Different Types of Companies in Mexico
Now more than ever, investors from all around the world are starting to look at Mexico as a prime market for expansion. The country’s population is about 127.5 million in an area that compromises 1.964 million km² of land and sea. Its geographical location and proximity to the United States make Mexico one of the most viable options when looking to start a company overseas.
Many businesses from the United States have expanded to Mexico: HP, Google, Coca Cola, Walmart, etc. American businesses have chosen Mexico for its reliable workers, affordable labor, and its position as a gateway into the spanish speaking Latin American market. One of the first things you should consider when starting a business in Mexico is choosing what is the best corporate structure for you.
There are several options from which to choose when starting a new business in Mexico. The required structure will depend on your line of work, the commercial activity you will be performing in Mexico, and the the amount of gross sales you expec.
I’ll review these options, the advantages and disadvantages of each, and what requirements you need to create them. Here’s what you need to know to setup a corporation in Mexico and start a new business in Mexico.
Let’s begin by explaining what is a “Sociedad” in Mexico. A Sociedad is a distinct entity with an established commercial activity and involves the participation of partners. We can say that a Sociedad is the union of two or more people through which they contribute something in common for a specific purpose.
The elements and the type of capital are taken into account when classifying different types of companies or Sociedades. There are three elements:
- The members: formed by partners that contribute and gather their efforts such as assets and capital.
- The patrimonial: constituted by goods that together form the social capital.
- The legal part: composed of rules that govern the contract, thus justifying the origin of a society as a legal entity.
There are also two types of capital that make a company:
- Fixed capital: the one that cannot be modified, except for a change of status.
- Variable capital (C.V.): one that is flexible according to the progress of the mercantile society.
Some structures are similar to US limited liability partnerships and others a traditional corporation. Unlike the US, some corporate structures require at least 2 shareholders. Here are the types of companies that you can create in Mexico:
1. Limited Liability Company (S. de R.L.)
This business model allows the partners’ liability to be limited exclusively to the amount of their contributions, regardless of whether they were assets or capital. This means that in case of any problem or bankruptcy that may occur in the company, the partners will not be affected and their personal assets or capital will be safeguarded.
- The contributions can only be of goods or money
- The partners must not pay the difference if the assets are depreciated
- If debts are contracted, the partners respond only for their contribution
- It takes a minimum of two partners to create and a maximum of fifty are allowed
2. Society in Collective Name (Sociedad en Nombre Colectivo)
The Society in Collective Name model emphasizes the responsibility of the partners for the obligations contracted by the company. The essential characteristics of this partnership is that the responsibility of each partner will be limited, solidary and subsidiary of all partners. The company must have at least two partners and there is no maximum number of partners. The corporate name is made up of the names of all the partners or of some of them, followed only by the words “and company”.
3. Society in Comandita Simple (S. en C. S.)
In the Society in Comandita Simple there are two types of partners: the lead partners and the secondary partners. Lead partners have a joint, subsidiary and unlimited liability; while the liability of the secondary partners is determined by their contributions, unless they have taken part in any operation or manage the business of the company. That is to say, a secondary partner can become a lead partner for liability purposes if the exert control over the entity.
4. The Limited Partnership for Shares (S. en C. por A.)
It is also formed by lead and secondary partners, its capital is formed by shares, which credit the partner as a “partner”. The partners may have a company name or social name, and like the previous company, the partner will be the lead partner, in the case of operating under a company name. The reserves also formed of 5% annual profits, its constitution must be done before a notary public, and all necessary records must be made.
5. The Sociedad Anónima (S.A.)
It is a mercantile society whose owners are by virtue of a collaboration in the social capital through titles or shares, the owners or shareholders do not resolve the affairs of the company with their personal assets, but with the total amount of the capital that they have contributed.
6. Co-operative Society (S.C.)
The Cooperative Society offers income for work or consumption, and all partners belong to the working class. The responsibility may be limited to the amount of its contribution or supplemented by which the partners respond up to the amount determined in the constitutive act.
A minimum of capital is not established; however, this must always be variable. The reserve fund is constituted with 10 to 20 percent of the income of each fiscal year, which may be defined in the constitutive bases, but can not be less than 25% of the share capital in the SC. There is a minimum of five partners, but there is no limit.
Forming a corporation can be a difficult process and much more difficult if you are not familiar with the laws of the country. It is highly advisable to search for a good legal representative to help guide you through this process.
I hope you’ve found this article on different types of corporations in Mexico to be helpful. For more information, or for assistance in investing in Mexico or opening an offshore company, please contact us HERE
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