Why Establish a Stock Corporation in Mexico?

Establishing a Stock Corporation in Mexico is one of the most preferred methods for foreign companies to expand into Latin America

 

Mexico has become an economic stronghold in Latin America, boasting the fourteenth-largest GDP globally and the second in the region, behind Brazil. This can be largely attributed to Mexico’s strategic geographic location, low cost of labor and a diverse range of attractive business opportunities accessible to US and Canadian multinational companies. These conditions enable Mexico to become a desirable and attractive destination for Foreign Direct Investment (FDI) and offers varied opportunities for doing business in Mexico.

Starting a business in Mexico can only be successful if established properly. Understanding why to establish a stock corporation for your business in Mexico is fundamental for successfully incorporating your business into Mexico.

Understanding how to establish a Stock Corporation in Mexico and how it applies to your business

A Stock Corporation refers to a type of for-profit company where each of its shareholders receives part of the ownership of the company through shares of stock.

stock corporation mexico

It is mandatory that you have a legal representative to act on your behalf to ensure Stock Corporation is implemented correctly.

Furthermore, holding shares within a Stock Corporation in Mexico entitles you to dividends, and affords you voting rights on matters related to corporate policy, hiring directors and other important decisions made by the company.

It is mandatory that you have a legal representative to act on your behalf to ensure this process is implemented correctly.

Based on these factors, it is important to know and understand which Stock Corporation will be the best fit for your company and why.

Which Stock Corporation will suit your company the best?

The general law of commercial companies under Federal Law provides investors in Mexico with several types of legal entities with which they can conduct their commercial activities. These entities contain different legal and tax treatment between them. The two most commonly used types of Stock Corporation in Mexico are, Sociedad de Anónima (SA) and Sociedad de Responsibilidad de Limitada (SRL).

These stock corporations hold different requirements between them and are necessary to understand each comprehensively.

Sociedad Anónima (S.A) – Corporation

The S.A is the equivalent to Corporation in the US. It’s is designed to benefit large companies or manufacturers through its requirements listed below. There is only one way to establish an S.A, which is via an act of corporation before a public notary.

S.A Corporations comprise of these key components;

  • The main authority of an S.A is the Assembly of Shareholders.
  • Shareholders are liable up to the number of their shares, including their personal assets.
  • A Board of Administration or a Sole Administrator will be in charge of the administration of an S.A.
  • A commissioner will be supervising the duties and responsibilities of the Board of Administration or Sole Administrator.
  • There is no minimum or maximum amount for subscribing stock capital.
  • Capital Stock (which refers to a number of shares issued by a company) is represented by shares registered by a formal document. This document also enables shareholders to buy and sell these shares.
  • It is necessary to have 2 shareholders in order to establish an S.A, but there is no maximum limit of shareholders who can participate in an S.A
  • If a shareholder would like to sell their stock of shares, then they are able to do so without the approval of other shareholders.
  • S.A can trade on the Mexican Stock Exchange.

Sociedad de Responsabilidad Limitada (SRL) – Limited Liability Company

SRL, commonly known in English as a Limited Liability Company or LLC, is more optimally designed for small to medium companies, as it allows for greater flexibility and a less regulated framework. There is only one way to establish an SRL, which is via public deed before a public notary.

The key requirements of SRL include:

  • Partners are liable only up to their capital contribution; their personal assets are protected from any company debt.
  • The main authority of an SRL is the Assembly of Partners.
  • A Board of Managers or a Sole Manager will oversee the administration of an SRL
  • There is no supervision authority required by law (every partner will be in charge of supervising the Managers)however, there is the option to name a supervisory authority if desired.
  • There is no minimum or maximum amount for subscribing stock capital.
  • Capital stock will be represented through the legal representative.
  • It is necessary to have two partners in order to establish an SRL, with a maximum of 50 partners.
  • The majority of partners will need to approve if a partner would like to release part of their invested shares.

What are the key differences between S.A and SRL in Mexico?

 

As a future investor, you will need to understand the key differences between a SA and SRL when establishing a stock corporation in Mexico.

stock corporation mexico

Partners are liable only up to their capital contribution; their personal assets are protected from any company debt.

Liability of shareholders:

  • SA shareholders will be liable for the amount invested, plus personal assets
  • SRL partners will only be held liable for the amount invested into the company.

Structure

  • SA has no limit of shareholders which attracts more capital stock from shareholders and in return allows for the growth of the company.
  • SRL limits its partners to a maximum of 50; admission of new partners will need majority approval from partners.

Administration

  • SA Commissioner supervises the Board of Administration or Sole Administrator, ensuring there is more control over the decisions made between the company and shareholders.

  •  SRL: No supervision authority to oversee the Sole Administrator or a Board of Administration.

 Capital stock:

  • SA issues stock through documents called shares, in order to be easily traded without the authority of other shareholders.
  • SRL has no physical document that represents the capital stock and if an individual partner would like to release their capital stock, they will need the approval of the majority of partners (depending on what was agreed in the Bylaws).

Type of business

  • SA is designed for larger companies and offers the option to participate in the stock market exchange which attracts shareholder investment.
  • SRL is designed for small or medium companies and enables partners to make a profit through dividends.

Ensure that you select the right Stock Corporation in Mexico

When you establish a Stock Corporation in Mexico, it’s important to choose which of the available options will best suit your intended business activities. Choosing a legal entity is one of the first steps to forming a company in the country, and it’s crucial to get it right. These entities dictate the governance structure of your company.

Both the SA and SRL have certain advantages and disadvantages over the other. Understanding why and how to establish a Stock Corporation in Mexico is imperative. It’s therefore highly recommended that you seek expert legal advice from a local corporate law specialist to get help navigating the complexities of the company formation process in Mexico and ongoing compliance requirements for your business operations.

Let Biz Latin Hub help you establish a Stock Corporation in Mexico

The time is right to get involved in the emerging, dynamic market growth occurring in Latin America by establishing a Stock Corporation in Mexico. The country’s wide range of attractive industries and sectors is made accessible by a number of different legal entities that all provide different advantages for investors with various commercial requirements and intentions.

Biz Latin Hub is a leader in providing corporate legal support and consultancy services for companies in all major Latin jurisdictions. Our bilingual team of professionals in Mexico is highly experienced in establishing successful operations in Mexico for foreign investors. Let us be your single point of contact for all of your market entry and back-office needs, such as company formation, visa processing, recruitment and hiring, legal representation, and more.

Get in contact with the office at [email protected] for personalized information and support. 

Learn more about our team and expert authors.

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