Basics of LLCs in Mexico

Limited Liability Company – LLC

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

These are corporate entities consisting of two or more shareholders, whose shareholders enjoy limited liability. The S. de R.L. is similar in structure to the United States Limited Liability Company. In Mexico, it is treated as a corporate entity not a partnership. However, many foreign jurisdictions like the United States consider the S. de R.L. a partnership for tax purposes.

If you are only planning a closely-held business in Mexico, we recommend the S. de R.L. The S. de R.L. is flexible in the way it may be organized. Such flexibility includes a simplified management structure, which may or may not include a board of directors, the ability to establish preferential voting structures for specific shareholders, or restrictions on transferability of shares. Like in other jurisdictions, the Mexican government established the S. de R.L. to be simple and easy to run.

Start-up costs with a S. de R.L. are minimal. While the S. de R.L. has no minimum share capital and requires at least 2 shareholders. The S. de R.L. has fewer corporate formalities than the comparable S.A. de C.V. (Corporation). For example, there are fewer restrictions on the manner in which general shareholders’ meetings may be held. Shareholders may be mailed the agenda for the meeting and vote remotely. The statutory issues that must be decided at shareholders’ meeting may be limited or expanded. For example, the Organizational Agreement may provide that certain decisions be taken without calling a general shareholder meeting such as the firing or hiring of managers, modification of the Organizational Agreement, the admission of new shareholders, and other actions listed in Article 78 of the Mexican General Law for Commercial Entities. Many of the same formalities that are included in the S.A. de C.V. may be included in the S. de R.L. but are not required. Really, the possibilities are endless. An S. de R.L. can be designed to be nearly as complex as an S.A. de C.V. or not.

The S. de R.L. is ideal for Mexican subsidiaries that exist to satisfy legal formalities in Mexico. If it is not planned for the subsidiary to have a large number of employees or to be an active “nerve-center” for local capital reinvestment, the S. de R.L. might be ideal. For instance, Wal-Mart, Inc. established a subsidiary holding company as an S. de R.L. in Mexico of the same name. Additionally, it established an S.A. de C.V. in Mexico to issue shares on the Mexican Stock Exchange. The Wal-Mart S. de R.L. acts as a holding-company vehicle specifically to own Wal-Mart stock on the Mexican Stock Exchange.

Like all other Commercial Entities in Mexico, the S. de R.L. must continue to file monthly tax reports. However, this is the only major administrative cost that will be incurred on a monthly basis.

Ideal Uses:

• Mexican subsidiary entity for legal formalities
• Small to medium-sized businesses
• Import-export operations
• Holding company
• Stock-ownership Vehicles
• Joint-Ventures
• E-commerce and sales

Basic Characteristics:

• No minimum capital stock.
• Must be managed by either a Board of Managers or a General Director
• Supreme authority over the corporation is exercised via General Shareholders’ meetings
• General Shareholders’ meetings are obligatory and may be either extraordinary (whenever called) or ordinary (held annually)
• Shareholder resolutions may be executed in writing by consent
• Maximum of 50 shareholders
• Statutory auditor not required
• Shareholders’ liability is limited to their capital investment.
• Company may not issue different classes of stock
• Company may however offer “privileges” to certain specific stockholders in terms of voting rights
• Pass-through entity status for US taxpayers and other jurisdictions

Special Shareholder Issues:

• Share may not be traded on public exchanges.
• Transfers of shares may be subject to majority approval of shareholders or result in dissolution of the company, unless otherwise stipulated in Organizational Agreement.

Special Administrative issues:

• No periodic financial or progress reports to shareholders are required.
• Annual financial balances should be recorded with minutes of annual shareholders’ meeting
• Organizational Agreement may stipulate for what issues shareholders’ meetings are not required
• The Shareholder Auditor may be either an interested or disinterested person

Tax Issues:

• Annual corporate profits may not be taxed in tax jurisdictions, like the US, that recognize the S. de R.L. as a partnership rather than a corporation.
• Monthly tax filings in Mexico
• Value Added Tax
• Income Tax
• Annual tax filings
• Profits are taxed as a partnership based on the individual personal income tax returns of the shareholders

Is a Mexican Limited Liability Company right for me?

You probably have heard of an LLC or Limited Liability Company if you have been involved in business over the last two decades anywhere in the world. Let’s take a moment and look at the basics of LLCs in Mexico. In most cases, the LLC form should be the default option. We at MexInc are personally big fans of companies with this form because of their simplicity. If you are reading this and from the United States you have probably seen companies with names that end in “My Company, LLC” or “My Company Limited.” Well the suffix “, LLC or Limited” is how you identify a Limited Liability Company. In Mexico, a Limited Liability Company ends with the following abbreviation, “S. de R.L.” So, that would look like “My Company de Mexico, S. de R.L.” S. de R.L. is the abbreviation for Sociedad de Responsabilidad Limitada.

If your company is a closely-held operation with a limited number of owners, where your business partners are looking for a flexible less restrictive arrangement, then we would consider a Mexican Limited Liability Company a good option. Even if you have a large-scale operation like a factory, so long as there are small numbers of owners, this company form could suit your needs.

Consider the following:

• Do you and your business partners have a close working relationship?
• Do you tend to deal with each other on an informal basis?
• Do you not want to be required to hold formal shareholder meetings frequently and value flexibility?
• Will your company have 1-5 owners who are looking for fewer hassles and flexibility?
• Is the entity in Mexico going to be used primarily for administrative compliance?
• Is the company going to act as a “wholly-owned” subsidiary?

Are you getting the point here? If the above comments characterize the type of business you will be running, then a Mexican Limited Liability Company might be the form for your business. The Mexican government envisioned this company form as a model for “small businesses” or businesses with few partners. Why? Because basically, the owners of a Mexican Limited Liability Company can structure the company’s operations according to their own specific needs.

Let’s say one of your business partners is providing most of the capital investment and wants the final say on certain specific matters. The Mexican Limited Liability Company form lets that partner choose in what instances his voice will override the other partners’. If you find that what we spoke of in this section characterizes your business model, then a Mexican Limited Liability Company might be your best bet.

Forming an LLC in Mexico

Forming a corporation in Mexico involves proceeding in several phases. First, collection of the required documentation. Second, execution of the documentation and initial company registration, and 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:

• Certificate of Formation 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 or Certificate of Formation.

• 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.

• Operating Agreement/Articles of Association. This document should state the names of the various individual occupying positions such as directors, corporate officers or managing members.

• Note on Organizational Agreements. This document in the case of an LLC or Limited Company is generally not filed with any authority. Therefore, you will need to make a copy of the document with a notary and have it apostilled or legalized.. 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

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 LLCs (S. de R.L.) are subject to similar corporate tax requirements found in other jurisdictions and taxed independently from their shareholders. Mexican LLCs are subject to monthly and annual tax filing requirements. In most cases, for purposes. In Mexico, they are taxed in the same way as corporations and are subject to double-taxation upon earnings. However, they will be treated as a pass-through entity in foreign jurisdictions, which is their primary distinction and benefit from their counterparts, the S.A. de C.V., the equivalent of a corporation in Mexico. In this case, taxes paid in Mexico may be deducted in the form of a foreign tax credit in jurisdictions like the United States.

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

Forming a Real Estate Holding LLC in Mexico

Incorporating a Mexican corporation or limited liability is an excellent, and perhaps the ideal option, for owning property anywhere in Mexico. Using a company to own property has the effect of reducing bureaucracy, improved operational flexibility, and decreased administrative costs in the case the property is sold. Of course, it also permits foreigners to own property within the restricted zones of 100km of the border and 50km from the coastline in Mexico, where direct foreign ownership of real property is prohibited.

For detailed information on Real Estate Holding LLCs in Mexico, please visit this page

LLC Formation (Services/Pricing)

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 the 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, 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]