[ESTABLISHING A BUSINESS ENTITY IN MEXICO] 332
II.
Types of Business Entities For foreign corporations or individuals who seek to do business in Mexico, there are several ways for them to invest their capital in this country. As in many other jurisdictions, a very common vehicle for doing business in Mexico is through the incorporation of a Mexican entity, where foreigners may own and participate in their capital stock. Unlike several other countries including the United States of America (“ US ”), in Mexico, the legal provisions governing the incorporation of entities are of Federal nature, which means that regardless of the place of incorporation within the Mexican Republic, commercial entities are regulated by the Mexican General Law of Business Corporations ( Ley General de Sociedades Mercantiles ) (“ LGSM ”);
A. Mexican General Law of Business Corporations ( LGSM ) The LGSM regulates seven different types of business entities, of which six of them can be incorporated with the modality of variable capital. Considering that the Mexican Income Tax Law ( Ley del Impuesto sobre la Renta ) (“ LISR ”) grants the same tax treatment to such types of commercial entities, corporate practice has only left two of them as the most common choice used by domestic and foreign investors for doing business in Mexico: (i) the variable capital limited liability stock corporation ( sociedad anónima de capital variable ) (“ SA ”); and (ii) the non-stock variable capital limited liability corporation
provided that we will also refer to other type of entities regulated by the Mexican Securities Law ( Ley del Mercado de Valores ) (“ LMV ”), which is also Federal. Please be noted that, with a sole exception 20 , the concept of single- stockholder corporations is not allowed under Mexican law. 20 Simplified stock corporation ( sociedad por acciones simplificada ) (“ SAS ”), which is a recently created type of entity regulated pursuant to the LGSM, that is allowed to be incorporated by an individual single-shareholder (no entities allowed as shareholders). Nevertheless, this type of entity is not recommended for foreign investment purposes, since its main purpose is to regulate small businesses, its shareholders may not have any equity participation in any other Mexican entity that allows them to control such entity, and the corporation’s annual total income shall not exceed the equivalent to approximately $6.8 million Pesos (approximately $405,000.00 Dollars, as of September 2023).
( sociedad de responsabilidad limitada de capital variable ) (“ SRL ”).
1. The SA (i) Structure
The SA has been widely used in Mexico as an investment vehicle. It has a capital stock divided into shares, where the shareholders’ liability is generally limited to the full payment of their capital contributions. The capital stock must be incorporated with a minimum of two shareholders (either corporations or individuals) and a limited minimum aggregate capital contribution, which is always represented by shares. The SA may issue shares without par value. If it adopts the “variable capital” modality,
ILN Corporate Group – Establishing a Business Entity Series
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