Corporate legal considerations in Mexico: Capital Reductions

The capital reductions are provided under the General Law of Commercial Corporations (Ley General de Sociedades Mercantiles) and the corporate type must be considered to apply the specific rules in each specific case. Likewise, it must comply with the provisions of the bylaws of each company so that said reduction is made in compliance with the applicable internal and external regulations.

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In general terms and except for those regulated corporations that are of a commercial nature, it can be noted that the capital stock of any commercial corporation is subject to reduction by partial or total withdrawal of contributions.

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Any capital reduction must be reflected in the shareholders/partners registry book and in the capital variations book of the corporation in question and, the titles of shares or provisional certificates must be canceled (in the case of corporations where shares are issued) corresponding.

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The capital reduction may not be carried out when it results in less than the minimum capital stock provided for in the bylaws.

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The creditors of the corporation, separately or jointly, may oppose said reduction before the judicial authority, from the day the decision was made by the company, up to five days after the last publication.

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The opposition will be processed in a summary manner, the reduction being suspended as long as the corporation does not pay the credits of the opponents, or does not guarantee them to the satisfaction of the Judge who knows the matter, or until the judgment declaring that the opposition is enforceable is enforceable. unfounded.

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In the case of reduction of the share capital by means of reimbursement to the shareholders, the designation of the actions to be annulled will be done by lottery before a notary or certified broker.

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The capital reduction must be approved in an Ordinary Meeting when it is a reduction in the variable part of the share capital and, in an Extraordinary Meeting, in the case of a reduction in the fixed part of the capital stock. The foregoing, subject to the provisions of the corporate bylaws of each company.

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Regarding the tax treatment, we must mention that there are capital reductions that are considered as dividends or distributed profits. In accordance with the provisions of the Income Tax Law (Ley del Impuesto Sobre la Renta), in the case of the distribution of dividends or profits through the increase of social shares or the delivery of shares of the same company or when they are reinvested in the subscription and payment of the capital increase of the same company within 30 calendar days following its distribution, the dividend or profit shall be deemed to be received in the calendar year in which the reimbursement is paid by reduction of capital or by liquidation of the company in question.

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For this reason, the shareholders or partners of the company cannot immediately enjoy dividends or profits, so that the payment of taxes would be deferred until the year in which the reimbursement for capital reduction is paid.

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The particular situation will have to be reviewed to determine the appropriate tax treatment for capital reduction.