Setting Up A Business: Corporate Forms

The Mexican Companies Law (which is a federal law) provides for several types of companies that can be organized. There are various differences in their legal and tax treatment, depending on which form is chosen.

Sociedad Anónima

It is usually recommended to incorporate a limited liability stock corporation (sociedad anónima) which may adopt the form of a fixed capital company (S.A.) or that of a variable capital company (S.A. de C.V.). The principal difference between the two is that the latter may increase or decrease its capital within the limits established in the by-laws simply through a stockholders' meeting resolution and without the need to fulfil additional formalities. Nevertheless, both types of companies must notify the National Registry of Foreign Investments of any capital amendment.

The key characteristics of both types of companies are:

1. The shareholder's liability is limited to their stock interest in the company;
2. The directors are fully liable for the loyal and diligent administration of the company;
3. Must have at least 2 (two) shareholders and a minimum capital of $50,000.00 pesos. (fifty thousand Mexican pesos); 20% (twenty percent) of which must be paid at the time of incorporation; and
   iv. Must appoint a statutory examiner who is a disinterested third party that supervises the operations of the company and represents the interests of the shareholders;
4. The tax rate will be the normal corporate tax rate of 35%; and
5. The shares which represent the capital stock of the company are freely transferable and can be traded publicly, after the corresponding filings take place.

Limited Liability Company

Another form of limited liability corporation, the Sociedad de Responsabilidad Limitada or S. de R.L., has become popular among foreign companies. The key characteristics of the S. de R.L. are as follows:

1. Like a S.A. and S.A. de C.V., the partners' liability is limited to their partnership interest in the company and the directors will be fully liable for the loyal and diligent administration of the company;
2. It must have at least 2 (two) partners to a maximum of 50 (fifty), and a minimum capital of $3,000.00 pesos. (three thousand Mexican pesos), for which 50% (fifty percent) must be paid at the time of incorporation;
3. There is no requirement to appoint a statutory examiner;
4. The tax rate will be the normal corporate tax rate of 35%;
5. Under U.S. Federal Tax Law a Mexican organization (legal entity) may affirmatively elect corporate or partnership tax treatment (absent which election it would be treated as a partnership) if it has two or more members and if any member has unlimited (personal) liability. If none of the members has unlimited personal liability, the entity (subsidiary in Mexico) will be classified as a corporation for U.S. tax purposes; and
6. The shares which represent the partnership interests in the company must not be freely transferable and can not be traded publicly.

General Partnership

Another form of business entity is the general partnership or the Sociedad en Nombre Colectivo (the SNC). A distinct disadvantage of the SNC is that all of the partners will have unlimited liability with respect to the obligations and debts. This corporate form is not frequently used in Mexico.

Limited Partnership

The limited partnership or the Sociedad en Comandita Simple (the SCS) has two types of partners: the active partner(s) who have unlimited liability, and the silent partner(s) who are liable only for their capital contribution. This corporate form is also not frequently used in Mexico.

This text was provided by Santistevan Abogados S.C.

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