Corporativo Citi Center Av. Insurgentes Sur 1602, Piso 11 Oficina 1102 Col. Crédito Constructor.C.P.03940 México, Distrito Federal Tel:(52 55) 5062-0050 Fax: (52 55) 5062-0051
INCORPORATION AND LEGAL FRAMEWORK OF MEXICAN ENTITIES 1. Which kind of corporations can be set up in your Country? The Mexican General Law of Commercial Companies (the “Law”) recognizes six types of corporations: General Partnership (“Sociedad en Nombre Colectivo”). Limited Partnership (“Sociedad en Comandita Simple”). Limited Liability Company (“Sociedad de Responsabilidad Limitada”). Corporation (“Sociedad Anónima”). Stock Partnership (“Sociedad en Comandita por Acciones”). Cooperative Company (“Sociedad Cooperativa”).
I. II. III. IV. V. VI.
Due to their nature and characteristics, Limited Liability Companies and Corporations are the most popular entities in Mexico. Below, their common features and key differences: A. Common Features 1.
Both are considered as separate legal entities to that of its partners or shareholders.
2.
Both require a minimum of two (2) members, whether individual or legal entities, Mexican and/or foreign.
3.
Corporate liability is limited to the amount of each member’s capital contribution.
4.
Capital equity in both entities may be distributed as follows: (i) a mandatory, minimum, fixed portion; and (ii) an optional, variable, unlimited portion. Legal entities issuing variable capital are referred to as “Variable Capital Entities” and are required to make such reference in their corporate name.
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5.
The supreme governing body in both entities is the General Shareholders’/Partners’ Meeting.
6.
Management may be entrusted to a board or to a sole individual, which may or may not be a partner or a shareholder of the Company. Such appointments are revocable at any time.
B. Key Differences
The Corporation or SA
The Limited Liability Company or SRL
(a) At least 20% (twenty percent) of the value of each share payable in cash must have actually been paid on the date of incorporation.
(a) At least 50% (fifty percent) of the value of each equity participation, must have actually been paid on the date of incorporation.
(b) The capital stock is represented by (b) The equity capital is represented by shares, which may be issued at par value or quotas, typically one per partner, which non-par value. represent such partners’ overall capital contribution. (c) Shares must be represented by (c) Equity quotas do not require to be provisional or definite stock certificates represented by equity certificates and if and are negotiable instruments. such are issued they are not considered negotiable instruments. (d) Physical possession of the share certificate and registration in the Company’s Stock Registry Book is required to evidence ownership interest and quality as a shareholder.
(d) Only registration in the Company’s Partners’ Registry Book is required to evidence ownership interest and quality as a partner.
(e) Being negotiable instruments, shares have no restrictions on their transferability to third parties unless provided under the Company’s bylaws.
(e) Not being negotiable instruments, transfer of equity quotas to third parties require approval by the majority of the partners, unless a higher threshold is provided under the bylaws.
(f) Owners of shares are referred to as (f) Owners of equity quotas are referred to shareholders (accionistas) and its managers as partners (socios) and its managers are are referred to as Directors referred to as Managers (Gerentes). (Administradores). (g) Shareholders may own one or more (g) Typically partners own only one equity shares. quota each, however if equity quotas provide different rights or obligations a Page 2 of 6
The Corporation or SA
The Limited Liability Company or SRL partner may hold more than one equity quota.
(h) All shares must have the same value (par value or non-par value) and typically grant the same rights and obligations for the shareholders.
(h) Equity quotas may have different value, depending on each partner’s capital contribution and typically grant the same rights and obligations for the partners.
(i) Typically, shares entitle holders to cast a vote per share at Shareholders’ Meetings; however, preferred shares with limited voting rights and the right to a preferred dividend may be issued.
(i) Typically, equity quotas entitle holders to cast a vote per each Peso of their capital contribution (the number of equity quotas is not considered for voting). The possibility of issuing preferred equity quotas is not provided in law and typically are not issued.
(j) Surveillance of Company’s management by one or more Statutory Examiners (Comisarios), who represent the shareholders, is mandatory. The Statutory Examiner may or may not be a shareholder.
(j) Surveillance of the Company’s management by one or more Statutory Examiners is optional. Such Statutory Examiners may or may not be partners of the Company.
(k) Under certain circumstances, minority (k) No statutory rights are available for shareholders may request holding a minority partners to request holding a Shareholders’ Meeting. Partners’ Meeting. (l) There are three statutory types of General Shareholders’ Meetings, depending on the matters that are discussed and the attendance quorum required:
(l) No distinction is made for General Partners’ Meetings under law, regardless of the matters discussed or the attendance quorum required.
*General Extraordinary Shareholders’ Meetings, which always require notarization and filing with the Public Registry of Commerce and required to approve the following: (i) extension of the term of the Company; (ii) dissolution; (iii) increase or decrease of the minimum fixed capital; (iv) change of the Company’s bylaws; (v) mergers and spin-offs; (vi) issuance of preferred stock; (vii) redemption of stock; (viii) issuance of debentures and bonds; and (ix) any other matter that pursuant to the Company’s bylaws must be resolved by the Page 3 of 6
The Corporation or SA
The Limited Liability Company or SRL
Extraordinary Shareholders’ Meeting. *General Ordinary Shareholders’ Meetings (for all matters not specifically reserved for the Extraordinary Shareholders’ Meeting, e.g., appointment of members of the Board of Directors and approval of financial statements); and *Special Shareholders’ Meetings (approves matters pertaining only to a specific Series of shares). (m) Does not qualify for U.S.A. tax (m) It may qualify for U.S. tax purposes as purposes as a “pass through entity”. a “pass through entity” with the consequent tax treatment benefits for the US partners. That is, they “check the box” to be treated as a partnership for U.S. tax purposes, thus any Mexican taxes incurred by that entity will be treated for U.S. tax purposes as if such taxes were incurred directly by its partners. This allows for the avoidance of two levels of taxation in the United States (once at the Mexican entity level and again at the shareholder level) since the U.S. partners of the Mexican entity will be entitled to direct foreign tax credits to offset their U.S. taxes. 2. Which are the requisite necessary for the setting up of the relevant corporations (eg. local partner; etc.)? In order to set up the relevant corporations referred to above, the following procedure shall be undertaken: A. A corporate name request shall be filed before the Mexican Ministry of Economy, including at least three corporate name options. B. Drafting of the company’s bylaws. C. In the event of foreign partners/shareholders, they shall grant powers of attorney in Mexico to incorporate the company, which need to be notarized in their country, apostilled and further notarized in Mexico (together with the bylaws referred to above). D. A Mexican Notary Public shall notarize the incorporation documents. Page 4 of 6
E. The public deed evidencing the notarization shall be filed before the Public Registry of Commerce of the State in which the company will be established. F. The company and its bylaws shall be registered before the Federal Taxpayers Registry. G. In the event of foreign partners/shareholders, a notice shall be filed before the National Registry of Foreign Investment. 3. How long does it take to set up a new corporations and which are the approximate costs involved? If the flow of information is constant, setting up a Mexican company would take approximately two weeks. The costs involved in this procedure are generally the following: A. Notarial fees. USD $1,000. B. Legal counsel fees. USD $4,700. C. Registration fees. USD $300. Please note these fees depend entirely on the Notary Public and legal counselors. 4.
Is there a legal framework which favors (foreign) investments, such as public incentives, young and women entrepreneurship, etc.? A. Foreign Investment Law The North American Free Trade Agreement (“NAFTA�) derived on the need to establish legal framework to permit and favor foreign investment in Mexico in 1994. In this regard, the Foreign Investment Law was published, increasing trade openness and foreign investment. The Federal Investment Law permits foreign investments in relevant sectors of Mexican economy, such as air transport, financial groups, multiple banking credit institutions, insurance institutions, financial leasing and others. Furthermore, within the scope of the recent financial and energy reforms, new grounds for foreign investment will be established in Mexico, allowing foreigners to execute agreements in connection with the oil and gas industries.
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B. National Institute of Entrepreneurial Development (“INADEM”) In order to promote investments and entrepreneurship, INADEM has set an Entrepreneurial Support Network, a strategy linking support programs and public policies to favor entrepreneurship in Mexico. The Entrepreneurial Support Network is a mechanism established within governmental agencies and private companies compiling all services, programs and products offered by the Mexican government for entrepreneurs and companies. 5. Are there bilateral agreements in place between Italy and your Country (eg. Taxation). A. Agreement on Avoidance of Double Taxation between Mexico and Italy executed on March 29, 1995. B. Agreement for Administrative Assistance in matters regarding customs executed on October 24th 2011. C. Agreement to promote and protect Investments between Mexico and Italy executed on November 24th 1999. Should you have any comment or query regarding the information contained herein, please contact: Luis Fernando González Nieves luis.gonzalez@solcargo.com.mx Fernando Eraña fernando.erana@solcargo.com.mx Solórzano, Carvajal, González y Pérez-Correa, S.C. Corporativo Citi Center Av. Insurgentes Sur 1602 Piso 11 Oficina 1102 Col. Crédito Constructor México DF. 03940 T. + (52) (55) 50620050 F. + (52) (55) 50620051 ***
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