Limited Liability Company – LLC
(Sociedad de Responsabilidad Limitada)
Sociedad de Responsabilidad Limitada (S. de R.L. or Limited Liability Company) 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 only planning a small-business in Mexico, we wholeheartedly 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. requires a minimum share capital of MX3,000 pesos (US229 dollars) an S.A. de C.V. requires 50,000 (US3,820 dollars).
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 shareholders 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, 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.
- Mexican subsidiary entity for legal formalities.
- Small to medium-sized businesses.
- Import-export operations.
- Holding company.
- Stock-ownership Vehicles.
- 3,000 Mexican Pesos 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 are obligatory and may be either extraordinary (whenever called) or ordinary (held annually).
- Maximum of 50 shareholders.
- Optional Auditor or Auditing Board to act on behalf of shareholders.
- 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.
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.
- Detailed annual financial reports.
- Organizational Agreement may stipulate for what issues shareholders’ meetings are not required.
- The Shareholder Auditor may be either an interested or disinterested person.
- 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.
- Corporate Flat-Tax.
- Annual tax filings.
- Profits are taxed as partnership based on the individual personal income tax returns of the shareholders.