Corporate legal considerations in Mexico: Directors Liabilities

In Mexico the main provisions that govern the directors’ responsibility and liability are the General Law of Commercial Corporations (Ley General de Sociedades Mercantiles), the Federal Civil Code (Código Civil Federal), the Federal Criminal Code (Código Penal Federal), the Federal Tax Code (Código Fiscal de la Federación) and the Insolvency and Business Reorganization Law (Ley de Concursos Mercantiles).

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Directors are the legal administrators, act as legal representatives of the corporation (as a corporate governance body, but not individually) and are appointed by the shareholders’/partner’s meeting. Such directors have all the powers necessary in order to carry out the corporation’s corporate purpose, as long as such powers are not limited by law or the corporation’s by-laws.

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Directors’ liabilities may arise out of any of the following:

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• Law: Violation of obligations imposed on directors by applicable laws.

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• By-laws: Violation of specific obligations imposed on directors under the corporation’s by-laws.

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• Ultra vires: Actions taken by the directors beyond the scope of their powers as provided under the by-laws or beyond the corporate scope of the corporation.

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• Illicit actions: Direct liability for illicit or fraudulent actions of directors.

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They have the liability equivalent to that of a legal representative. That is, any legal representative of a corporation may act exclusively within the scope of the powers conferred to him or her, with a standard of care of a business person regarding his or her own business.

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Directors are liable for the management of the corporation and are authorized to resolve all matters not reserved to or being of the exclusive responsibility of the shareholders.

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It should be noted that the directors are severally liable before the corporation for the following: (i) the actual payment of the contributions of the shareholders; (ii) the due compliance with the legal requirements and those provided in the by-laws regarding the payment of dividends to the shareholders; (iii) the existence and maintenance of the accounting, control, registry, filing and information systems required by law; (iv) the proper fulfillment of resolutions approved by the shareholders'/partners meetings; and, (v) the creation of the legal reserve pursuant to the General Law on Commercial Corporations (in case that the directors fail to reserve part of the corporation’s profits to create or maintain the legal reserve, such directors shall be unlimited and severally liable before the corporation for an amount equivalent to the amount that should have been reserved, being entitled to request the partners to reimburse the amount delivered).