Basics of Corporations in Mexico

Basics of Corporations (SA de CV) in Mexico

With MexInc you do not have to be a legal expert to do business in Mexico. We are the experts. So just sit back and run your business. But before making any decisions you should know the basics of corporations in Mexico. Mexico, just like in many other countries, has a regular run-of-the-mill company form. It is called an S.A. de C.V…. and is like an “.Inc” company you would find in the United States, for example. We’ll go ahead and spare you the legal jargon and cut to the chase.

If you see a company name in Mexico with the ending “S.A. de C.V” for example, “Sprockets Exporters de Mexico, S.A. de C.V” you should immediately think “.Inc” That part at the end of the name is the Mexican equivalent of “.Inc”, which we all know and love in other parts of the world. You might also see it as simply “S.A.” without the “C.V.” For closely-held companies, you may want to look at the LLC or Limited Company equivalent form in Mexico, the S de RL (Sociedad de Responsabilidad Limitada).

Ideal Uses:
• Mexican subsidiaries with major activities.
• Medium-sized to large business.
• Holding companies.
• Publicly traded subsidiary companies.

Basic Characteristics:
• No minimum capital stock.
• Must be managed by either a Board of Directors or an Administrator.
• Supreme authority over the corporation is exercised via General Shareholders’ meetings.
• General Shareholders’ meetings must be convened by law annually and may be either extraordinary (whenever called) or ordinary (held annually).
• Obligatory Auditor or Auditing Board to act on behalf of shareholders.
• Shareholders’ liability is limited to their capital investment.
• Company may issue different classes of stock.
• Each share is entitled to one vote.
• Double Taxation

Special Shareholder Issues
• 30% or more of shareholders may force an extraordinary shareholder’s meeting to address a specific issue or issues.
• No voting contracts are permissible.
• Shares may be negotiable and traded on public exchanges.
• Transfers of shares may be subject to approval of the Directors or the Administrator.
• Ability to issue stock-based employment incentives.

Special Administrative issues
• The Administrator or Directors must submit a progress report regarding the functioning of the company and its major policies annually.
• Detailed annual financial reports.
• The Administrator or Director must submit monthly financial reports to the Shareholder Auditor.
• The Shareholder Auditor must report annually to the shareholders’ meeting regarding the company’s financial position.
• The Shareholder Auditor must be present without vote at all meetings of the Board of Directors.
• The Shareholder Auditor must be disinterested, non-employee, non-blood relatives of directors.

Tax Issues
• Annual Income Taxed as a corporation in the United States.
• Monthly tax filings in Mexico.
• Value Added Tax.
• Income Tax.
• Corporate Flat-Tax.
• Annual Tax Filings.
• Double Taxation (taxed on corporate profits and shareholders must also pay personal income tax).

Is a Mexican Corporation or S.A. de C.V. right for me?

Companies looking to enter the Mexican market often have two objectives when forming a subsidiary. They form a legal entity for legal formalities or an active legal subsidiary that will essentially operate as its own independent nerve center. For subsidiaries looking to maintain robust operations in Mexico, research and development operations, retaining large numbers of employees, and will offer a great degree of autonomy to the Mexican subsidiary, the S.A. de C.V. is ideal. The S.A. de C.V. facilitates the issuance of stock-based employment incentives.

If you have a larger number of shareholders in your company and are looking for a more formal arrangement with your partners, then the Mexican Corporate form or S.A. de C.V. is really what you should look at. For tax purposes, S.A. de C.V. could be an ideal form, where profits from operations will remain in Mexico and subsequently be reinvested. Also the S.A. de C.V., unlike its counterpart the S. de R.L (the equivalent of an LLC in Mexico), can be set up as a special investment vehicle used for raising capital with a whole variety of minority shareholder protections, multiple share classes, and other capital protections.

Think about the following:

• Do you and your business partners not have a close working relationship?
• Do you tend to deal with each other at arms-length?
• Do you want to be required to hold formal shareholder meetings, with minutes, and strict accounting regulations?
• Will there be more than 50 shareholders of the company?
• Will your company retain profits in Mexico for purposes of local re-investment?
• Does the operation in Mexico plan to raise local capital and investment?

If criteria apply to your business, a Mexican Corporation in the form of an S.A. de C.V. is probably the best form for you. Sometimes formality is what is required when one is dealing with business partners who one does not know well and where transparency is a major factor. However, the Mexican Corporation is a formal entity and complying with all the requirements to keep the company running according to the law entails paying accountants and lawyers. The Mexican Corporation or S.A. de C.V. form offers security and transparency, however at increased operating cost.

If your company has more than 6 shareholders but especially if you have say… more than 10 shareholders, you really should consider an S.A. de C.V. Additionally, with that many shareholders contributing to the operational costs of the company, perhaps the money required to pay accountants and attorneys won’t be such a big issue (in theory).

Corporation Formation Procedures in Mexico

Forming a Corporation (SA de CV) in Mexico involves proceeding in several phases. First, collection of the required documentation. Second, execution of the documentation and initial company registrations. Third, the secondary services and on-going tax filings and compliance.

1. Pre-Incorporation Phase
2. Incorporation Phase, and
3. Post-Incorporation Phase

What documents are required?

The documents below are required for completing the incorporation process in Mexico:

• Articles of Incorporation or similar document showing the initial filing of the company.

• Certificate of change of name. If the parent legal entity has changed names, you must submit both the original articles of incorporation (or similar from line one above) reflecting the old name, as well as the certificate of name change. In the case of multiple name changes, all consecutive certificates of name change must be provided.

• Certificate of Good-Standing, Existence or Continuing registration. This document or similar must state that the parent company is legally organized and continues in active status as of the date in question. This document must not be more than 3 months old. This is different and separate from the Articles of Incorporation.

• Annual Reports or Annual Statements of Information. In many jurisdictions this is a document that is filed containing a current list of directors. This document should be provided if available.

• Corporate By-Laws. This document should state the names of the various individual occupying positions such as directors, corporate officers or managing members. (Note on Obtaining the By-Laws. In most cases the by-laws are filed with the authorities, such as the Secretary of State or companies registry. In this case, you can order a copy of the document directly from the latter. However, if you have an original version in your possession, you can also make a notarized copy and have it apostilled or legalized.)

• Shareholder Powers of Attorneys. Each shareholder or their representative in the case of a parent company will need to execute a power of attorney authorizing the incorporation of the Mexican legal entity.

Initial Steps – Pre-Incorporation Phase

Completion Time 1 Week

A. Client provides MexInc with corporate structure and copies of initial documentation uploaded via MexInc server.
B. MexInc requests authorization for use of corporate name from authorities
C. MexInc issues detailed instructional memorandum and powers of attorney
D. Client obtains certified copies of requested documents and executes powers of attorney
E. Client follows process for obtaining apostilles or document legalizations
F. Client forwards all original documents with apostilles or legalizations

Document Execution and Registration – Incorporation Phase

Completion Time 3 Weeks

G. MexInc translates all documents
H. MexInc notarizes and executes articles of incorporation on client’s behalf
I. MexInc registers company before the companies registry
J. MexInc obtains company tax identification (RFC) number from tax authority
K. MexInc obtains company e.signature (e.firma)
L. MexInc performs foreign investment registration

Compliance and Secondary Procedures – Post-Incorporation Phase

Completion Time 2 Weeks

M. Monthly accounting filings
N. Corporate bank account processing
O. Specific industry licensing or operating authorizations

Corporate Taxation in Mexico

Mexican Corporations (SA de CV) are subject to similar corporate tax requirements found in other jurisdictions and taxed independently from their shareholders. Mexican Corporations are subject to monthly and annual tax filing requirements. In most cases, for purposes, they will not be treated as a pass-through entity in foreign jurisdictions, which is their primary distinction from their counterparts, the S. de R.L., the equivalent of an LLC in Mexico.

• Income tax rate of 30%
• Subject to monthly tax declarations
• Subject to annual tax declarations
• General sales tax on all goods and services 16%
• Electronic invoicing for deductible transactions

Overview of Service

MexInc will complete the formation of a legal entity in Mexico. Our team will consult with the client to define the appropriate ownership and shareholder structure, based on several considerations including: local and foreign taxation, control, initial investment capital, administrative and corporate governance efficiencies, operational objectives.

The process does not require that the client travel to Mexico for any reason related to the process. All documentation is forwarded to client in PDF form, which should be signed, executed, legalized/apostilled, and returned to our offices in original. Furthermore, should client desire to open a bank account, this process is likewise completed without the need to travel to Mexico.

Client has the choice to register the company using our office address or to provide their own registered address. MexInc staff are appointed where necessary to act as local legal representative or registered agent as required under Mexican law. Following completion of incorporation, monthly tax filing obligation begin immediately. Clients are obliged to either contract the services of their own accountant or to contract our services to maintain the company in good standing and current on all tax filings.

Once completed, the process may move to undertake the following actions: obtaining importers permit, employment registration, immigration certification, product regulatory compliance, or bank account.

Procedures:

A. Client provides MexInc with corporate structure and copies of initial documentation uploaded via MexInc server.
B. MexInc requests authorization for use of corporate name from authorities
C. MexInc issues detailed instructional memorandum and powers of attorney
D. Client obtains certified copies of requested documents and executes powers of attorney
E. Client follows process for obtaining apostilles or document legalizations
F. Client forwards all original documents with apostilles or legalizations
G. MexInc translates all documents
H. MexInc notarizes and executes articles of incorporation on client’s behalf
I. MexInc registers company before the companies registry
J. MexInc obtains company tax identification (RFC) number from tax authority
K. MexInc obtains company e.signature (e.firma)
L. MexInc performs foreign investment registration

Documents Obtained:

• Articles of incorporation and by-laws
• RFC inscription certificate
• e.Signature (e.Firma) inscription certificates
• Foreign investment registration certificate

Corporate Forms:

Sociedad de Responsabilidad Limitada (S. de R.L. de C.V.)
Limited Liability Company or Sociedad

Sociedad Anonima (S.A. de C.V.)
Corporation

Pre-requisites:

No specific actions must be taken prior to initiating service.

Basic Documentary Requirements:

w/Parent Company

• Articles of Incorporation or certificate of organization
• By-laws, operating agreement, or equivalent
• Certificate of good-standing or similar
• Notarized powers of attorney
• Board resolution, certificate of incumbency, secretarial certificate
• Apostilles or legalizations

w/o Parent Company

• Notarized powers of attorney
• Apostilles or legalizations

Pricing Starting At:
Standard Limited Liability Company Formation – Starting at $3,490.00 USD [or get quote]