Starting
and Operating Business in Mexico
As companies increase their exports aboard, they become concerned that
the governments of their customers will apply tariffs and restrictions on
imports. A direct investment aboard may protect the products’ and services’
competitive position not only in the host country but also in other countries
with trade treaties with the host country.
Risk evaluation shall include not only management problems overseas, but
also political factors like the risk of some form of expropriation.
Minimizing the investment risk
requires specialized consulting services with the expertise to advise in matters
like handling labor relations and the difficulty to distinguish between
legitimate payments and bribes, penalized not only in the host country but in
the U.S. subject to be fined not more than $1,000,000, or imprisoned not more
than 10 years, or both, as prescribed by The Foreign Corrupt Practice Act
(15 U.S.C. Sec 78ff(a) ).
Mexico is a Latin American country with relatively low political and
economical risk.
Except
for the activities which are restricted to the Mexican government in which no
private party, Mexican or foreign, can participate (Oil and gas, electricity,
etc) and for the sectors that are restricted to foreign investment foreigners
can own (Broadcasting, transportation etc,), the Mexican law allows foreigners
to own the equity of a Mexican corporation.
In the event that foreign investment is limited, direct or indirect
participation may be available through trusts, foreign financial affiliates, or
other means is allowed.
The most common method for
foreign investments in Mexico is
through affiliate corporation. A
Mexican corporation is an artificial legal entity that exists as a separate
"legal person" apart from the entity or people who owns manages,
controls and operates it. It can make contracts, it pays taxes and is liable for its
debts. Corporations exist only
because federal statutory laws allow these entities to be created. The
corporations are regulated by Mexico's federal law, General Law of Mercantile
Organizations (Ley General de Sociedades Mercantiles [LGSM])
The
most common method for domestic and foreign investors to operate in Mexico is
through a corporation. The Sociedad
Anonima de Capital Variable (S.A de
.C.V.) is the most formal business organization in Mexico. A
permit for a corporate name issued by
the “ Secretaria de Relaciones Esteriores” (Foreign Ministry) is reproduced
in a notarized deed, which represents the combined articles of incorporation and
the bylaws. An S.A de C.V.. must
consist of at least two shareholders, with no limit on the maximum number, and a
minimum capital contribution.
A
foreign vendor may also penetrate the Mexican market by establishing a
Partnership, S de R. L. subsidiary, forming a branch qualified to do business,
or entering into a joint venture with a Mexican business entity.
A
general partnership (Sociedad en Nombre Colectivo) or a limited partnership
(Sociedad en Comandita). In a general partnership, all partners are jointly liable to
creditors of the company. In the
limited partnership, the "socios comanditors" have joint and unlimited
liability, and are responsible for all decision making pertaining to the
enterprise. The
"financiers," on the other hand, are only liable for the amount of
their capital contribution and may not participate in the management of the
business. Foreign investors because
of the unlimited liability rarely use the general partnership and the limited
partnership.
The
Sociedad de Responsabilidad Limitada (S.de R.L.) is similar to the limited
liability company used in many states within the United States.
Organization of a Mexican limited liability company requires the same
prior corporate name authorization and registration as the Mexican S.A. de C.V..
An S.de R.L. is limited to fifty members and is subject to a minimum
capital contribution. These
contributions are manifested by "partes sociales," which are
negotiable instruments subject to special provisions.
The S.de R.L. is rarely used as a vehicle for foreign investment.
The membership restrictions render the S.de R.L. unsuitable for large
businesses.
The
Asociacion en Participacion is another method of conducting business in Mexico.
In a joint venture contract, a person grants a working interest in his or
her business to others, who provide property or services. The joint venture contract does not create a separate legal
entity like the formation of a S.A
de C.V., S de R.L. or a Mexican partnership.
The business is operated by an active managing joint venturer
(associate), who is the only one with any liability to third parties.
There are no registration requirements for entering a joint venture
contract and there are no requirements as to minimum capital. However, the joint
venture may limit the partners' ability to modify their commitments to the
venture and result in a loss of general flexibility.
If you require experienced advise to satisfy law requirements present in the Mexican laws and minimize your investment risk allowing better access to, and interactions with, local labor unions, financial institutions, and the government, please contact us at business@itt-texas.com
(c)2001 International Trade & Taxation (ITT)
1300 N 10th, Suite 460, P.O. Box 3916 McAllen TX 78502-3916 Phone: (956) 994-3996 Fax: (956) 994-3989