Exploring Mexican Business Frameworks | An Investor’s Guide to Legal Corporate Entities

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Stephanie Uribe

Stephanie Uribe

International Tax Consultant


Ms. Uribe is an international tax consultant with more than a decade of professional experience in Mexican taxation and international tax advisory matters.  She maintains a particular focus on acquisitions (including due diligence), transfers, mergers, spin-offs, and various corporate reorganizations. She is experienced with cross-border transactions, including advising clients with respect to federal and state tax obligations in Mexico; the application of international tax treaties and the avoidance of double taxation, including permanent establishment status; complex international tax strategies; expatriate compensation plans; and tax audits.

Stephanie is certified to practice as an Enrolled Agent (“EA”) before the IRS in the U.S. As a certified EA, she brings a profound understanding of U.S. tax law, and with her background experience in other tax jurisdictions, she offers a fresh and innovative perspective on tax representation. Stephanie’s capabilities extend to efficiently handling audits, appeals, and tax collection disputes, as well as providing advice in tax planning and preparation in the U.S.

Stephanie received her law degree from the Facultad Libre de Derecho de Monterrey, in Monterrey, Mexico, where she graduated with honors, and holds a Master’s in Law in International Taxation from Vienna University of Economics and Business (WU), in Vienna, Austria. For her Master Thesis she published the Article “Taxation of Capital Gains: The Substantial Participation Clause in Article 13(5)” in Special Features of the UN Model Convention.

She is member of the International Fiscal Association and has participated as a speaker in several Mexican and international tax conferences. She holds a certification in Management (Harvard ManageMentor Program) from Harvard Business School.

Mexico’s robust economic landscape and hospitable business setting establish an appealing choice for investors aiming to make their mark in the Latin American market. Understanding the various corporate legal entities available in Mexico is essential for making an informed decision when setting up a business from a U.S. and a Mexican perspective.

This article will address the types of Mexican corporate legal entities, namely the Sociedad Anónima, Sociedad de Responsabilidad Limitada, Sociedad Anónima Promotora de Inversión, and Sociedad Civil to guide investors through their characteristics, benefits, and legal requirements.

  1. Sociedad Anónima

The Sociedad Anónima, is the most common corporate entity structure used in Mexico for business purposes. It is designated as “S.A.” for those with fixed capital. This structure is governed by the Ley General de Sociedades Mercantiles (“LGSM”). Depending on its capital structure, it may be identified as “Sociedad Anónima de Capital Variable” or “S.A. de C.V.” or for those with variable capital. Shareholders own its negotiable or non-negotiable shares, representing the company’s stock.

The defining features of a S.A. in Mexico offer a blend of flexibility and structure, catering to a wide range of business needs. These characteristics include:

These provisions and structures ensure that an S.A. can adapt to various investor needs while providing a stable and regulated framework for conducting business in Mexico.

Under the Mexican provisions, if there is foreign investment in the capital of an S.A. de C.V., it is mandatory to register with the National Registry of Foreign Investments and submit an annual report to the agency, detailing the year-end financial statements from the preceding year.

  1. Sociedad de Responsabilidad Limitada

The “Sociedad de Responsabilidad Limitada” (“S. de R.L.”) is a form of business organization in Mexico similar to a limited partnership, and it ranks as the country’s second most utilized commercial entity type in Mexico, governed by the LGSM. This entity can be established with either fixed or variable capital, which is denoted by equity interests (“partes sociales“) held by the partners. These equity interests are typically less liquid, with conditions placed on their transfer.

In specific circumstances, particularly under U.S. tax regulations, the S. de R.L. might be recognized as a pass-through entity, potentially offering tax benefits.

This entity stands out for its unique approach to investment and liability, providing a variety of features tailored to its partners.

Under Mexican Federal Law, if there is foreign investment in the capital of an S. de R.L. de C.V., it is mandatory to register with the National Registry of Foreign Investments and submit an annual report to the agency. This report should include the financial statements from the previous year’s end.

  1. Sociedad Anónima Promotora de Inversión

The Sociedad Anónima Promotora de Inversión (“S.A.P.I.”), is a variant of a stock corporation, regulated by the Mexican Securities Market Law (“Ley del Mercado de Valores”). Unlike traditional S.A. entities, S.A.P.I.s are not supervised by the National Banking and Securities Commission (“Comisión Nacional Bancaria y de Valores”, or “CNBV”). They may operate with either fixed or variable capital and were originally designed to promote investment by offering exceptions to general regulations. These exceptions include the ability to impose restrictions on share transfers, define causes for partners’ exclusion, issue shares with limited rights, and establish option and preferential rights for share acquisition or sale.

While S.A.P.I.s share many legal requirements with S.A. de C.V. entities, there are notable operational differences. For instance, S.A.P.I.s have the option to adopt the administration regime of a S.A.B. (public company) and can buy back their own shares. Additionally, a S.A.P.I. de C.V. must be governed by a board of directors; a sole administrator is not permitted.

  1. Sociedad Civil

A Sociedad Civil (“S.C.”) is a legal entity commonly used for non-commercial professional services or activities in Mexico, and it is governed by the Mexican Federal Civil Code. It is a form of partnership that is based on a contractual agreement among its members, who are typically professionals such as lawyers, accountants, or doctors. The partners mutually bind themselves to combine their resources or efforts for the realization of a common economic purpose, which is predominantly non-speculative and not constituting commercial speculation. Each member makes a capital contribution, such as money, property, or labor, to a common fund with the intention of dividing the profits among themselves. The Mexican S.C. has a different tax treatment compared to the other entities mentioned, which may be beneficial for individuals providing professional services.

In specific circumstances, particularly under U.S. tax regulations, the S.C. might be recognized as a pass-through entity, potentially offering tax benefits.

  1. Calvo Clause

When a Mexican corporation has foreign shareholders, it must include a provision called the Calvo Clause (“Cláusula Calvo”) in its by-laws. This clause dictates that foreign investors will be treated as Mexican citizens regarding their ownership in the company, preventing them from seeking intervention from their home government regarding their investment. Violating this agreement obligates them to surrender their shares to the Mexican state.

Additionally, when establishing an S.A. or S.A.P.I., the incorporators may choose to include specific clauses in the by-laws in addition to the essential formation requirements. These clauses are engineered to define and fine-tune the governance and operational landscape of the corporation, providing nuanced control over various aspects of share management and corporate decision-making:

These clauses thus serve as vital instruments in sculpting the corporate structure and dynamics, ensuring that the entity operates with a clear, agreed-upon framework that aligns with the strategic vision of its incorporators.

The process of incorporating a corporation in Mexico typically takes two to four weeks across all corporate structures. The legal existence of the corporation begins on the date the notarial deed is formalized.

In Mexican corporate practice, it is common to hold the inaugural Shareholders’ or Partners’ meeting at the notary’s office during the incorporation stage, with the minutes included in the same legal instrument as the by-laws. As required by Mexican law, these meetings must take place within the national territory. Participants must either be physically present with appropriate immigration documentation or delegate their representation to legally authorized agents in Mexico through powers of attorney. Moreover, registration before the Mexican Tax Administrative Service (“SAT”) is required for tax purposes.

Overall, while distinctions between corporate designations like S.A. de C.V., S. de R.L. de C.V., or S.A.P.I. hold limited significance in Mexican taxation, it’s worth noting that S.C. is the only one with distinct tax treatment in Mexico.

In this regard, Mexican tax legislation does not differentiate among S.A. de C.V., S. de R.L. de C.V., or S.A.P.I. entities for tax purposes. Each of these corporate forms is subjected to the same tax obligations and does not inherently benefit from preferential tax treatment.

However, the distinction becomes materially significant when viewed through the lens of U.S. tax law. For U.S. investors, the structure of an S. de R.L. de C.V. and an S.C. can be particularly advantageous, offering potential tax efficiencies that could influence the choice of entity. These entities may be eligible for pass-through taxation under certain conditions, which can mitigate the tax burden by preventing double taxation — once at the corporate level and again at the individual level.

It is imperative for U.S. citizens considering the establishment of a business entity in Mexico to conduct a comprehensive U.S. tax analysis prior to incorporation of these entities in Mexico. This is because certain U.S. tax provisions, such as the Controlled Foreign Corporation (CFC) rules, Subpart F income, and the Global Intangible Low-Taxed Income (GILTI) regulations, may apply. These rules could result in significant tax liabilities, effectively influencing the overall fiscal impact of their Mexican investments.

Freeman Law offers value-driven services and provides practical solutions to complex tax issues such as these and many others. To schedule a consultation please call (214) 984-3000.