Legal considerations for Doing Business in Mexico - Part I

Below you will find a brief analysis of the legal considerations that, enunciatively but not limited to, must be taken into account to carry out commercial activities in Mexico.

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Corporate Structures

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Corporations are incorporated before a notary public. Shareholders or partners, as the case may be, must agree on by-laws for the company, which are notarized in a public deed before the notary public at the time of incorporation.

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Incorporating shareholders must appear to the act of incorporation personally or represented by attorney-in-fact before the notary to incorporate the corporation. In case of foreign investors, they shall comply with the requirements set forth in applicable laws depending on the sector in which relevant company is to focus.

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When foreign ownership is permitted in a Mexican corporation, a clause known in Mexico as the Calvo Clause must be included in the corporation’s by-laws. This clause states that any foreign shareholder/partner will be deemed as a Mexican national with respect to his/hers/its stock ownership in the corporation and may not invoke the protection of his/hers/it government in matters connected with such ownership, and in the case of non-compliance, he/she/it must forfeit his/hers/its holdings to the Mexican nation.

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The Sociedad Anónima, the Sociedad de Responsabilidad Limitada, and the Sociedad Anónima Promotora de Inversion, are the three most frequently used type of corporations in Mexico. These corporate structures offer limited liability and you should consider the three of them to select the one which results more compatible to your purposes.

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Sociedad Anónima (S.A.)

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Corporation type structure, and it is the most commonly used form of commercial entity in Mexico; it is regulated by the General Law for Commercial Corporations (Ley General de Sociedades Mercantiles). It may have either fixed or variable capital.?? Its stock is represented by shares, which are owned by shareholders. Shares may or may not be negotiable.

Sociedad de Responsabilidad Limitada (S. de R.L.)

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Partnership type structure, and it is the second most commonly used form of commercial entity in Mexico; it is also regulated by the General Law for Commercial Corporations. It may also have either fixed or variable capital. Such capital is represented by equity interests (partes sociales), which are owned by partners. Equity interests have restricted transferability. We understand that this type of entity may qualify as a pass-through entity in certain cases in the U.S.

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Sociedad Anónima Promotora de Inversión (S.A.P.I.)

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Form of stock corporation (it is in fact, a sub-type of S.A.) regulated by the Mexican Securities Market Law (Ley del Mercado de Valores) but are not subject to the supervision of the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores). It may also have either fixed or variable capital. It is a type of corporation intended to promote and encourage the investment by national and foreign investors, by allowing some exceptions from those established in the general rules.

Foreign Investments

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Foreign investment has specific limitations and requirements, including that the participation of any foreigner in the capital stock of a Mexican company must be registered in the Foreign Investments National Registry (“RNIE”) dependent of the Ministry of Economy.

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All Mexican companies in which (i) there is direct or indirect foreign investment, (ii) Mexicans own or acquire another nationality and have their domicile outside the national territory, or (iii) have neutral investment, have the obligation to register in this registry.

For the purposes of registration, registration renewals, cancellations of registration, notices, reports and annotations, the RNIE is divided into three sections:

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I.?????? First – Foreign individuals and corporations operating in Mexico;

II.????? Second – Mexican Corporations with foreign investment in its capital; and

III.???? Third – Trusts granting rights to foreign investors.

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Registration must be renewed annually in accordance with the general resolutions issued by the National Foreign Investments Commission during the first five months of each year, in accordance with the following calendar depending on the initial letter with which the name or corporate name of the subject who will file the information:

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1.?????? From A to J, during April of each year, and

2.?????? From K to Z, during May of each year.

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The annual economic report is presented only if during the immediately preceding calendar year, the corresponding corporation has reached an amount equal to or greater than $110'000,000.00 (one hundred and ten million pesos 00/100 Mx.Cy .) in any of the following items: Assets, Total Liabilities, Income or Expenses.

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The quarterly update report will be presented only if, during the immediately preceding quarter, there are modifications related to: (a) name or corporate name; (b) economic activity or corporate purpose; (c) tax domicile; and (d) corporate capital or shareholding structure that involves a movement greater than $20,000,000.00 (Twenty million pesos 00/100 Mx.Cy .).