Sociedad de Responsabilidad Limitada

LLCs in Mexico (S. de R.L.)

The Basics of an LLC in Mexico

An LLC in Mexico is an S. de R.L.

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. We at MexicanIncorporation.com 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 Copmany, 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.

Is a Mexican Limited Liability Company right for me?

If your company is a small operation with a limited number of owners, where your business partners are looking for a flexible less restrictive arrangement, than 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 suite 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?

Are you getting the point here? If the later points characterize the type of business you will be running then a Mexican Limited Liability Company might be the form for your business. Mexico 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.

 

Basic Requirements of an LLC in Mexico

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 you are 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.

What are the basic characteristics of a Mexican Limited Liability Company or S. de R.L.?

Here are some basic characteristics of a Mexican Limited Liability Company you should consider. First, the minimum capital to start a Mexican Limited Liability Company is about $227 United States Dollars. Second, the Company must have at least two people (or companies) that will be shareholders. Keep in mind that this is different from a place like the United States where a single person can own all of the shares of a company. Third, the company must hold an annual meeting of shareholders. Fourth, the company requires a permanent address in Mexico.

Limited Liability for Lawsuits
Nobody likes getting sued. The most important characteristic of a Mexican Limited Liability Companies is, of course, limited exposure of shareholders if the company gets sued. So, in the case of a lawsuit, the shareholders individually are not held liable. That means, no one can come after your home, your car or your other personal assets. However, the company itself is on the hook for any assets registered in its name such as bank accounts, equipment or other things of value.

Ideal Uses:
Mexican subsidiary entity for legal formalities.
Small to medium-sized businesses.
Import-export operations.
Holding company.
Stock-ownership Vehicles.
Joint-Ventures.
Basic Characteristics:
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.
Tax Issues
Annual corporate profits may not be taxed in tax jurisdictions, like the US, that recognizes 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 partnerships based on the individual personal income tax returns of the shareholders.

Frequently Asked Questions

1. What types of companies can I form in Mexico?

Answer: In Mexico, the two major types of companies are called the Sociedad de Anónima and the Sociedad de Responsabilidad Limitada. They are basically the equivalent of a Corporation and a Limited Liability Company in the United States. There are other company forms such as the Sociedad Civil, which is similar to a professional partnership that your doctor or lawyer might have for his or her office. There is also the Asociación Civil, which can be compared to a non-profit company. Mexico has additional types of companies but they are not commonly used.

2. How much capital do I need in order to start a Mexican company?

Answer: Well, that depends. Starting a Corporation in Mexico or Sociedad Anónima as it is called, requires a minimum capital investment of MX50,000 Mexican Pesos, which is the equivalent of about $3,760 United States Dollars. A Sociedad de Responsabilidad Limitada or Limited Liability Company as it is called, requires a minimum capital investment of MX3,000 Mexican Pesos or about $225 United States Dollars.

3. Can a single person own the entire company?

Answer: No. All Mexican companies are required to have at least two shareholders unless they are a sole proprietorship. Remember, this is a big difference from many other countries around the world that permit a single person to own the entire company.

4. Do I have to come to Mexico to start my company?

Answer: No. MexicanIncorporation.com uses an international power of attorney, specially designed for businesses in Mexico, that allows us to act on your behalf without stepping foot in Mexico. No flights, no visas, no complications.

5. Does my company need to have a Board of Directors?

Answer: No. The company can have either a board of directors or what’s called a sole administrator. The sole administrator individually will retain all of the powers over the company. The sole administrator does not need to be a shareholder.

6. Do Mexican companies have by-laws?
Answer: Yes. All Mexican companies must have by-laws and articles of incorporation. The by-laws determine the individual powers of the officers and directors. The by-laws also provide an outline of internal day-to-day decision making of the company. For example, the by-laws will determine what powers each director or officer may exercise – like opening bank accounts versus selling property. Or for example, the power to represent the company in legal actions or file the company’s taxes.

7. Is there a limit to how many shareholders my company can have?
Answer: Yes, in some cases. With a Mexican Corporation or Sociedad Anónima as it is called, there is no limit to the number of shareholders. However, there is a 50 shareholder limit for Limited Liability Companies or Sociedades de Responsabilidad Limitada as they are called.

8. Can foreigners own companies in Mexico?
Answer: Yes, with some limitations. Foreign investors are required to register with the Foreign Investment Registry without exception. Most companies in Mexico can be wholly foreign-owned except within several industries such as communications and transportation among others.

9. What do I need in order to import to or export from Mexico?
Answer: All companies importing to Mexico must register with the Importer’s Registry. Likewise, exporters within certain limited industries like tobacco, minerals… etc must register with the Exporters registry.

10. Will my Mexican Company have to pay taxes?
Answer: Yes. All Mexican companies, even if foreign-owned, must pay taxes on Mexican source income. These taxes include sales tax, income tax and corporate flat tax if applicable.

11. Will I have to pay taxes in Mexico and also my country of nationality if I am a foreigner?
Answer: Not necessarily. Mexico has agreements to avoid double taxation with the following countries: Germany, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Korea, Denmark, Ecuador, Spain, Finland, France, Greece, Indonesia, Ireland, Israel, Italy, Japan, Luxembourg, Norway, New Zealand, the Netherlands, Poland, Portugal, the United Kingdom, the Czech Republic, Slovenia, Romania, Singapore, Sweden and Switzerland. Find out more at the following link available in both English and Spanish.
Mexican Double Taxation Treaties – http://www.sat.gob.mx/sitio_internet/servicios/noticias_boletines/33_10771.html

12. Can my company issue preferred or different classes of stock?
Answer: Yes. A Mexican Corporation or Sociedad Anónima may issue different classes of stock with preferences for voting and dividends… etc. However, a Mexican Limited Liability Company or Sociedad de Responsabilidad Limitada cannot.

13. Must my company hold annual shareholders’ meetings?
Answer: Yes. In the case of both Mexican Corporations and Limited Liability Companies (Sociedades Anónimas and Sociedades de Responsabilidad Limitada, respectively) annual shareholders meetings are required.

14. How long does it take to form a Mexican Company?
Answer: In most cases, it takes 3-5 weeks from the time we receive the required paperwork from the customer.

15. Will I be protected against lawsuits in case my Mexican Company is sued?
Answer: Yes. In the case of both Mexican Corporations and Limited Liability Companies (Sociedades Anónimas and Sociedades de Responsabilidad Limitada, respectively), the liability of the owners extends only to the company’s assets and not to the individual assets of the owners themselves.

16. What type of company form is best for me?
Answer: That depends on how many shareholders there will be, the flexibility desired in managing the company and the level of formality required. For a small business like a restaurant, store or small-scale manufacturing operation, we recommend a Limited Liability Company or Sociedad de Responsabilidad Limitada as it is called. For a large-scale manufacturing operation or a business with more than say 5 investors we recommend a Mexican Corporation or Sociedad de Responsabilidad Limitada as it is called. In either case, a Sociedad de Anónima offers certain legal protections for shareholders that are not necessarily available with other corporate forms. There is no easy answer to this and if you have questions, you should really contact us directly to identify the type of company that suits your needs.

17. I am looking to start a large business. Can MexicanIncorporation.com help me form my company?
Answer: Absolutely. We are able to incorporate both small and large companies in Mexico… and everything in between.

18. I am looking to start a small business. Can Mexican Incorporation.com help me form my company?
Answer: Yes. Particularly for small and medium-sized businesses, we can help keep your costs down and get up and running quickly.

19. Will I need anything else like government licenses to begin operating my business once my company is formed?
Answer: It depends on the type of business. For example, if you plan on opening a restaurant, you’ll need a local business license, liquor license and other applicable health permissions. If you are planning to start a business dealing with medicines, for example, you’ll need to obtain safety approval for the medicines, register a warehouse or location where they will be stored, and obtain other authorizations from the Ministry of Health. MexicanIncorporation.com can consult with the required additional steps on a client-by-client basis.

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