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25 de Abril del 2007 | Add to Delicious | Share Article

The process of establishing or incorporating companies in Mexico at present has been optimized for the benefit of their investors. The authorities have been modernized and they have cut down the time taken for approval and formalities. Even with these new changes, investors should be fully informed that, as in any business, in any country, foresight is essential to avoid setbacks and wasted business opportunities.

There are many reasons for setting up companies in Mexico. Our work is to create solid foundations on which our clients can develop businesses with the due protection the law provides. To date, Mexico is party to over forty international agreements regarding reciprocity in the treatment of foreign investors, whose aim is to lend equality of circumstances with national ones. However, in the case of foreign investors in Mexico, it is necessary to have corporate lawyers to help companies achieve compliance with the applicable laws.

The formation of a company consists of two stages. The first stage comes before the company goes operational, i.e. without this stage, the company could not do business in Mexico. The second stage is after the formation, in which the statutory requirements and formalities must be fulfilled. Below is a step-by-step explanation of the stages of incorporation, in this case, of a stock corporation. It is important for the client to understand that in any event, the terms may vary due to circumstances beyond our control. The terms set forth here are the ones that would exist under normal circumstances.

PRE-INCORPORATION STAGE

Corporation Business Plan application form. This must be properly filled out by the client (the client can consult the firm’s attorneys regarding any query in respect of the spaces to be filled out). This document is fundamental to the establishment of the Corporation, since the activities and percentages of foreign investment share are decisive as to the way it is treated under the law.

At this point, it is recommended not to limit the information given.

Time: at the client’s discretion.

Drafting of Corporate Bylaws, time taken by the firm. According to the details of the form, our firm takes 72 hours to draw up the Corporate Bylaws and send them to the client for review. The corporate bylaws determine the way the company will be organized. In the case of business corporations, these have a corporate veil that limits the liability of foreign or national investors.

Time: 72 hours.

Name of the Corporation. When the approval is received from the client, we apply to the Secretariat of Foreign Relations for permission to obtain the name according to three possible names supplied to us in the Incorporation Application Form. This permission depends on the Secretariat’s availability. If a name is refused for having a degree of confusion with another, there is a possibility that with the registration of the mark the Secretariat may give authorization for the use of such name, although this is not granted in all cases. Our firm can make an electronic search of the Secretariat’s archives under the SIPAC 27 (General System for Article 27 of the Constitution) Agreement.

Time: 42 hours.

Proxy Letters. If any of the shareholders are unable to attend the notarization, they are asked to sign proxy letters to be represented by whomever they designate. The proxy letters must be certified before a Notary Public (simultaneous procedure) of their locality abroad. If the proxy letters have not been translated simultaneously and are in a language other than Spanish, they must be translated in the presence of an expert translator.

Time: at the client’s discretion.

Notarization. This is a legal requirement set by the General Law on Business Corporations [Ley General de Sociedades Mercantiles], to establish the corporate veil to prevent shareholders being personally liable for the corporation’s obligations. Our firm has agreements in place with various public attesting officers to reduce the time taken by this formality.

Time: three business days subject to availability of the shareholders or their representatives.

Obtainment of Provisional Certificate of Tax Identification in the Federal Taxpayer Registry (Tax Identification). This formality is sometimes carried out by the same attesting officer, although for the time being they have stopped doing this in accordance with Omnibus Tax Rulings. The firm performs this procedure with the support of the Public Accountant. This is an indispensable requirement for invoicing purposes.

Time: Done at the time of incorporation (preceding point)
Time for definitive Federal Taxpayer Registration: five business days.


Important: When this first step is concluded, the Corporation has the legal authority to establish itself in Mexico and to trade as authorized.

POST-INCORPORATION STAGE

Requirements after Incorporation. After the Company is incorporated, our firm takes charge of the following arrangements and formalities:


Registration of the Corporation with the Secretariat of Economy. Under the Foreign Investment Act [Ley de Inversión Extranjera], the firm has a statutory term of 45 business days to obtain the registration of the corporation. As of this moment, our firm takes charge of all the arrangements regarding the obligations of the corporation to the Secretariat of Economy, such as: enrollment, quarterly economic reports, reenrollment, changes to information previously provide, etc.

Time: within the 45 business days after incorporation.

Issuance of Share Certificates. Share certificates are issued if the business entity has been formed as a stock corporation. The corporation has a statutory term of one year after incorporation in which to issue them. These documents are negotiable instruments and their safekeeping and custody by the holder is essential to demonstrate shareholding.

Time: 10 business days after incorporation of the company

Corporate Books. At this point, the firm opens and makes the first entries in the following books: Ledger of Stock Register, Capital Variations, Minutes of Shareholders’ Meetings and Minutes of the Board of Directors. (obligation under the General Law on Business Corporations [Ley General de Sociedades Mercantiles] and the Federal Fiscal Code [Código Fiscal de la Federación]).

Time: 14 days after incorporation of the corporation.

FREQUENTLY ASKED QUESTIONS ABOUT THE FORMATION OF A BUSINESS ENTITY WITH FOREIGN INVESTMENT


Why is it important to form a business entity in Mexico?

A foreign business entity cannot attain legal status if it is not duly formed in Mexico or registered in any of the ways set forth in the Foreign Investment Act [Ley de Inversión Extranjera]. This fact is important because in the event of any dispute, it would not be possible to demonstrate its legal status to the courts and, moreover, Article 32 of the Foreign Investment Act states that anyone doing regular business in Mexico must be listed in the National Foreign Investments Registry.

What are the different ways of forming a business in Mexico?

The most common business entities are stock corporations and limited liability companies; however, there are also civil partnerships.

What capital is needed to form a business entity in Mexico?

A stock corporation requires $50,000 pesos, a limited liability company requires $3,000 pesos and a civil partnership does not require a minimum capital since the members have unlimited liability.

Can I register my foreign business entity in Mexico without needing to form a new one?

Yes, these kinds of registrations are offices of representation and branches with or without income. This is simply the registration of the same business entity that exists abroad and it is not necessary to have another board of directors or another shareholding structure.

Is it necessary to find Mexican partners in order to form a company in Mexico?

No, the Foreign Investment Act, published on December 27, 1993, in Mexico has provided the foreign investors with the opportunity to form business entities without the need for Mexican investment. In special cases only, the Act provides that certain percentages must be investments by Mexican nationals.

What activities are reserved for the Mexican State only, where foreign investment is not allowed?

The Foreign Investment Act prohibits the following activities, considering them strategic areas reserved for the State: I. Petroleum and other hydrocarbons; II. Basic petrochemicals; III. Electricity; IV. Nuclear power generation; V. Radioactive minerals; VI. (Derogated legislation). VII. Telegraphs; VIII. Radiotelegraphy; IX. Mail; XI. Issuance of bills; XII. Minting of coinage; XIII. Control, supervision and oversight of ports, airports and heliports; and XIV. Any others expressly mentioned in the applicable legal provisions.

Can a Mexican business entity with foreign investment do the same activities as one with Mexican Investment?

Mexican companies with foreign capital can acquire fixed assets, enter into new fields of economic activity or manufacture new lines of products, open and operate establishments, and expand or relocated existing ones, subject to the conditions provided in the Foreign Investment Act.

What are the activities that continue to be restricted to the investment of certain percentages by Mexican nationals?

National air transportation; air taxi transportation; and specialist air transportation; insurance firms; bonding companies; money exchanges; public bonded warehouses; i) business entities referred to by Article 12 Bis of the Securities Market Act [Ley del Mercado de Valores]; manufacture and marketing of explosives, firearms, cartridges, ammunition and fireworks, not counting the acquisition and use of explosives for industrial and extractive activities, or the preparation of explosive compounds to carry out such activities; printing and publication of newspapers for circulation exclusively in Mexican territory; Freshwater and coastal fishing, and fishing in the exclusive economic zone, not counting aquaculture; comprehensive port management; port services of pilotage for vessels to perform inland navigation operations under the terms of the applicable law; ship operator companies engaging in the commercial working of vessels for inland and coastal navigation, with the exception of tour cruisers and the working of dredgers and naval apparatuses for port construction, preservation and operations; supplying of fuels and lubricants for vessels and aircrafts and railroad rolling stock, and concessionary companies pursuant to Articles 11 and 12 of the Federal Telecommunications Act [Ley Federal de Telecomunicaciones].

port services for vessels to perform their inland navigation operations, such as towing, mooring and lighterage; ship operator companies engaging in the working of vessels exclusively in deep-sea traffic; concessionary or permit holder companies of public-service aerodromes; private services of preschool, primary, secondary, mid-upper and upper education, and combined schools; legal services; credit information companies; security rating agencies; insurance agents; cellular telephony; construction of pipelines for transportation of petroleum and its derivatives; drilling of oil and gas wells, and construction, operation and working of railroads that are general means of communication, and provision of public railroad transportation services.