DOING
BUSINESS IN MEXICO
There are several different ways in which
a foreign society, (corporation), or other individuals can do business in
Mexico.
Types of business
organizations
Mexican Law recognizes the following types
of organizations:
|
Sociedad Anónima, (S.A.) |
Corporation |
|
Sociedad Anónima de Capital Variable,
(S.A. de C.V.) |
Variable Capital Corporation |
|
Sociedad de Responsabilidad Limitada,
(S. De R.L.) |
Limited Liability Partnership |
|
Sociedad de Nombre Colectivo, (S. en N.C.) |
General Partnership |
|
Sociedad en Comandita Simple, (S. en C.S.) |
Limited Partnership, partnerships where
some parties provide services while others furnish funding. |
(Annex I shows a summary of the main characteristics
of each society, (corporation).
The most common forms of organizations
chosen by foreign investors are:
·
Corporations, (Sociedad Anonima or SA)
·
Variable Capital Corporations, (Sociedad Anonima de Capital
Variable S.A. de C.V.)
·
Under certain conditions, Limited Liability Partnerships, (Sociedad
de Responsabilidad
Limitada S de R.L)
We will begin by describing some of the
main characteristics of these corporations/partnerships.
SOCIEDAD
ANÓNIMA, (S.A.)
CORPORATION
This form of organization is one of the
most common used by foreign investors.
This corporation or legal entity is created
under the authority of the law and has certain rights and obligations.
It has a capital stock divided into shares and the stockholders are
liable only to the extent of their contributions.
This corporation may exist under any kind
of name, followed by the words, "Sociedad Anónima", or the abbreviation
S.A.
It is composed of stockholders, (shareholders), whose obligation
is limited only and exclusively to the payment of their stocks, (shares).
It must be formed by at least 2 partners,
a minimum capital investment of $50,000.00 pesos, and at least one share of
stock should be purchased by each partner.
The corporations constitution will be
a public document. The incorporation of the organization will be carried out
by a notary public.
The corporations' capital is represented
by stocks.
The stocks are divided and presented as
titles, (registered bonds), which are used to credit and transmit rights,
conditions, etc. of stockholders.
The stocks will have equal value and will
confer equal rights. Each stock gives the right to one vote in the decisions
made by the assembly.
The distribution of profits and capital
will be made in proportion to the value of each stock.
Corporate
administration
The highest authority of this corporation
is the General Shareholders Assembly. The administration will be managed by
one or several temporary and revocable executives, who may or may not be partners.
If only one administrator is chosen, he or she will be designated as
the General Manager, but if two or more administrators are appointed an Administrative
Board will exist, which may include a President and Counselors if necessary.
Managers will have inherent responsibilities
and obligations that laws and by-laws impose.
Supervision
of the corporation
The supervision of a corporation will
be managed by one or several temporary and revocable delegates, who may or
may not be associates.
The rights and obligations of the delegates
are; to demand from the administrators monthly information which includes
at least a financial statement and balance sheet; to examine the documentation,
operations, and records, and to prepare on an annual basis a report to the
general shareholders assembly on the overall status of the information presented
by the Administration Board; to call special assemblies in the event of omissions
by the managers.
The delegates will be individually responsible
for the fulfillment of obligations that laws and by-laws impose.
The delegates will be responsible for
the arrangements concerning the duration of their position, obligations of
granting guarantees, the granting of powers, and responsibilities of the functions
imposed by Administrators.
Financial
information
The corporation, under the responsibility
of their Administrators, will present at the shareholders annual assembly
a report that includes:
a) The current situation
of the company, as well as the policies followed, and existing projects.
b) The statement
and explanation of the principal policies, information, and criteria followed
in the making of financial decisions.
c) A statement that
shows the current financial situation of the organization and pertinent data
from the last reporting period.
d) A statement that
explains and classifies the results of the corporation during the period.
e) A statement showing
the changes in the financial situation during the period.
f)
The necessary notes to complete or clarify the information
that supports the statements.
Shareholder
assemblies
The general shareholders assembly is the
supreme authority of the organization. The
assembly is responsible for the debate and ratification of all acts, operations,
and resolutions. The chairperson,
administrator, or administration board will fufill the wishes of the assembly.
The assemblies will meet at least once
a year, within four months following the end of the reporting period, and
will address the following matters, among others:
·
To approve or to modify the annual report of administrators
and delegates.
·
To elect an administrator or administration board and delegates,
or to ratify the current selections.
Extraordinary assemblies are those which
deal with the following topics:
·
Extension of the continuance of the organization.
·
Anticipated dissolution of the organization.
·
Increase or reduce the organizations capital.
·
Merger with other companies.
·
Any other modification of the organizations contract.
The assemblies will be able to meet at
any time, summoned by the administrators, administration board, or delegates.
However, the associates that represent at least thirty-three percent
of the organizations capital may request, in writing to the managers, to call
a general shareholders assembly. If
they refuse, the judicial authority will achieve the wishes of the associates.
In order to consider an ordinary assembly
legally gathered, there must be at least half of the organizations capital
represented by shareholders, and their resolutions will be valid when the
majority of the participants approve them.
Unless, in the by-laws there is a greater
number of the shareholders required, the extraordinary assemblies should be
represented by three-quarters of the capital of the organization, and the
resolutions must be approved by vote of the stockholders who represent half
of the corporate capital.
SOCIEDAD
ANONIMA DE CAPITAL VARIABLE, (S.A. de C.V.)
VARIABLE
CAPITAL CORPORATION
The S.A. and the S.A. de C.V. differ in
a meaningful aspect. The maximum capital
amount for a S.A. is fixed and specified in the articles of incorporation,
(public document), and by the corporations laws. Any subsequent increase or capital decrease requires modification
of the public document or by-laws. The
public document and by-laws of a S.A. de C.V. show minimal capital and "variable"
capital amounts that exceed the minimal capital. The variable capital can be unlimited, and
with increases and decreases in capital it is not necessary to modify the
public document or by-laws of the organization. For this reason foreign investors, particularly those who possess
their own subsidiaries, use the S.A. de C.V. figure instead of the S.A..
SOCIEDAD
DE RESPONSABILIDAD LIMITADA, (S. de R.L.)
LIMITED
LIABILITY PARTNERSHIP
The S. de R.L. creates a company of limited
responsibility similar to an S.A. The responsibility is limited to the investment of the shareholders.
However, there is a maximum limit of shareholders which should not
be more than 50. This type of organization requires a smaller
capital investment, (only $ 3,000.00 pesos), which is divided into “participation
units" instead of stocks. There
are no restrictions in the changing of associates, as long as the associates
that represent the majority of the capital agree. This organization is currently used by more
foreign investors than by Mexican investors.
The main reason for this is the flexibility in the managing of by-laws
and the possibility of using the S. de R.L. for fiscal matters in the USA. This creates an organization that has limited
responsibility and pays taxes as a Mexican corporation, but is considered
a partnership in the USA.
Any mercantile corporation must be registered
in the Public Registry of Commerce, (Registro Pùblico de Comercio).
Failure to do so may have serious consequences for the associates.
In the case of corporations, through public documents, using a notary
public, the attorney will notify the associates of the requirements and accomplish
the necessary procedures, offering absolute legal certainty to the associates.
A testimony of the articles of incorporation
and the corresponding rights will become available in the public registry.
After a short time the corporation will be registered, creating a "record"
in which all actions accomplished will be noted.
Books
and records
Companies should keep the following accounting
books and records:
Daily Book
Ledger
Book of Assembly Minutes of Shareholders
Shareholders Record of the Corporation
Book of Capital
Increases and Decreases, (in the case of a Variable Capital)
The corporation must produce a financial
report that will be submitted in each period ended for the consideration of
approval by the associates assembly. The annual financial report must contain the following:
Financial Statement at the End of the
Period.
Balance Sheet.
Statement of Income.
Statement of Changes in Financial Position.
Statement of Changes in Stockholders Equity.
Notes of the Financial Statements.
For legal and fiscal issues in Mexico
all periods should end in the month of December, (according to the General
Mercantile Corporations Law and the Fiscal Code of the Federation, the tax
closing date is the 31st. of December).
Administrative
powers
Administrators of a corporation have different
powers, such as, carrying out judgments, initiating court judgements, paying
creditors, buying or selling properties, participating in capital ventures
of new corporations, etc. Such powers
can also be delegated to other people, through power of attorney.
These powers are granted through:
General
judicial powers for cases and collections
These powers authorize the company to
be represented before the courts to litigate for the company, and for the
representation of the company in pretrial negotiations.
General
powers for acts of administration
These powers permit the company to be
represented in all kinds of non-contentious actions that may have a purpose
of accomplishing company objectives and obligations.
General
powers for acts of ownership
This allows the owner to act for the good
of the company. This means that he
or she can sell, buy, encumber, and impose ownership limitations on the assets
that belong to the company.
General
powers to approve bonds and contracts of credit
This allows for the unconditional payment
of obligations in favor of third parties, allows for the signing of checks,
allows for the signing of contracts which can encumber the company, and for
the endorsement of third party payments of obligations.
All powers indicated above can be limited
by the shareholders assembly.
Licenses
to operate
Other administrative requirements that
should be fulfilled by the companies established in the State, are to transact and obtain licenses before
different authorities, according to their activity, (municipal licenses, ecological,
etc.).
Environmental
policies
The principal obligations that companies
must fulfill regarding ecological and the environmental matters are:
Federal
Environmental
license, (initial procedure)
The Environmental License, (LAU), is a
direct regulation instrument that permits the coordination of the process
of the evaluation, judgment, and follow-up of the environmental obligations
of industrial establishments. The
National Ecology Institute, (INE), is responsible for environmental impact
and risk procedures, emissions into the atmosphere, and dangerous residue
treatments. Water quality and water
services are the responsibility of the National Water Commission, (CNA). The LAU is issued only once and is definitive
as to the activities of the industrial establishment. Federal jurisdiction
covers the prevention and control of pollutants in the atmosphere. It also establisles the conditions for operations
according to outstanding environmental legislation. The license must be renewed if industrial procedures
change or change of location occurs.
Annual
operation certificate, ( annual report)
Corresponding with the LAU, the Annual
Operation Certificate, (Cédula de Operación Anual, COA), constitutes the annual
emissions and pollutants report which occurred in the previous year of its
presentation.
State
People that intend to accomplish activities
of a public or private nature and may cause an ecological imbalance or exceed
the limits and conditions established for ecological procedures, will have
prior authorization by the State Ecology Commission concerning environmental
impact matters. These activities may
include:
1. Public works
and construction of rural roads.
2. Industrial parks.
3. Development,
extraction, and processing of minerals or substances that are natural deposits,
and whose control is not reserved by the Federation.
4. Tourist developments.
5.