Doing Business in Mexico.
Practical Guide for Foreign Investors

In The vertiginous but exciting dynamics of the present businesses forces to the companies that cross their borders to count on structures and solid legal strategies that allow them to invest as the safest way possible. The Mexican legislation is reliable for an optimal atmosphere for the healthy development of the companies that look for new fertile fields for their businesses.

This guide has the intention to give a brief description about some of the guidelines that must read before beginning your business in Mexico, the particular application depends on diverse factors, particular laws and the activities of the company.

The Mexican Laws in their great majority are of Federal character, reason why this guide is practically applicable for any State of the Mexican Republic, also the lawyers who represent your company can do it with no need of special certifications in different States.

Foreign Investments

Since the reforms of the last decade with Ex-President Salinas Mexico have opened the borders to the foreign investment and only some activities were reserved to the State such as Petroleum and other hydrocarbons, Petrochemical basic, etc. other activities were reserved to companies formed with one hundred percent of Mexican investors like Unions of Credit, some professions, etc., and other activities were reserved to Companies formed of certain percentage of foreign investors like up to 25% in national aerial transport, 49% in Houses of Change, etc.

Possibility of Neutral Investment to increase the percentage of Foreign Investment.

The Neutral Investment is formed by Mexican and foreign capital thus allowing to increase the allowed percentage to the Foreign Investment, in this case requires special approval of the Commission of Foreign Investments. This investment can be conformed by Mexican companies or authorized trusts.

Why incorporate a business?

The incorporation of a business is not a legal requirement to be able to initiate a business, which makes it important is the protection of the personal patrimony of the shareholders that is fundamental (corporate veil). It will always be a risk of initiating a business.

Company Formats.

The activity, the forms of Administration and the policies conform the personality of the company, this is the reason why each company we understand as unique and therefore their legal strategies also must be unique attending these three aspects. The format in which the business can be incorporated depends more on these three aspects than to legal requirements in which it was possible to be thought that they fit, the most usual formats but frequent in which it is possible to be incorporate in Mexico are the following ones:

1. Sociedad Anonima.
                                   
This form is preferred by most of the national investors, the Minimum Stock to incorporate it is $50,000 pesos which means that the minimum amount that the shareholders can risk are those $50,000 pesos, this stock should not be decrease and the reason is to guarantee a solvency to the creditors. It is possible to be administered under the modality of a Unique Administrator or under a Board of Directors, in any case have the obligation to administrate four books: Minutes of the Board of Directors, Minutes of Stockholders Meetings, Registries of Shareholders and Stock Variations, these books commonly are administered and safeguard by the lawyer of the company. It is the only format of society in which the Stock is represented by physical shares.

2. Limited Liability Company.  

This is the format that most foreign investors preferred due to the similarity with compatible figures in their countries, the minimum stock is $3,000 pesos, is possible to be administered by a Unique Administrator or Board of Directors and the main difference with the Sociedad Anonima it is that in the LLC the Stock is not represented by shares of free circulation.m

3. Civil Partnership.

Perhaps this format is the less popular because it does not allowed a Corporate Veil but it does not require a minimum Stock and its administration can be support by a Unique Administrator or like Advice of Administration.

Capital Modality

This modality can be apply for any Mercantile Company and this allow your company to increase or decrease the Stock with only one requirement: The favourable resolution of the Stockholder’s Meeting.

Subsidiary Shareholders.

Commonly the clients prefer that the foreign Company investor was the unique Stockholder, instead of single investors, this is because in their countries they can justify the investments that they make in Mexico with the tax authorities of their countries. This is possible, nevertheless for the General Law of Mercantile Societies is requisite fundamental that they incorporate a Company with a minimum of two people, this is fixed by a “strategy 99-1”.

Administration.

First we must distinguish the two entities that conforms any Company: Stockholders Meetings and Administration, the first is formed obviously by the investors and take the resolutions about which way the society will be administered, approves the Financial Statements and designate the Unique Administrator or each Member of the Board of Directors. We recommend that the persons who are going to direct the company in Mexico conform the Board of Directors. The Board of Directors is an organization conformed minimum by two members: Chairman and Secretary, The Chairman must provides support and advise the CEO and the Chairman executes the resolutions. Nevertheless the Board of Directors can be formed by an unlimited number of members and may have so many designations as the Company requires them, for example: Vice-president, Substitute of Secretary, Legal Representative, Treasurer, Director, etc.

Joint Ventures.

The risk of investing in Mexico when the investors have not had experience specially in the activity who are going to start up is considered frequently by the companies and in some cases they prefer to use alternatives that decrease the risk like buying a Mexican incorporated Company with certain experience or negotiate a Joint Venture.

To buy a Mexican Company already established can be a good solution to decrease the risk, nevertheless is necessary to have well-taken care of in the price of the shares that justifies that decrease.

In the particular case to initiate a Joint Venture it may negotiate in two ways as Strategic Alliance or Co-investment. The Strategic Alliance is not required that necessarily the parts invest cash money, but that the companies take advantage of their characteristics, experience and qualities for own benefit, for example: use of infrastructure, establishment of investment branches with no need, to reduce costs, to decide contracts provision and/or exclusive distribution, etc. In the case of Co-investment both companies invest a sum of money in any percentage that agree to initiate a new business, the contract establishes the form of administration, utilities, rights and obligations of each one.

Distribution Agreements.

This form of participation in the Mexican market does not imply the direct investment, in certain cases the application of this strategy simplifies the incursion in the sale of products, nevertheless also takes part an intermediary who remains with a good part of the profits. Some advantages of the Distribution Agreements are the following ones:

• The distributors usually count on networks of clients;
• The distributors in many of the cases can arrive at consumers whom the foreigner stops will be almost impossible to arrive;

 

Prevention of Litigation.

The controversies that may occur in a Company are so many and so different that are impossible to delimitate, but the most important facts that you must know is that in Mexico the Laws are previously established by the Union Congress (Legislative Congress) this will make possible to your attorney to prevent the litigations as far as possible, in this matter we recommend you to contact one of our lawyers to give you more information about the Corporate Legal Shield that covers the preventive legal assistance in diverse areas such as matters pertaining to labour, mercantile, public entities, organizations, etc.

Maintenance to Companies formed with Foreign Investments.

The actual Foreign Investments Law has allowed foreign investors to incorporate their companies in Mexico even with the one hundredth percent of foreign stock those companies have a specific regulation that consists in information that the lawyer must provide to the Economic Secretary in the following cases:

• Subscription to the National Registry of Foreign Investments;
• Annual Subscription to the National Registry of Foreign Investments;
• Modification in the shareholder’s structure of the Company;
• Quarterly report of Incomes;
• Merger of the Company;
• Changes of address or name of the Company;
• Granting of Powers (in the case of branches and representation offices;
•  Presentation of Financial statements (in the case of branches and representation offices;
•  Cancellation of Subscription.

*The Corporate Legal Shield includes this services.  

Tax Strategies.

The Tax Authorities in Mexico like in most of the countries are careful watchman that the companies paid their taxes by the strict subjection to the laws, nevertheless also exists the possibility of making legal strategies that they can reduce the excessive payment of taxes. One of the most common practices is the benefit of consulting services between the Mexican company and the foreign Company. We recommended you to ask to your lawyer and accountant to apply some tax strategies that can help your company to diminish taxes.

IMMIGRATION

Tourist. - The foreigner who get into to the country with aims of recreation or health, for artistic, cultural or sport activities, not remunerated nor lucrative, maximum stance: Six Months (not allowed additional term).

Transmigrant. - The foreigner who get into the country towards another country and will be able to remain in national territory until by thirty days.

Visitor. - The foreigner whose objective is to dedicate to the exercise of some lucrative activity or not, but whenever legal and honest and with authorization to remain in the country until one year, within the following modalities:

• Rent Visitor. - When the foreign visitor lives during his stay of its brought resources from the foreign country, of the rents that these produce, any income from their foreign country or of their investments in the country;
• Visitor of Businesses or Investor.- When the foreign visitor have the intention to explore the alternatives of investments or to do investments.
• Technical or Scientific visitor.- When the foreign visitor dedicates to scientific activities, technical or of consultant's office.
• Artist or Sportsman.- When the intention is to make artistic activities sport or similar.
• Visitor Office of trust.- When the foreigner tries to occupy offices of trust,
• Advisory Visitor. - When he tries to attend assemblies and sessions of the advice of administration of companies.
• Professional Visitor. - When its internment has the purpose of carrying out professional activities.

We hope that this guide should be useful to you as a reference
and gives you a good advise to take good decisions,
for more information please contact our lawyers
 who will be pleased to assist you.

GIMENEZ & ASOCIADOS
ATTORNEYS AT LAW