare and send to you shall be filed in by a representative of each shareholder, certified before local Notary Public and, depending on the jurisdiction, apostilled or legalized before the corresponding local authority (Secretary of State or Consulate).

Public Registry of Commerce – Once the charter of incorporation/by-laws have been executed and protocolized before a Mexican Notary Public, the Notary shall record the first original of such public deed before the Public Registry of Commerce of the corporate domicile.

National Registry of Foreign Investment – Given that the corporation’s corporate capital will be owned by foreign investors, it must be registered within the next forty (40) business days following the date of incorporation before the National Registry of Foreign Investment. Further information has to be provided to this agency on a quarterly and yearly basis.

Tax Regime – At the time of incorporation, powers of attorney must be granted in favour of the person that will act as the legal representative of the Company before Mexican Tax Authorities. The legal representative may be or not Mexican national but must be a taxpayer with current tax identifications. Likewise, the Company must have a tax domicile, which is an existing address within Mexican territory. The Company must file monthly and annual tax returns; therefore, an external accounting firm must be appointed to carry out these obligations.

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