By: Luis Gerardo Ramírez Villela
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.
