Foreign Companies in Mexico
INTRODUCTION
The vertiginous but passionate dynamic of nowadays businesses, forces Companies to cross borders and to count with solid structures and legal strategies which allowed them to invest in the safest possible way. Mexican Legislation is reliable for an optimal atmosphere for the healthy development of foreign companies that look for new fertile fields for their businesses.
The present guide purpose is to give a brief outline about some of the guidelines that you must know before starting a business in Mexico, these guidelines are a general overview and its particular application depends on several factors, special laws and the activities of the Company.
Mexican Laws in their great majority are of Federal character, reason why this guide is practically applicable for any State of the Mexican Republic and the lawyer who represents a company can do it without special certifications to exert in different States.
FOREIGN INVESTMENTS
Last decade with ex President Salinas, Mexico opened its frontiers to foreign investment and few activities were reserved for the state like Petroleum and hydrocarbons among others to 100% Mexican investments Companies as well as Credit Unions, some professions, etc., and restrictions for some percentages like 25% for air national transport and Money exchange companies up to 49%.
Possibility of Neutral Investment to increase the percentage of Foreign Investment
The Neutral Investment is formed by Mexican and foreign capital thus allowing increasing the allowed percentage to the Foreign Investment, in this case special approval of the Commission of Foreign Investments is required. This investment can be conformed by Mexican Companies or authorized trusts.
Some advantages to set up a Company in Mexico
Mexico has signed more than 35 international agreements which outstand the NAFTA (North American Free Trade Agreement) and the FTAEU (Free Trade Agreement with the European Union) consequently the companies that set up in Mexico enjoy the benefits of these agreements, also exist signed agreements with a great diversity of countries that grant the same treatment than to a national investor.
Why set up a business in Mexico?
The business incorporation as a Company is not a legal requirement for being able to initiate it, which makes the formal incorporatoin of a business important is the protection of the shareholders personal patrimony which is fundamental as a first strategy. It will always be a risk to initiate a business.
Company Formats
The activity, the Administration and the policies conform the company’s personality, this is the reason why we understand that each company is unique and therefore their strategies are also unique attending to these three important aspects.
The way in which the business can be incorporated focus more on these three aspects than to legal requirements, in which it was possible to be thought that they fit, the most frequent ways in which a company can be constitute are the following:
1. Joint-stock company/ Sociedad Anonima
This is the most concurred by Mexican Investors, the Share capital to incorporate this kind of Comapnies is a minimum of $50,000 pesos, this means that the minimum amount that the shareholders must risk is $50,000 pesos, amount that will not be able to fall with the purpose to guarantee the diverse creditors of the company. It can be administrate by a Unique Administrator modality, or by an Administration Council. Under any circumstance they have the obligation to maintain four corporate books: Council Administration Acts, Meetings Minutes, Shareholders Registries and Variations of Capital, these books are commonly administered and safeguard by the Company’s Lawyer.
It is the only format in which the Share capital is represented by common stocks that depend on the Social Contract that grants diverse rights to his holders.
Variable Capital Modality
Any mercantile society can have this modality and it is about that its increase or diminution does not require a formal requirement but only the resolution taken in the Shareholders Assembly.
Subsidiary shareholders
Commonly the foreign companies prefer that the shareholder structure are conformed by the same foreign company, instead of physical people, since in his countries they can fiscally justify the investments they do in our country.
This is possible, nevertheless for the General Law of Mercantile Societies is a fundamental requisite that they are constituted with a minimum of two people, reason why a denominated strategy 99-1 is applied. This strategy is about that factually the society is integrated by a unique partner, but the law considers them as two people.
Administration
First of all we must consider two entities that integrate any society: Shareholders Assembly and the Administration Organ. The first one is evidently formed by investors and solved how the society will be administrated, this means if by an Administration Council or by a unique administrator.
It is highly recommended that the people who are going to direct the company in Mexico, conform the Administration Council, once an honorary or hierarchy designation impose obligations as surrender of accounts to these functionaries.
The administration Council is an entity conformed by a minimum of two members; A President and a Secretary. The first one proposes and directs and the second executes and gives legal form to resolutions. Nevertheless the Administration Council can be conformed by an unlimited number of members and is able to have as many designations as it requires, for example Vice-President, Secretary Substitute, Legal Representative, Treasurer, Director, etc.
2. Limited Liability Company
This is the format prefer by most foreign companies in Mexico, due to their similarity with compatible figures in their native countries. The minimum risk to guarantee the payment to diverse creditors is $3,000.00 pesos. It can be administrated by a Unique administrator or by an Administration Council its main difference with the Join-Stock Society is that the share capital is not represented by free circulation actions, but by social parts which are not credit titles.
3. Civil Company
This format is the less popular and its application concentrates more on Fiscal matters than to corporative advantages since this is an exception to the corporative veil because the partners risk the totality of their personal patrimony. It does not require a minimum of Share capital and the way to administer can be by a Unique Administrator or by an Administration Council.
4. Branches
Our Company Lawyers recommend the opening of Foreign Branches in Mexico when the company is going to carry out commercial activities without or with income in Mexico, when the structure of " Corporative Government" and the shareholders are going to be in the same designation and distribution that abroad, for this case we asked for the registry in the National Commission of Foreign Investments in Mexico to get allowance.
5. Representation Offices.
Representation Offices are similar to Branches; nevertheless they need a different Fiscal Treatment and still more in case of Foreign Banks. This is an essential legal figure, in this format societies must ask for a Fiscal Identification Certificate in Mexico.
Joint Ventures.
The risk of investing in Mexico when the investors have no experience especially in the activity who are going to carry out is considered frequently by foreign companies in Mexico and in some cases they prefer to use some alternatives that diminish that risk, as it is the case of buying a Mexican or formed society and with certain experience and file or by a Joint Venture.
To buy a Mexican society already established can be a viable solution to diminish risk, nevertheless is necessary to have well-taken care of the price of the actions that justifies that diminution of risk.
In the case of Joint Venture there are two ways to establish it:
Strategic alliance and Co-inversion
In Strategic Alliance is not necessarily required to invest in a liquid way in the business, but the societies take advantage of the characteristics and qualities that can have one of them for its own benefit, for example: use of infrastructure, branches establishment without investment, to reduce costs, to decide contracts provision and/or exclusive distribution, etc.
In a Co-inversion both companies invest a sum of money in any percentage that agree to initiate a new business, in the contract they establish the outlines in which it is going to be administer, utilities, rights and obligations of each one.
Distribution Contracts.
This form of incursion in the Mexican market does not imply the direct investment of the foreign company, in certain cases simplifies the incursion in the sale of products, nevertheless also takes part an intermediary who remains with some part of the utilities.
Some advantages of the distribution are the following:
The distributors in some cases already count with networks of clients and distributors can arrive at consumers for which the foreigner will be almost impossible to reach.
Litigations Prevention
Controversies might happen and in many different ways, But the most important thing that you most know is that as we said since the beginning Mexican Laws are Federal Character and they are previously established by the Union Congress, which gives us a positive atmosphere to prevent litigious as far as possible. For this purpose we recommend to contact our Lawyers so you can get more information about the Corporative Legal Shield system that covers areas such as Labor, mercantile, Governmental relations between partners, organizations and every aspect you might need to protect your investment in Mexico.
Companies with Foreign Stock Maintenance
Although Foreign Investment Law has allowed the foreign investors in Mexico to build their companies with until one hundred percent of foreign capital, these companies set up in Mexico have a specific regulation which refers to due periodical information to the Secretary of Economy the cases are the following:
• Inscription to the National Registry of Foreign Investments;
• Annual Re-inscription to the National Registry of Foreign Investments;
•Shareholder society Structure and modifications;
• Quarterly Income report.
• Fusion or Split of the Society.
• Changes of address or name of the society.
• Granting of Powers (in the case of branches and representation offices)
• Financial report statements (in the case of branches and representation offices)
• Inscription Cancellation.
* In case of contracting to the Corporative Legal Shield the maintenance is included.
Tax Strategies
We recommend you to be informed with your lawyer and accountant so according to the case they can implement some fiscal strategies that can help you to diminish taxes.
Franchises in Mexico
Nowadays foreign companies have found in the Franchise a way to invest in Mexican Business, and distribute their products and offer their services in a way that the franchise in México could become strong points for their companies. Our Company Lawyers Team is completely authorized and prepared to support and attend foreign companies joined with administration and financial consultants, for further information contact our specialists.
Immigration
Tourist. - Is a foreigner who goes into to the country with aims of recreation or health, for artistic, cultural or sport activities, neither remunerated nor lucrative, with maximum temporality of six months un-extendable.
Transmigrate. - is the foreigner who goes in transit towards another country and will be able to remain in national territory until thirty days.
Visitor - Is the foreigner whose objective is to dedicate to the exercise of some lucrative activity or not, whenever is allowed and honest and with authorization to remain in the country until a year, within the following modalities:
Rentista visitor. - When the foreign visitor lives during its stay of its brought resources, of the rents that these produce, any originating entrance of the outside or of its investments in the country.
Businesses Visitor or Investor - When its internment has the intention to know about investment alternatives or to realize them.
Technical or Scientific visitor - When he dedicates to scientific activities, technical or of consultant's office.
Artist or Sportsman Visitor - When the intention is to carry out artistic activities, sport or similar.
Trust Charge Visitor. - When he tries to occupy trust charges.
Advisor visitor - When he tries to attend assemblies and sessions of the Administration Council companies.
Professional visitor - When its internment has as an aim to carry out professional activities.
We hope that this guide serves as a reference and can offer a better orientation for a good decision making, for further information please contact one of our Foreign Company Lawyers in Mexico they will gladly help you.
GIMENEZ & ASOCIADOS ABOGADOS, SC
www.mexicanlawyers.com
Important: The present guide for foreigners does not constitute a consultation, for that reason our lawyers in Mexico do not have any obligation of the use that our reader could give to it, for further assistance please to contact our office.
You can also contact us by telephone: (5255) 5281 86 98 / (5255) 2789 63 06 or by email : inf@mexicanlawyers.com
