There are seven key steps that investors must follow when incorporating a company in Mexico. Successful completion of the incorporation process will allow investors to begin commercial activities within the country.
Mexico is on the way to becoming a top-ten economy in the world within the next decade. Over recent years, Mexico has become an increasingly low risk, high growth economy. It registers consistent GDP growth and a weak currency, its middle class continues to expand, and the security situation is improving. These factors have set the stage for domestic business growth and increased levels of international investment. According to the Ministry of Economy, during the first half of 2023, Mexico received a total of US$29 billion in foreign direct investment (FDI), 41% more than in 1H22.
Positive developments in Mexico have contributed to a surge in foreign investors seeking to incorporate a company in Mexico. For many, the biggest obstacle is that they are unsure where to begin. This guide will help you understand the process for company formation in Mexico so you may soon 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 registered in Mexico must appoint a legal representative before the local authorities.
A legal representative is an individual who must be either a Mexican national or a foreign national residing in Mexico with the legal permit to work in Mexico. This individual will represent the company and act on its behalf before the law. The legal representative will also be responsible for communications between the company and any government agencies. Company formation in Mexico can be lengthy and complex, and it requires working with multiple government agencies. Therefore, it is highly recommended that you have a legal representative in Mexico before you start the process so you can navigate it efficiently.
7 Key Steps for Company Formation in Mexico
Step 1. Decide which Mexican Legal Entity to use
The first step of company formation in Mexico is establishing a legal entity. In Mexico there are two main types of companies: a Corporation or Sociedad Anónima (SA) and a Limited Liability Company (LLC) . These are some of the main differences between the two:
|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 the partners’ overall capital contribution|
|Shares are negotiable instruments and have no restrictions on their transferability to third parties unless stated in the company bylaws||Shares are not negotiable instruments and transfer of equity quotas to third parties requires approval by the majority of partners, unless a higher threshold is stated in the company bylaws. If a partner wants to sell its equity quotas to a third party, the other 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 managers are referred to as directors (administradores).||Owners of equity quotas are referred to as partners (socios) and managers are referred to as managers (gerentes).|
|Surveillance of the 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. The statutory examiners may or may not be partners of the Company.|
Establishing a legal entity can be lengthy and complex. It is highly recommended you already have a legal representative in Mexico before you begin the process.
Most investors incorporating a company in Mexico 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
Finding a company name can be a tedious process since the business name you desire may not be available in Mexico. Therefore, it is important to develop 3-4 possible options and order them according to preference.
If this is the first time you are incorporating a company in Mexico and you already own a foreign company, we can request the name of your foreign entity before the Ministry of Economy.
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, when the fiscal law in Mexico was updated, 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 incorporated in Mexico must identify its controlling beneficiaries on the official documentation to comply with tax provisions.
Step 4. Drafting the Company’s By-laws
The bylaws of a company, also known as the articles of incorporation, are a set of rules and regulations that govern the internal and external operations of a company. They serve several important purposes:
- Legal Framework: the bylaws establish the company’s legal structure, with its name, purpose, and registered office. They also outline the rights and responsibilities of shareholders, directors, and officers.
- Corporate Governance: they specify how the company is managed, including the procedures regulating 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, including voting rights, dividend distribution, and procedures for shareholder meetings. This helps ensure transparency and fairness in corporate decision-making.
- Capital Structure: they may detail the company’s capital structure, outlining procedures regarding the issuance of shares, transfer of ownership, and the restrictions on these processes.
- Protection of Interests: they provide a clear framework for resolving disputes and addressing conflicts of interest. Thus, they help protect the interests of shareholders, directors, and officers.
- 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 are 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. The company owners create and develop the bylaws. Developing effective company bylaws is a crucial part of company formation in Mexico.
In the bylaws, there will be specifications on who has the power to make decisions legally on behalf of the company, and potentially a breakdown of day-to-day decision making.
It is common for foreign investors to assign a Power of Attorney (POA) in Mexico to act on behalf of the company. A POA provides safety for foreign investors who know they have a qualified local expert acting on their behalf. Having a POA also helps avoid complications during the implementation of the bylaws.
Once the by-laws have been finalized, the POA will often sign the bylaws on behalf of each shareholder with the public notary serving as a witness. Once this has been done, The Public Registry of Commerce will need to receive the company bylaws.
Step 5. Obtaining a Tax Identification Number (RFC- Registro Federal de Contribuyentes)
Your newly formed company will need a tax identification number before you can start doing business in Mexico. The tax ID can only be obtained by a Mexican or foreign resident. If this is not possible, then a POA must be appointed to acquire the tax ID issued by the SAT – Servicio de Administración Tributaria on the company’s behalf. The individual obtaining the tax ID will need to go to the tax authority with the company’s public deed.
Step 6. Obtaining a Fiscal Address
To register a company in Mexico, it is a legal requirement that you establish a fiscal address within Mexico and register it with Mexico’s equivalent of the Internal Revenue Service (IRS), the Servicio de Administracion Tributaria (SAT).
Once your company is registered, this fiscal address will be used for all business communications including tax purposes.
Step 7. Opening a Corporate Bank Account
To finish incorporating a company in Mexico, you must open a corporate bank account. The particulars of the process are regulated by bank policy. Generally, you will need to provide the bylaws of the company to the bank.
You must ensure that the bank account is opened by a legal representative with the authority to open and manage the account.
The bank will review all requested documents in addition to the legal representative’s photo identification, the company’s tax ID, and the ‘Proof of Fiscal Situation,’ a document that proves the tax ID is active. The bank should then process your application for a corporate account.
The bank may require the legal representative to sign an Anti-Money Laundering legal document. This helps the bank prevent any illegal activity by monitoring financial transactions.
How Long Will It Take to Successfully Incorporate a Company in Mexico?
If the steps outlined above are followed correctly and the legal representative is a local expert, the duration of company formation in Mexico takes 10 – 12 weeks after all required documentation has been provided from the Client
Company formation in Mexico can be overwhelming for foreign investors. Fortunately, there are experienced local corporate legal service providers that can assist foreign companies in successfully incorporating their business in compliance with Mexican law.
Common FAQs when Forming a Company in Mexico
Answers to some of the most common questions we get asked by 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 a 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 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 want 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.