Commercial Entities in Mexico.

Regarding foreigners’ interest in incorporating a commercial entity in Mexico, it should first be analyzed which type better suits their purposes and expectations.

In Mexico, the three most known commercial entities are:

  • Stock Corporation (“Sociedad Anónima de Capital Variable”).
  • Limited Liability Company (“Sociedad de Responsabilidad Limitada de Capital Variable”).
  • Stock Corporation for Investment Promotion (“Sociedad Anónima Promotora de Inversión de Capital Variable”).
However, the Multi-Purpose Financial Company (“Sociedad Financiera de Objeto Múltiple”) is also a viable option, subject to the purposes that future shareholders may have.

I. Stock Corporation.

The Stock Corporation, regulated under the General Law of Commercial Companies, is one of the most popular commercial entities in Mexico since its structure provides possibilities of growth and profit for its shareholders.

Its main characteristics are the following:

  • There must be at least two shareholders and 20.00% of the corporation’s capital must be paid at the time of incorporation.
  • There are no restrictions as to the number of shareholders who can invest in the corporation.
  • The main authority is the Shareholders’ Meeting.
  • A Board of Directors or a Sole Administrator are in charge of the administration and are fully liable for the loyal and diligent execution of their position, they must maintain confidentiality concerning the information and matters that they become aware of due to their position in the company, when said information or matters are not of a public nature, during the time of their assignment and up to one year after the termination.
  • Shareholders must appoint a statutory examiner who is a third party who supervises the duties and responsibilities of the directors and the operations of the company.
  • Capital stock (which refers to some shares issued by a company and their value in money) is represented by registered shares issued through a formal document, which are freely transferable and can be traded publicly after the corresponding filings have taken place. Nevertheless, it may be agreed that the transfer of shares is only made with the authorization of the Board of Directors.
  • The shareholders’ obligation is limited to the payment of their shares.
  • The rights of the shareholders are divided into economic and corporate. In the case of the former, the shareholder’s main right is to participate in the profits. And the essential corporate right is to vote in Shareholder’s Meetings.
  • At least 5.00% of the net profits must be set aside annually to constitute the reserve fund until one-fifth of the value of the capital stock is reached. Said reserve fund can be capitalized, however, if this is made, the corporation will have to start to constitute it once again for the next year.

II. Liability Company.

Limited Liability Companies fall behind Stock Corporations in terms of popularity, they are very practical for small and medium enterprises. This company is also regulated under the General Law of Commercial Companies. Among its main characteristics, are the following:

  • It is incorporated between partners who are only obliged to pay their contributions, limiting their liability to such, so every partners’ assets have guaranteed protection.
  • It is necessary to have 2 partners to incorporate this type of entity, with a maximum of 50 partners.
  • For the transfer of shares and the admission of new partners, consent of the partners representing the majority of the value of the capital stock is required.
  • The company’s equity is divided into partnership interests and not shares, which are not freely transferable and cannot be traded publicly.
  • The main authority is the Partner’s Meeting.
  • A Board of Managers or a Sole Manager supervises the administration, who will be fully liable for the loyal and diligent administration of the company.
  • There is no statutory examiner since each partner will be in charge of supervising Managers, however, there is the option to appoint a supervisory authority if desired.
  • 50% of the company’s total capital must be paid at the time of incorporation.
  • At least 5.00% of the net profits must be set aside annually to form the reserve fund until one-fifth of the value of the capital stock is reached. Said reserve fund can be capitalized, however, if this is made, the company will have to start to constitute it once again for the next year.

III. Stock Corporation for Investment Promotion

It is a type of stock corporation regulated under the Securities and Exchange Law, but in matters not provided in the said legal system, the provisions of the General Law of Commercial Companies are additionally applied. It arises as a response to the problem that frequently occurred in stock corporations to obtain economic resources and working capital, so this type of corporation, in addition to encouraging private and risk capital, promotes increased competitiveness. One of its main goals is to create opportunities for small and medium-sized companies or start-up companies, allowing them to receive smaller-scale investments for their growth and thus generate jobs. Its main elements are the following:

  • It establishes grounds for exclusion of partners or to exercise rights of separation, withdrawal, the redemption of shares, and bases for determining prices.
  • It allows the adoption of more efficient mechanisms to implement private capital exit strategies, such as “drag along” and “tag-along” rights.
  • It permits adding, removing, or modifying the shares of the partners by percentages, without the need to change the articles of incorporation.
  • Modifications can be made in the Board of Directors in the same way as with the partners.
  • It allows differentiating the rights by types of shares as agreed between partners.
  • Provides rights to minority shares to participate in the management of the company.
  • It also regulates the withdrawal and amortization of shares, as well as the price and bases for its determination.
  • If necessary, it restricts the vote to shareholders regarding decision-making within the company.
  • It allows differentiating non-economic social rights and to set limits within the responsibilities for damages and prejudices caused by directors and executives.

IV. Multi-Purpose Financial Company

The Multi-Purpose Financial Companies are stock corporations that have a valid registration before the National Commission for the Protection and Defense of Users of Financial Services (CONDUSEF), and whose main corporate purpose is the performance of activities of granting credit, financial leasing, or financial factoring.

The requirements for its constitution are defined under the General Law of Credit Auxiliary Organizations and Activities, as well as in the general provisions issued by CONDUSEF.

Financial entities can be “regulated” or “not-regulated”.

  • Regulated Multi-Purpose Financial Companies:
    • Those that have patrimonial ties with credit institutions, popular financial societies, community finance companies or savings and loan cooperative societies.
    • Those that fund their operations with debt securities registered in the National Securities Registry in accordance with the Securities Market Law.
    • Those that voluntarily obtain the approval of the National Banking and Securities Commission to be regulated.

 

  • Not-regulated Multi-Purpose Financial Companies:
    • They may have the same corporate purpose as those regulated, however, as they do not have equity ties with entities supervised by the National Banking and Securities Commission, or issue securities registered in the National Securities Registry, they are not required to be regulated.
    • Are subject to the inspection and surveillance of the National Banking and Securities Commission, exclusively to verify compliance with the money laundering and terrorist financing provisions.

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