The two most popular types of corporations in Mexico are the Sociedad Anonima, or S.A. (Corporation) and the Sociedad de Responsabilidad Limitada, or S. de R.L. (Limited Liability Company), which are two ways of structuring a (business) corporation engaged in commercial or business activities, industrial activities, etc., in accordance with Mexican laws.
In most cases, the option of "de CV", which stands for "Variable Capital" can be established, which simply means that the corporation may increase its capital, through subsequent contributions of shareholders/partners or by the admission of new shareholders/partners, or decrease its capital by the partial or total withdrawal of shareholders/partners. Commercial corporations may opt to adopt this corporate form either at the time the corporation is set up or subsequently thereafter.
Definition and Characteristics of the S. de R.L.
Article 58 of the General Law of Commercial Corporations (Ley General de Sociedades Mercantiles, or LGSM in Spanish) defines a Sociedad de Responsabilidad Limitada (Limited Liability Company) as “… one that is composed of partners whose liability is limited to their capital contributions, without the partnership shares (participation, or other forms of equity) or partnership interest being represented by negotiable instruments, neither to the order of or the bearer, since these are assignable only in specific cases and in accordance with the requirements set forth under this law.”
Its characteristics are:
- The partners are central, key figures in this type of corporation (intuito personae, in express consideration of the person), as such they are generally involved in its administration, and the success of the business depends largely on their knowledge
- Members are given the name of “partners”.
- Liability of the partners is limited to their capital contributions (Art. 58).
- Partner contributions are in the form of capital (money or assets); contributions in the form of work or services are forbidden (Art. 70).
- The minimum capital required to establish this type of company is $3,000 pesos (Art. 62)
- It calls for two kinds of assemblies: the General Assemblies of Members, and the General Assemblies (for matters involving all partners) and Special Assemblies (resolve matters involving only a specific category of partners).
- The capital is represented by partnership shares (participation, or other forms of equity) (Art. 58, 65).
- Partnership shares (participation, or other forms of equity) may be of unequal value, each partner contribution accounts for one partnership share (Art. 62).
- Partnership shares (participation, or other forms of equity) are not intended for circulation (or public trading). By law, the assignment must be approved by a majority of the Assembly of Members (Art. 65), all having the right of first refusal (Art. 66).
- It has two compulsory corporate bodies: the General Assembly of Members and the (Administrative) Governing Body (individual or collective) called Manager(s), and an optional supervisory or oversight body, known as the Supervisory Board or Oversight Committee.
Definition and Characteristics of the S.A.
This is the predominant type of commercial corporation in Mexico, and the vast majority are in the “variable capital” (C.V.) corporate form.
Article 87 of the LGSM, defines the Sociedad Anonima (corporation) as one that “… exists under a denomination or Company name and is comprised exclusively of shareholders whose liability is limited to their capital contributions."
Its characteristics are:
- Members are given the name of “shareholders”.
- Liability of the shareholders is limited to their capital contribution (Art. 87).
- The minimum capital required to establish this type of company is $50,000 pesos (Art. 89).
- The capital is represented in shares, securities certificates in which are incorporated the quality and the partner or shareholder rights (Art. 87).
- There are three types of Assemblies: the Organization Assemblies, as well as the General (ordinary and extraordinary) and Special Assemblies.
- Shares should be of equal value and confer equal rights.
- Shares are intended for circulation (or public trading), with no first right of refusal among shareholders. In any event, the preemptive right is optional (Art. 130), as such it must be arranged and agreed upon by the shareholders in the Bylaws.
- It has three compulsory corporate bodies: the Assembly of Shareholders, the (Administrative) Governing Body, which may be a sole administrator or the Board of Directors, and the statutory auditor/examiner; and, there are special or general managers as an optional body (Art. 145).
Advantages of the S. de R.L. vs the S.A.
For tax purposes, there is no difference or advantage to becoming established under one form or another. Rather, the difference is of a legal nature.
The S. de R.L. has a predominant capitalist nuance, with less regulation than the S.A. The S. de R. L. was born as the ideal prototype for small and medium-sized companies, since it has a simple and flexible legal regime.
Dividends paid by the S. de R.L. to a foreign company having an equity interest in said S. de R.L can potentially lead to a tax advantage abroad if this is a similar corporation, such as the Limited Liability Company (L.L.C.) in the United States. This allows a tax benefit consisting of the option to apply the "Check the Box" capability (under the Internal Revenue Code of the U.S.) allowing American companies to offset losses incurred by their subsidiaries abroad, provided that such subsidiaries are corporations similar to the Limited Liability Companies (literally, sociedades de responsabilidad limitada) as set forth in the business (commercial) laws of the United States of America.
By virtue of the S. of R.L. being an intuit personae corporation, the Supervisory Board or Oversight Committee is optional, it being understood that the partners comprising same know one other and there is a sense of trust that exists between them.
Another important, striking advantage is that in the liquidation, or dissolution, of the S. de R. L. the publication of the final balance sheet in the Official Gazette (Diario Oficial) of the State is optional (Art. 247). This is mandatory for the S.A. as well as with the Limited Partnership with Shares.
These two types of corporations are used daily by entrepreneurs and investors in order to carry out their business.
Dear reader, before initiating operations as a commercial corporation, it is important that you consult with a legal advisor specializing in Corporate Law, who will help you decide which of the two forms for establishing a corporation is best suited to your business or investment plan. A timely decision can translate to significant cost savings and avoid unnecessary conflicts in the future.
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