How To Start A Business In Mexico

imagesMexico is a land of opportunities. Many global giants are setting up their businesses, factories and operations in Mexico. In the next decade Mexico is expected to be scale even greater heights as many economic reforms have been initiated by the new government.

If you also intend to setup a business in Mexico then you need to understand the different laws and types of businesses in Mexico. For this while it is important to hire a lawyer or an accountant who is expert in company formation, you should also be familiar with important aspects.

In Mexico 100% foreign ownership is allowed in most of the businesses. Few businesses are partially or fully restricted to foreigners.

Types of Businesses

1) Sociedad Anónima, S.A. de C.V. (Limited Liability Stock Corporation): Similar to U.S. system, this is a popular form of business. The minimum fixed capital required to establish a S.A. is $50,000 pesos (USD $ 4 500) of which only 20 % needs to be paid when the company is incorporated. While, the shareholder is only liable for an amount up to the value of their shares, the board members are personally responsible for the proper management of the company. This type of company must have at least two shareholders and can have an unlimited number of shareholders. A S.A. company must have an examiner to supervise corporation’s administration and operations and protecting the stockholders interests.

2) Sociedad de Responsabilidad Limitada, S. de R.L (Limited liability company): This type of a corporation has same limited liability as that of a S.A. and is similar to USA’s closed corporation. The corporation should have at least 2 shareholders and not more than 50. An examiner is not mandatory. Only $3,000 pesos (USD $270) is the minimum capital of which 50% needs to be paid at the time of company formation. This is one of the most popular company types among the real estate companies in Playa del Carmen, Mexico because of the ease of setting it up and low initial capital required.

3) Sociedad Civil, S.C (Civil Enterprise): This is best suited for professionals such as lawyers, accountants. The benefits are that no capital is required and less number of formalities. There is no limit to the number of partners but each is partner is jointly and personally liable.

4) Branch sucursal: If a foreign based doesn’t want to form a Mexican company, it can register itself as a branch in Mexico. The foreign entity needs an approval from the Foreign Investment Commission, which is under the Economy Ministry (Secretaría de Economía) and the Ministry of External Affairs (Secretaría de Relaciones Exteriores). The branch must also be registered with the Public Registry of Commerce (Registro Público de Comercio). Once registered, the branch of the foreign company has to file taxes in Mexico for its income made in Mexico. The foreign company will be obligated for any liabilities that it incurs in Mexico.  Therefore, most foreign corporations prefer to form a separate company in Mexico to take advantage of liability limited to only the Mexican assets.

5) Subsidiario (Subsidiary): A subsidiary is a separate entity from the foreign company and the parent company is protected from any liabilities.

Procedure

The owners/shareholders have to choose a corporate name and register it with the Ministry of External Affairs. This is to check if no other company is registered with the same or similar name. The company has to enter a proforma agreement under which any foreign shareholder is deemed to agree to be bound by Mexican laws and not invoke the diplomatic protection of his government.

Charter and By-laws have to be prepared with help of an attorney. These outline corporate governance, corporate purpose, duration of existence, domicile, capital stock provisions, management powers and special provisions for liquidation. The charter and bylaws and the permit from SRE must be submitted to the notary public to incorporate the company. Foreigners need to legally sign the charter if they hold FM-N, FM-2 or FM-3 visa. In case some of the shareholders are companies then an individual with power of attorney for these entities must sign the document.

Once the company has been incorporated, it may need to apply for permits and permission as required for their business.

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