It is imperative that investors know and understand the 7 key steps of company formation in Mexico in order to successfully begin commercial activities within the Mexican economy.
Mexico is widely cited to become a top-ten economy in the world within the next decade. Over recent decades, Mexico has become an increasingly low risk, high growth economy providing an attractive environment for business. This is attributed to consistent GDP growth, weak peso, expansion of the middle class, and an increase in security and safety. These factors have allowed for domestic business growth, whilst at the same time attracting international investment. During the first half of 2023, Mexico received a total of US$29 billion in foreign direct investment (FDI), 41% more than in 1H22, reports the Ministry of Economy.
These factors contribute to a surge in foreign investment for ventures eager in doing business in Mexico. The biggest obstacle is that many foreign investors are unsure where to begin. Understand the process for company formation in Mexico to effectively and efficiently begin commercial activities in the country.
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Do I need a Legal Representative to form a company in Mexico?
Mexican law mandates that all Companies, including those with foreign investment, must appoint a legal representative before the local Authorities.
A Legal Representative is an individual who is either a Mexican national or a foreign resident in Mexico with the legal right to work in Mexico, who will represent and act on behalf of the company before the Mexican Authorities. The Legal Representative will also be responsible for communicating between government organizations and private entities. This process can be a lengthy and complex procedure, due to the requirements involved. It’s highly recommended to have a legal representative in Mexico to act on your behalf to successfully establish the company with efficiency.
7 key steps for company formation in Mexico
Step 1. Decide which Mexican Legal Entity to use
One of the key components of company formation is to establish a legal entity. The two main corporations are, Sociedad Anónima (SA) and Sociedad de Responsabilidad Limitada (S de RL), known in English as Corporation and Limited Liability Company (LLC). Some of the main differences between these two legal entities include:
| Sociedad Anónima (SA) // Corporation | Sociedad de Responsabilidad Limitada (S de RL) // Limited Liability Company |
| The capital stock is represented by shares, which may be issued at par value or non-par value. The shares must have equal value and confer equal rights. However, it can be agreed that the capital be divided into several classes of shares with different values and rights, for each class. | The equity capital is represented by quotas, typically one per partner, which represent such partners’ overall capital contribution |
| Being negotiable instruments, shares have no restrictions on their transferability to third parties unless provided under the Company’s bylaws | Not being negotiable instruments, transfer of equity quotas to third parties require approval by the majority of the partners, unless a higher threshold is provided under the bylaws. If a partner wants to sell its equity quotas to a third party, the rest of the partners will have a right of first refusal to acquire those equity quotas, otherwise there must be a unanimous agreement to accept the new partner. |
| Owners of shares are referred to as shareholders (accionistas) and its managers are referred to as Directors (Administradores). | Owners of equity quotas are referred to as partners (socios) and its managers are referred to as Managers (Gerentes). |
| Surveillance of Company’s management by one or more Statutory Examiners (Comisarios), who represent the shareholders, is mandatory. The Statutory Examiner may or may not be a shareholder. | Surveillance of the Company’s management by one or more Statutory Examiners is optional. Such Statutory Examiners may or may not be partners of the Company. |
This process can be a lengthy and complex procedure, due to the requirements involved. It’s highly recommended to have a legal representative in Mexico to act on your behalf to successfully establish the company with efficiency.
Most investors choose to establish a stock corporation which is a for-profit company, where each of its shareholders owns a part of the company through shares of stock.
Step 2. Decide on a company name
If it is the first time that you are going to invest in Mexico and you have a foreign company, we can request the name of your foreign entity, before the Ministry of Economy, we know that finding a company name can be a difficult and tedious process as the business name you desire may not be available in Mexico.
Therefore, it is important to develop 3-4 names for the business and order it in preference.
If you wish to translate your current business name directly into Spanish then make sure you consult with a Spanish-speaking national to ensure the Spanish Business Name reads well and is the right fit for the company
Step 3. Identifying the UBO
Since January 1st, 2022, the Fiscal Law in Mexico was update or purposes of the controlling beneficiary (UBO) is the individual or group of individuals who:
A. Directly or by means of any legal act, obtains the benefit derived from its participation in a legal entity, a trust or any other legal figure, as well as from any other legal act, or is the one who ultimately exercises the rights of use, enjoyment, enjoyment, use or disposition of a good or service or on whose behalf a transaction is carried out, even if it is done or they do it in a contingent manner; or,
B. Directly, indirectly or contingently, exercise control of the legal entity, trust or any other legal entity.
Any entity to be incorporated in Mexico must identify its controlling beneficiaries, in order to have all the necessary documentation to comply with the tax provisions in force, since without this figure it will not be possible to incorporate a company in Mexico.
Step 4. Drafting the company’s by-laws
The bylaws of a company, also known as articles of incorporation, are a set of rules and regulations that govern the internal and external operations of a corporation or other legal entity. They serve several important purposes:
- Legal Framework: The bylaws establish the legal structure of the company, defining its name, purpose, and registered office. They also outline the rights and responsibilities of shareholders, directors, and officers.
- Corporate Governance: Bylaws specify how the company is managed, including the appointment and removal of directors and officers, the frequency and conduct of board meetings, and the decision-making processes within the organization.
- Shareholder Rights: They outline the rights of shareholders, such as voting rights, dividend distribution, and procedures for shareholder meetings. This helps ensure transparency and fairness in corporate decision-making.
- Capital Structure: Bylaws may detail the company’s capital structure, including the issuance of shares, transfer of ownership, and any restrictions on the transfer of shares.
- Protection of Interests: Bylaws help protect the interests of shareholders, directors, and officers by providing a clear framework for resolving disputes and addressing conflicts of interest.
- Compliance: They help ensure that the company complies with relevant laws and regulations in the jurisdiction where it operates.
In summary, the bylaws of a company serve as a foundational document that defines the structure, operation, and governance of the organization. They provide clarity and legal certainty to all shareholders, helping to maintain order and facilitate effective corporate management.
Developing company by-laws plays a crucial step in company formation in Mexico. The by-laws are designed to specify who in the company has the power to make decisions legally on behalf of the company. This may also include the breakdown of the day-to-day decision making of the business. The owners will create and develop the by-laws, outlining the commercial activities of the company.
It is common for foreign investors to assign a Power of Attorney (POA) in Mexico to act on behalf of the company for executing these decisions. A POA provides a safety net for foreign investors knowing they have a qualified local expert acting on their behalf. This will also help to avoid any complications when implementing the by-laws.
Once the by-laws have been finalized, the POA, that has been given the power to sign the bylaws will sign on behalf of each shareholder. Public Notary will need to act as a witness for this. Once this has been done, The Public Registry of Commerce will need to receive the company by-laws.
Step 5. Obtaining a Tax Identification Number (RFC)
Your newly formed company will need a tax identification number in order to conduct business in Mexico. The tax ID can only be obtained by a Mexican or foreign resident only. If this is not possible then, appointing a POA in the by-laws to acquire the tax ID on the company’s behalf. The individual will need to go to the tax authority with the public deed of the company.
It’s crucial to obtain a tax identification during company formation in Mexico as you won’t be able to begin your commercial activities without it.
Step 6. Obtaining a fiscal address
It’s a legal requirement for your company to establish a fiscal address within Mexico. This establishment will need to be registered with the Servicio de Administracion Tributaria (SAT), which is known in the US as the Internal Revenue Service (IRS).
For all business communications including tax purposes and mailing this address will be used.
Step 7. Opening a corporate bank account
The process to open a corporate bank account will depend on each bank’s policy. Generally speaking, you’ll need to provide the bylaws of the company to the bank.
You must ensure that you have the legal representative who was given the authority to open and manage a corporate bank account to do this process on your behalf.
Once the documents have been reviewed by the bank, the legal representative will need to then provide their photo identification, the company’s tax ID, and ‘Proof of Fiscal Situation,’ a document that proves the tax ID is active. The bank will then review your application to open a corporate bank account
It is important to note that the bank may require the legal representative to sign an Anti-Money Laundering legal document in order to prevent any illegal activity occurring by a company through monitoring financial transactions.
How long will it take to successfully incorporate your company in Mexico
If done correctly, the duration of company formation takes around two-to-three months.
The duration of company formation takes around two-to-three months, depending on if the company formation steps are followed correctly and the legal representative is a local expert.
The complexity of company formation in Mexico can be overwhelming and stressful for investors. Fortunately, there are knowledgeable and experienced local corporate legal service providers that can assist foreign companies that are successfully incorporated and operating in complete compliance with Mexicanlaw.
Common FAQs when forming a company in Mexico
In our experience, these are the common questions and doubtful points of our Clients.
Yes, a business can be 100% foreign owned by either legal persons (“legal entities”) or natural persons (“individuals”).
Registering a company in Mexico takes 10-12 weeks.
SRL in Mexico stands for “Sociedad de Responsabilidad Limitada,” which translates to Limited Liability Company in English. This legal entity operates independently from its shareholders, offering them limited liability. SRL companies are prevalent due to their simplified requirements, making them a popular choice for business structures
The S.A. in a company name in Mexico refers to a “Sociedad Anónima,” which translates to a “Corporation.” This legal framework establishes the company as a separate entity from its shareholders, with each shareholder possessing shares that represent their ownership stake. Importantly, the financial responsibility of shareholders is confined solely to the value of their shares, crafting a safeguarded boundary. The S.A. structure holds substantial prominence in Mexico due to its exceptional adaptability and flexibility, rendering it the favored option for a diverse range of business ventures.
In Mexico, the “S.R.L” (Sociedad de Responsabilidad Limitada) is the limited liability company.
A. Number of shareholders: In SA, shareholders may own one or more shares. In the SRL, shareholders usually own only one share, although there are exceptions where the shares confer different rights or obligations.
B. Management: In SA, the managers are called directors (administradores). In the SRL, its managers are called Gerentes.
C. Responsibility of the shareholders: In both SA and SRL, the owners (shareholders in SA, partners in SRL) are usually responsible for the amount of their contributions.
D. Social capital: The capital of the SA is represented by shares, which may have par value or no par value and may be issued in different classes with different values and rights. The capital of the SRL is represented by equity quotas, usually one per partner, based on their capital contribution.
E. Change of ownership: In SA, shares, being negotiable instruments, generally have no restrictions on transfer unless stated in the articles of association. In SRL, shares aren’t considered negotiable instruments. Their transfer often requires the consent of a majority of the partners, and in certain cases, partners have a right of pre-emption.
Contact Biz Latin Hub for support with your company formation in Mexico
In Mexico, company formation is complex and requires due diligence to ensure the success of market entrants.
Biz Latin Hub ensures your company is fully compliant with local regulations and can operate with minimal delay. Offer a range of market entry and back-office services to support your commercial success in Mexico. The Biz Latin Hub team is built of well-experienced, bilingual and knowledgeable accountants and lawyers striving to offer premium service.
The Biz Latin Hub team of local and expatriate professionals offers responsive, tailored legal and accounting solutions in Mexico where procedures tend to be lengthy and complex. If you are wanting to set up a company, then Biz Latin Hub is your professional partner.
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The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.