Cybersecurity attacks have been increasing recently and it is necessary that every corporation create as part of their internal regulations - besides of the obligations to comply with applicable laws - specific policies creating awareness for the protection of third parties with whom they collaborate.

Cybersecurity should not be considered as separate from data protection. Together, they provide the necessary tools to protect the personal data of third parties collaborating with each corporation and for such reason they should be considered as inseparable.

In Mexico, there are currently three organizations with jurisdiction over cybersecurity: (i) the Cyber Incident Response Center of the General Scientific Directorate of the National Guard (Centro de Respuesta a Incidentes Cibernéticos de la Dirección General Científica de la Guardia Nacional), (ii) the Federal Police (Policia Federal) and the (iii) National Institute for Transparency, Access to Information and Protection of Personal Data (Instituto Nacional de Transparencia, Acceso a la Información y Protección de Datos Personales) (INAI).

The Mexican Federal Law for the Protection of Personal Data Held by Private Parties (Ley Federal de Protección de Datos Personales en Posesión de los Particulares) provides for the protection of personal data to guarantee privacy and the right to self-determination of information.

The data processing must be adequate and relevant in connection with the purposes set out in the privacy notice that each corporation provides to its employees and third parties, and such notice must be available not only through the website but also in situ.

The management of sensitive personal data should correspond to a specific area of each corporation (i.e. compliance) and the responsible of the information must make all reasonable efforts to limit the period of treatment of such data to the minimum necessary and inform internally about the processing and management of the information periodically.

It should be mentioned that, in case of breach of the aforementioned, the owner of the personal data may file a claim before the INAI, and therefore administrative sanctions and procedures would proceed, which are generally punished with fines or even criminal actions depending on the violation of sensitive personal data.

Please note that currently there is a project to be approved for the implementation of the Federal Cybersecurity Law (Ley Federal de Ciberseguridad) which would create independent authorities and specific crimes in connection therewith.

Artificial intelligence has come to reform the way we work, research and solve problems. AI has revolutionized so much that Law has not been left behind. The arrival of AI in the legal world has influenced the practice of Law in several ways, making it impossible to ignore its existence and the impact it will continue to cause, so it is essential to start asking questions, discussing and regulating AI. It is important to start discussing it now, because as much as it may seem that these issues are a long way off, AI is advancing and evolving to unimaginable levels quickly.

One of the most recently discussed issues is how AI affects intellectual property. One of the concerns that arise with the use of AI programs is about who owns the rights to the responses generated based on the instructions issued by the user. Most AI programs assign the rights to the generated response to the user. However, these answers are neither unique nor specialized; the same or a very similar result can be created by the program for another user asking a similar question, who in turn will have the rights to that answer. Although the program assigns the rights to the answers, this does not guarantee that the law will protect the result or recognize the user as the author.

On the other hand, another issue that is being discussed about the use of AI within the legal profession is about what will happen when AI provides legal advice directly to clients or when it is used as an aid to resolve legal issues. Will the program need any certificate or license to be able to provide legal advice? Or in case of negligence or any mistake, who will be responsible and face the sanctions that may be applicable?

We need to continue discussing these issues and many more in order to be able to regulate the development of AI in a reliable and safe way, focusing on the risks and the opportunities it brings. But we must do it quickly and in such a flexible way that it can adapt to the changes and advances that will be implemented.

References:

https://eljuegodelacorte.nexos.com.mx/inteligencia-artificial-y-el-futuro-del-derecho/#_ftn12https://www.eleconomista.com.mx/tecnologia/Paises-aceleran-regulacion-de-Inteligencia-Artificial-y-Mexico-es-uno-de-ellos-20231125-0024.html

As a result of the nearshoring* scenario that Mexico is currently experiencing because of the global picture, an increase in real estate transactions is expected, including real estate operations pertaining to the sale, purchase, construction, adaptation and/or lease of industrial warehouse spaces for foreign companies that choose Mexico as a destination for their operations.

The above implies that companies coming to Mexico will have to carry out – with much greater frequency and rigor – due diligence processes for real estate transactions to calculate the risks in the acquisition and/or lease of industrial warehouses for their industry and/or administrative offices, among other types of real estate transactions.

Therefore, we present some of the essential aspects that should be taken into consideration when carrying out due diligence processes in real estate transactions.

First. Any person interested in these type of transactions shall bear in mind that the main purpose of a due diligence is to identify the legal relevant issues of the property subject to a purchase, sale and/or lease which may affect their legal certainty (whether in the position as purchaser, seller or party involved) when concluding a transaction, whether as a result of an existing mortgage loan, an easement or any other encumbrance or legal situation of the property itself that may affect the cost or value of the relevant transaction, and even its viability.

Second. It is of the utmost importance to verify that the party appearing as the seller of the property is effectively its current owner or, given the case, that it bears the rights to lease it or to carry out the relevant transaction on behalf of the actual owner. For this reason, Roman Law named the difficulty of proving the chain of ownership leading up to its current owner as the “probatio diabolica”1. This is one of the reasons that justify the existence of Public Registries of Property. In transactions in which the subject of the matter is real property, or specific rights over said real property, the Public Registry of Property that corresponds to its domicile must be contacted to request and obtain a certificate of registration folio and a certificate of freedom of encumbrances. The main advantage of obtaining the certificate of registration folio is that it refers to all the transfers of ownership of which the property has been the subject, including those trusts to which it was contributed; if said transfers of ownership were not duly registered in the corresponding Registry, then they shall not be effective against third parties. On the other hand, the benefit of the certificate of freedom of encumbrances is being able to verify whether encumbrances over the real property exist, such as easements, or if the property has been placed as collateral for the fulfillment of other obligations.

The confirmation as to whether the real estate has been placed in a trust acquires relevance when we keep in mind that trusts are one of the most widely used legal institutions in the real estate sector, and they may range from infrastructure and real estate trusts (commonly known as FIBRAs) to real estate development trusts (sometimes called “A + B Trusts” in legal practice). In these trusts, the ownership of a real property is contributed to the trust to develop a residential development, shopping center, housing community, industrial zone, among others, with the purpose of granting the trustors themselves benefits as trustees/beneficiaries of the trust; these benefits may range from the capital gains derived from the economic appreciation of the developments, to the cash flows generated by the lease of the premises, houses or apartments resulting from the management of the development.

Third. Third. Another issue to take into consideration when taking part of a real estate transaction is the obtention of relevant permits, certificates or authorizations required for the property subject of the deal and for the purpose to which it shall be destined. These documents may be subject to federal, state, or municipal jurisdiction, and the applicable legislation is the one of the domicile of the real property. Thus, the necessary documents for the regularization of the property before the corresponding authorities shall vary depending on its domicile. Examples of these documents are the certificates of due payment of the property tax and/or due payment of water services, the documents related to the marking and delimitation proceedings, the Zoning Certificates or the Certificates of Accreditation of Land Use by Acquired Rights (which in Mexico City depend directly on the Mayor’s Office that corresponds to the domicile of the property). The lack of these documents may result in important sanctions imposed by the corresponding authorities, such as the rescission of agreements, suspension of works, partial or total closure of works, demolition or partial or total removal of construction projects, loss of government incentives, revocation of licenses and/or permits granted, among others.

Room. Fourth. In the context of the climate crisis we are currently undergoing, legislators have taken note of its relevance and, for several years now, have decided to impose obligations and sanctions aimed at taking care of the environment and to handle pollutants and waste. Both the General Law for the Prevention and Integral Management of Waste (Ley General para la Prevención y Gestión Integral de los Residuos) and the General Law on Ecological Balance and Environmental Protection (Ley General de Equilibrio Ecológico y la Protección al Ambiente) grant authority to the Federation, the federal entities, Mexico City, the Municipalities and the territorial divisions of Mexico City related to the “preservation and restoration of the ecological balance and environmental protection”E and to the “prevention of site contamination and its remediation”G. In this sense, such Laws, their Regulations and, as applicable, the related Mexican Official Standards (Normas Oficiales Mexicanas), establish obligations for persons carrying out specific developments or activities regulated by these same laws; for example, the obligation to carry out an environmental impact study in cases in which certain works or activities are carried out. The penalties applicable to environmental and waste management matters may range from very significant fines to the temporary or definitive, total or partial closure of the developments, for which reason it is important to consider these obligations. Therefore, it is important that an environmental study be conducted before acquiring the ownership or right of use of a real property.^AND and “prevention of the generation, use, comprehensive management of waste, prevention of site contamination and its remediation”^g. In this sense, said Laws, their Regulations and, where applicable, the related Official Mexican Standards establish obligations for people who carry out specific works or activities regulated by these same laws; For example, the obligation to carry out an environmental impact study in cases where certain works or activities are carried out. The sanctions applicable in environmental and waste management matters can range from very significant fines to the temporary or definitive closure, total or partial, of the work, so it is important to consider them. Therefore, it will be very important that an environmental impact study be carried out before acquiring ownership or use of a property.

Fifth. The location of the real property, its safety situation, and the measures prevailing in the zone are also other topics to be considered in the due diligence. Another challenge that entrepreneurs must face in Mexico within the national Nearshoring landscape has to deal with the particularities of public security – particularly on highways – in the country. As multiple national media outlets have pointed out, highways are frequently the target of assaults, which implies the loss of merchandise, vehicles and even human lives, since, on many occasions, the assailants do not limit their acts to merchandise and may threaten or harm the drivers themselves. Expansión (a Mexican business magazine) published an article3 citing statistics from the National Chamber of Freight Transportation (Cámara Nacional del Autotransporte de Carga or “CANACAR”, for its name in Spanish), which states that the investment in security has resulted in a 15% increase in operating costs incurred by companies. The same article includes data from the Executive Secretariat of the National Public Security System (Secretariado Ejecutivo del Sistema Nacional de Seguridad Pública or “SESNSP”, for its name in Spanish) which shows a 19.2% increase in robberies to truck drivers in January, 2023, compared to the previous year.

Preliminary conclusions. The abovementioned aspects point out the importance of carrying out a due diligence process of the real property involved in real estate transactions, which is becoming increasingly relevant in Mexico due to the nearshoring.

To summarize, it is essential to take into consideration the following aspects during a due diligence process:

1. Verifying that the parties of a specific transaction have the necessary and/or sufficient legal capacity and/or authorities to enter into the transaction;
2. Obtaining the relevant permits, certifications and/or authorizations to carry out real estate developments and/or projects, as well as productive or business activities;
3. Pay special attention to the environmental and waste management obligations related thereto, as they may result in important sanctions; and
4. Take the particularities of the Mexican business and public security ecosystems into consideration, specifically in connection to the dangers present on Mexican highways and roads and the costs involved in the theft of merchandise and assaults on drivers, which are ultimately reflected in the cost of the final product or service, or – even worse – in the loss of human lives.

Notes::

Nearshoring is a practice whereby companies transfer, either by themselves or through third parties, the totality or a part of their production or supply chains to either the country that will be their final market or to a third country close to it. Nearshoring is the name given to the strategy by which companies relocate all or part of their production chain to a place closer to final consumers with the purpose of reducing costs in the supply or production chains, and to avoid setbacks. logistics.

Bibliography:

[1] Torres Manatou, M. (2020). Real Estate Due Diligence. In MO Zárate Martínez, Real Estate Law in Mexico(pp. 105-130). Tirant lo Blanch Mexico.

[2] Fernández Martínez, LG (2020). The Trust as a Real Estate Investment Structure. In MO Zárate Martínez, Real Estate Law in Mexico(pp. 291-314). Tirant lo Blanch Mexico.

[3] De Luna, T. (2023, March 10). Road Insecurity Increases and Contributes to the Increase in Inflation. Expansion. Retrieved on November 28 from: https://expansion.mx/empresas/2023/03/10/inseguridad-en-carreteras-aumenta-y-contribuye-en-inflacion

Consulted legislation:

[A] General Law of Credit Titles and Operations.

[B] Civil Code for the Federal District.

[C] Urban Development Law of the Federal District.

[D] Regulations of the Urban Development Law of the Federal District.

[E] General Law of Ecological Balance and Environmental Protection.

[F] Regulations of the General Law of Ecological Balance and Environmental Protection in Matters of Environmental Impact Assessment.

[G] General Law for the Prevention and Comprehensive Management of Waste.

[H] Regulations of the General Law for the Prevention and Comprehensive Management of Waste.

Civil society organizations carry out their day-to-day operations in accordance with the ordinary operations of any commercial corporation and for such reason they must consider it essential to carry out their corporate governance in the best possible way for the benefit of their associates and to be able to obtain donations for its causes.

Regardless of the legal provisions applicable to each type of organization, they must carry out the implementation of their strategy to implement the appropriate internal and external regulations for due operations not only from a legal perspective, but also from an accounting and tax point of view.

For such purposes, associates and people who work in a civil society organization must know the main rights and obligations of such organization and be familiar with its operational structure through knowledge of the corporate by-laws and general corporate principles applicable to authorized donees (if such organization is authorization as a donor or is processing it).

Likewise, they must consider being up to date on their corporate and contractual issues, and cover any aspects of ethics, compensation and risk management, as well as other strategic areas depending on their main non-profit activity. In this sense, greater importance should be given to the tax aspect in the case of authorized donees so as not to run any risk in getting their authorization revoked.

In this specific case, the fundamental principles would be the same as for any commercial corporation, understanding that they do not have a for-profit activity as mentioned below:

Transparency Associates/partners must have all the information and documentation necessary to manage any risk or potential risk that may arise in their activities.

Responsibility – The Board of Directors must report on the activities that the organization has carried out and analyze its operational results to implement new strategies for obtaining donations.

Accountability The Board of Directors must explain the purpose of the organization's activities clearly and describe the results of its performance to generate trust with the public in general.

It is very important that civil society organizations obtain adequate advice not only on legal issues but also on accounting and tax issues, since failure to comply with any of their obligations can have consequences for the cause that each organization supports and, in some cases, case, even being revoked their authorization as a donee.

Following up to the business relationship between Mexico and the United States of America growing with the nearshoring era, below is a brief description of the most relevant type of corporations in Mexico for determining which would be the best strategy depending on the nature of each corporation and their tax benefits with holding companies in the United States of America.

Mexico

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.

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.

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.

Type of Corporations

The Sociedad Anónima or “S.A.” is a 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.

The Sociedad de Responsabilidad Limitada or “S. de R.L.” is a 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.

The Sociedad Anónima Promotora de Inversión or “S.A.P.I.” is a 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, the “CNBV”). 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.

When incorporating an S.A., or S.A.P.I., additionally to the basic information that must be included in any entity, the shareholders may also include some clauses regarding: (i) restrictions to the transfer of ownership or rights regarding the representative shares of the same series or class, of the capital stock (e.g. Puts, calls, tag alongs, drag alongs, piggy back); (ii) grounds for exclusion and separation of partners, in addition to those covered by the general rules (e.g. squeeze out); (iii) “special” shares, such as non-voting shares, limited voting shares, shares of limited participation in the profits of the company, and shares granted veto rights; (iv) mechanisms to resolve differences if shareholders do not reach agreements on specific issues (e.g. deadlock); (v) specific limits on liability for damages incurred by directors and relevant executives; and (vi) provisions to increase, limit or deny preferential rights; etc.

Tax Considerations

Shareholders of a S.A., or S.A.P.I., and partners of a S. de R.L., are liable up for the amount of their capital contribution. The theory of piercing the corporate veil is not applicable in Mexico, except in some cases in tax matters, in terms of the newly approved tax reform, in which if you have “control”, you will be liable in a percentage equal as the percentage of your share capital and not to the amount of your contribution.

The S. de R.L. is an entity that qualifies as a pass-through entity in certain cases in the United States of America and therefore reviewing the structures of such country will be beneficial to have an efficient tax strategy.

On August 21, 2023, the “Agreement announcing the Advertisement Guide for Influencers of the Federal Consumer Protection Office” was published in the Federal Official Gazette. The purpose of this agreement is to ensure that content creators on digital platforms and social media, commonly referred to as “influencers,” clearly identify advertising in their content, and thus, comply with the Federal Consumer Protection Law ("FCPL") and other applicable regulations.

Through this agreement, the “Advertisement Guide for Influencers” (“Influencers Guide”) was created as a reference tool and set of recommendations for content creators to determine if the information they share has advertising purposes.

This Influencers Guide explains aspects that content creators must consider so that the advertising they carry out through their social media complies with the provisions of Article 32 of the FCPL, and also defines advertising as any information that a content creator shares to recommend a good, product or service through any social media.

The foregoing emphasizes that the advertising/information shared by this sector of society on their social media is also subject to compliance with the Consumer Protection Legislation. Therefore, it must be clear, truthful, verifiable, undeniable, and must not contain misleading descriptions that could lead to error or confusion.

To achieve this, the guide recommends them to (i) use tags like #PaidAdvertisement or #PersonalOpinions so that consumers can know if the influencer has a commercial relationship with the brand or not, (ii) limit their product or service opinions to real experiences, and (iii) ensure that the websites of the goods or products they promote are secure and that the product they provide information about complies with specific regulations for advertising.

A. Background to the Creation of the Advertisement Guide for Influencers Influencers

PROFECO is the responsible authority for providing guidance to the industry and commerce regarding consumer issues, as well as carrying out analysis related to consumer protection and developing work plans and programs through preliminary consultations with representatives of the public, social and private sectors, as well as national social education institutions and consumer organizations.

In 2005, the Consumer Advisory Council was established as an interdisciplinary Organism with the purpose of analyzing different topics in the field of consumer affairs and consumer protection, as well as proposing programs and public actions related to PROFECO’s responsibilities and promoting citizen participation in aspects that affects consumption and in understanding and exercising their rights.

During the Thirty Eighth Ordinary Session of the Consumer Advisory Council, some councilors expressed their concern about the involvement of influencers in advertising through digital media, which would often incur in misleading advertising.

In response to this concern, the Federal Consumer Office´s representative, acting as the President of the Consumer Advisory Council, instructed the Legal Sub prosecutor of PROFECO to create and coordinate the “Working Group, Proposal for the Regulation of Influencers Advertisement”, in order to analyze issues related to advertisement generated by influencers and the possible non-compliance with the provisions established in Article 32 of the FCPL -which requires advertising to be clear, truthful, verifiable, and not misleading to consumers– as well as other regulations on advertising.

Therefore, the Influencers Guide resulted from a legislative and international comparative analysis in the field of consumer protection, proposed by the Consumer Advisory Council of PROFECO.

B. International Regulation on Influencers Advertisement

In other countries, such as the United States, the influencers activities are regulated by the Federal Trade Commission (“FTC”). Organization that in 2019 published a document entitled “Disclosures 101 for Influencers” providing specific guidance to influencers on properly disclosing their commercial relationships with brands to their audience. This was done to prevent deceptive advertising that could harm consumers.

The document instructs influencers (i) when to disclose that their content derives from commercial relationships -whenever they have any financial, employment, personal or family relation with a brand-, and (ii) how to do so -in a visible and understandable manner, using simple language-.

In Spain, on the other hand, the General Law of Audiovisual Communication came into force on July 9, 2022, introducing the new obligation for influencers to register in the Federal Registry of Audiovisual Communication Service Providers in order to guarantee more respectful and lawful advertising.

C. Misleading Advertising in Mexico

PROFECO has the faculty to investigate advertising matters in accordance with the FCPL, that establishes as fundamental principles for consumer relations that: (i) the information about different goods, products, and services must be adequate and clear, and (ii) PROFECO’s duty to protect consumers against misleading or abusive advertising in the supply of goods, products, or services.

Article 32 of the FCPL defines the concept of misleading advertising as any advertising that refers to characteristics or information related to a good, product, or service that, whether true or not, leads the consumers to error or confusion, due to being presented in an inaccurate, false, exaggerated, partial, artificial, or tendentious manner.

Furthermore, PROFECO has defined various types of misleading advertising in a document titled “Misleading Advertising Procedures Guide” that includes (i) misleading advertising by action -including text, dialogues, sounds, images, brands, designations of origin, or other descriptions that induce or could induce error-, (ii) misleading advertising by omission -suppressing characteristics of the good or service that induce the consumer to error-, (iii) denigratory advertising -discrediting another’s product-, (iv) parasitic advertising -capitalizing on the prestige of another provider to make consumers believe the advertised product corresponds to the competitor’s characteristics-, and (v) covert advertising -attempting to hide the advertising nature by making consumers believe they are receiving informative content-.

Now, if derived from an analysis of the advertising information, PROFECO notices that it induces or may induce consumers to error or confusion, it has the faculty to initiate an administrative procedure against the generator of such information, and may even initiate an infringement of law procedure, which may result in the imposition of economic sanctions or fines -which may range from $617. 41 to $2'414,759.14 and in cases that PROFECO considers particularly serious, the fines may be up to $3'457,496.04-.

By virtue of the foregoing and derived from the issuance of this guidelines that subject the advertising content released by influencers -regardless of the mechanism through which it is shared- to consumer protection legislation, in addition to the extensive faculties that PROFECO has to investigate and sanction on the grounds of misleading advertising, it is recommended that: (i) companies that hire influencers for advertising purposes strictly review/define the terms of the information to be shared in order to avoid providing information that may mislead consumers, and (ii) fulfill with PROFECO recommendations outlined in the Influencers Guide, even to avoid any fines imposed by the aforementioned authority.

Although PROFECO has not yet fined/sanctioned any individual or company due to the Influencers Guide, to this date the authority has initiated several investigations for misleading advertising due to content shared by influencers on social media.

We will keep you updated.

The business relationship between Mexico and the United States of America keeps growing with the nearshoring era and therefore it is important to understand the type of corporations existing in both countries in order to determine the best strategy for doing business.

Below is a brief description of the most relevant type of corporations in both countries, starting with the United States of America in order to determine which would be the best strategy depending on the nature of each corporation and their tax benefits.

United States of America

Corporations are incorporated in each state and therefore subject to local and federal laws, as applicable. Shareholders or partners, as the case may be, must agree on the by-laws and articles of incorporation for the corporation, which may be notarized before a notary public.

Type of Corporations

LLC stands for a limited liability corporation which main characteristics are credibility and limited liability, while in an LLP, which stands for a limited liability partnership, the main characteristics are being a flexible corporation and being a pass-through entity for tax purposes.

Inc may be applied to companies that have incorporated their business (i.e., registered with a state to become a corporation). A corporation can either be an S corporation or a C corporation.

An S corporation is a corporation that has elected to be taxed under Subchapter S of the Internal Revenue Code, making it a “pass-through” entity for tax purposes. A C corporation is a legal entity that protects the owners’ personal assets from creditors and may have an unlimited number of owners and multiple classes of stock. Unlike an S Corporation or an LLC, it pays taxes at the corporate level.

Both LLCs and corporations involve properly completing and filing your documents with the corresponding local authorities, appointing a registered agent, and fulfilling ongoing requirements from local authorities.

The shareholders or the members of an LLC are not liable for the business's debts; thus, their liability is limited to their investment. While incorporating may protect a shareholder's assets from the corporations’ creditors, the corporation itself may be at risk from the shareholder’s creditors.

Business growth objectives should also be taken into consideration since the choice of business structure can affect the corporations’ ability to receive financing and for such a reason corporations have a much easier time attracting passive investors. In fact, many venture capitalists prefer investing in corporations since investments in LLC’s are limited.

Tax Considerations

A C corporation is a separate tax-paying entity since it pays corporate income tax on its income, after offsetting income with losses, deductions, and credits, and pays its shareholders dividends from its after-tax income.

S corporations are corporations that have made an election with the IRS to be taxed as a pass-through entity. All the corporations’ income, deductions, and losses are passed through to the owners who report these items on their individual income tax form.

In an LLC the members can decide whether they want to be a pass-through entity or be taxed as a C corporation. By default, an LLC with one member is disregarded (like a sole ownership) while an LLC with more than one member is taxed under the pass-through rules applicable to partnerships.

"Artificial intelligence (AI) is the combination of algorithms designed for the purpose of creating machines that perform the same capabilities as human beings 1" . In essence, AI has been created to understand and imitate the way a person thinks and acts.

Recently, AI has been gaining more attention due to the great impact it has had on today's world, as well as the risks associated with its use. One of the main concerns related to AI is access to personal data and the lack of privacy.

For example, when you create an account on the ChatGPT AI program, it collects information related to the account such as: name, contact information, payment card information, and transaction history, in accordance with the OpenAI Privacy Policy 2. Additionally, it collects any personal information that is included in the entries, files, or comments that the user provides when using these services.

Also, by simply visiting, using or interacting with programs such as ChatGPT, they automatically collect data such as: the type of content the user views, the functions they use, the actions they perform, their interaction with the program, their time zone, type of device, among others.

Likewise, these platforms can share personal information with third parties without prior notice, including vendors, service providers, and government authorities. In this regard, AI provides multiple benefits for people and facilitates hundreds of tasks, but it is essential to regulate it based on the risks involved so that it can continue to function in the best possible way.

Finally, it is important to keep in mind that AI is changing and advancing so fast that we must be flexible enough to adapt to updates or new programs that may arise and regulate it considering its specific characteristics.

¹ https://www.iberdrola.com/innovacion/que-es-inteligencia-artificial

² https://openai.com/policies/privacy-policy

References:

https://www.sciencedirect.com/science/article/pii/S2666659620300056#sec0047

https://eljuegodelacorte.nexos.com.mx/inteligencia-artificial-y-el-futuro-del-derecho/

https://www.iberdrola.com/innovacion/que-es-inteligencia-artificial

https://openai.com/policies/privacy-policy

Environmental, Social and Governance (ESG) standards help shareholders and stockholders not only to manage potential risks within their corporation but also to identify improvement opportunities in connection with environmental, social and governance principles to be applied in connection with its corporate sustainability.

As of today, corporate sustainability is a big concern not only for potential investors but also for customers who seek well managed and recognized corporations with a sustainability strategy to reach their goals.

It is known that the pillars of corporate sustainability are (i) environmental pillar, (ii) social pillar, and (iii) economic pillar. Depending on the industry sector of each corporation, the relevance of these pillars may vary but, in all contexts, must be considered within their business plan to understand their own sustainability and create an effective plan that will allow them to grow.

Environmental Pillar

In this respect, this pillar is relevant to determine the associated costs for the business operations and the potential risks and liabilities that could have an impact in the day-to-day- business operations. Please note that in Mexico, depending on the location of the business, federal or local laws may apply and therefore specific requirements and joint liability may apply.

Having specific internal environmental policies and controls will help the corporations not only to have a positive financial impact but also a mediatic impact.

Social Pillar

This pillar is relevant not only for the shareholders and stockholders of a corporation, but also for the employees and related parties participating directly or indirectly in the business operations. Maintaining values and internal policies through the creation of codes of ethics and conduct as internal manuals will result in a best practice management for the workplace and scaling up the business.

In Mexico specific labor rules and regulations must be considered not only for the employees but also for third parties providing specific services which would need to be fully regulated in the internal regulations.

Economic Pillar

The most relevant pillar for any corporation since it involves maintaining a profitable business through compliance, governance, and an appropriate risk management. Specifically, and in follow up with ESG’s principles, governance is basic and involves the establishment of adequate and accurate accounting and legal internal regulations which would allow a corporation to generate a sustainability strategy designed for success.

From a legal perspective and considering these three pillars, the best strategy would involve not only the creation of internal codes, manuals and regulations but also performing periodic due diligence processes in order to verify from a compliance perspective that business is being carried out in due course.

Since sustainability involves the entire supply chain of a corporation, the main goal shall be creating a corporate sustainability practice that will generate a positive effect against customers and society, besides the improvement of the business operations.

In recent days, the Mexican Senate approved an initiative for the amendment of the Securities Market Law to include a Simplified Securities Registration mechanism and to regulate the operation of Hedge Funds in Mexico.

Hedge Funds are an investment vehicle which should be incorporated as a partnership or corporation (according to the amendment initiative, in Mexico they will have to be incorporated and operate as a corporation [Sociedad Anónima]), whose name derives from the characteristic that its investments, which are generally of high risk, are usually directed in positions that in principle appear to be contradictory, but whose strategy helps to cover the risk assumed in the initial position due precisely to the high risk involved. These positions can be both within the same sector, as well as in sectors with different timing or characteristics, e.g. short-term versus long-term investments, cyclical sectors (tourism) versus non-cyclical sectors (manufacturing), among others. More recently, this kind of funds has also been widely involved in investing in non-conventional or alternative investment instruments like digital assets such as non-fungible tokens (NFTs) and crypto. Due to the very nature of risk and complexity of hedge fund investments, their operations are predominantly directed to institutional or qualified investors.

In terms of their organization, investment funds of this type are usually composed of partners known as limited partners (“LP”), who limit their activity only to the contribution of funds and, therefore, are not involved in the operation or investment strategies of the fund; on the other hand, regarding their operation, this kind of funds generally operate with a general partner ("GP") who is solely responsible for the general management and to direct the inversion strategy of the fund and any sub-funds that the fund may have, as well as the companies or other type of vehicles (usually trusts), which limit their activity to the management and investment of the funds provided by the GP, the foregoing to limit the liabilities of the fund and which are usually directed to certain sector or class of investments. Until now, only a few of the aforementioned vehicles have operated in Mexico, which, since they are not corporations and do not raise funds from investors (since their funds are provided by the GP), were not subject to stock exchange regulation neither to the Investment Funds Law.

Hedge Funds have had a presence in the stock markets for a long time, being a risky investment vehicle for their investors, but which, in exchange, usually offer them very attractive returns. Despite being a type of investment fund that has been operating for some time in the main financial centers, international regulation of this vehicle and its administrators was accentuated with the financial crisis of 2008, the main points regulated being (i) its registration and the minimum requirements for it; (ii) the delivery of information to regulatory agencies; (iii) the implementation of good practices both by the fund itself and by its service providers; and (iv) authorities for the regulatory agents to request relevant information and prevent systemic risk.

In the explanatory memorandum of the proposed amendment, the legislator details that the intention of the amendment is to establish the regulation of companies so that they may be incorporated in Mexico as Hedge Fund GPs subject to Mexican regulatory bodies and to the provisions of the Mexican Stock Exchange and Investment Funds Law. The above, together with the concurrent proposal for the creation of a Simplified Registration of Securities mechanism -whose offerings will be directed to institutional or qualified investors only-, if approved by the Chamber of Deputies, could represent an important increase in the number of institutional investors in the country (which today are mainly formed by retirement pension funds), which would constitute an important advance to the Mexican stock market.