So you have your great business idea and you are a ready to take it to the hotel zone, you are going to need to decide which structure you are going to use to do business in Mexico. Most people go for corporations of some sort, there are other options, but this is by far the most used.
The first thing that you will need to open a corporation is a partner, its not much of a “society” if its just you. Many people use their Mexican corporation as a DBA and therefore are registered as 99% owner and a third party (sometimes their accountant) as the other 1%.
Many people are under the impression that you need a Mexican citizen involved with your Mexican corporation, this is not completely true. Having a Mexican citizen with administrative powers in the company is useful in the beginning in the life of your company because of issues related to immigration. When your company is constituted, any powers that you, as a foreigner, have in the company will be limited with the clause “upon receipt of the proper migratory document”. Until you have an FM3 that says you are allowed to do business with your company, many government agencies and banks will not allow you to do so. A Mexican citizen will not have these limitations on the powers they may possess in the company, therefore while you are waiting on your migratory documents to be processed, the Mexican representative of your company can be opening bank accounts and getting basic business chores done.
While you are thinking about who your partners and representatives are going to be, lets decide what type of corporation you are going to want to open. Here are some of the basic options as laid down in the General Law of Mercantile Societies and the Civil Code:
Sociedad Anonima (S.A.) – This is the most commonly used corporation, some say overused even. This is a typical corporation like we know it in the US or Canada: it has stocks and shareholders, is run by shareholder meetings and has a typical CEO-board of directors-shareholders power structure. The minimum you will need to invest to start an S.A. is $50,000 pesos (about $4000USD). This type of corporation, like almost all of the others, removes personal liability from the owners of the company for all but the amount that their stock is worth.
Sociedad de Responsibilidad Limitada (S. de R.L. – This corporation is like the typical LLC back home, its a partnership of two or more people who are personally involved in the corporation. The partner´s contributions are by percentages in the company and not by shares, their must be fewer than 50 partners, and the corporation is run by a manager who answers to the partners by means of partner assemblies. This type of corporation requires a minimum investment of $3000 pesos.
These first two are the most common types of societies used by foreign investors in Mexico, but there are others that are worth examining and discussing with your lawyer.
Sociedad Civil (S.C.) – This is a standard partnership and is regulated under different legislation than the rest of the societies I mention here. Typically this type of partnership is used more for law firms, accountants offices or medical clinics, where the partnership is dependent on the contribution of a skill or proffessional service of the partner more than his or her monetary contribution. This doesn´t mean that there is no monetary contribution, but its along the lines that you cannot have a law-firm without lawyers or a doctors office without doctors.
Sociedad en Comandita – These are interesting, I have talked to notaries who have said that they have never created one of these corporations, but I imagine somebody still uses them. It is likened most to a silent partnership, their are at least two partners and they have different roles in the partnership: one is the silent partner and one is the working partner. The silent partner or partners provide the working capital and step aside, then the working partner or partners perform the day-to-day tasks of the company. Be careful with this corporation, the working partner is financially liable for the corporation´s losses, while the silent partner is only responsible for his original contribution to the company. The name of this company must be a combination of the working partner´s names and words like “and company”, “y associados”, etc.
Sociedad en Nombre Colectivo – This is the oldest type of corporation that exists, its roots springing from Ancient Rome. This corporation is generally useful for family businesses, the partners are responsible for the losses of the company and the partners get a percentage of their return based on their contributions.
Now that you have gotten an idea of what kind of corporation you would like to form, it is time to talk to your attorney. Explain to him your idea. Tell him what kind of corporation you are thinking about opening and see what he thinks about the idea. Remember that if your attorney doesn´t want to share information and provide assistance and advice, you can get another attorney that does.
Your attorney will need a copy of your and your partner´s identifications and migratory documents, as well as a proof of address for the fiscal address of the company (or where the company´s office is).
Another thing you will have to decide is, who is going to run your company? Are you going to be doing the administration or do you have a shop manager that you trust and want to take care of the day to day? These considerations are important to define now, because to make changes to the company structure after its creation is going to cost more money and time. You also want to define what roles you and your partners play in the management of the business, who has access to the bank accounts, who is going to appear in court if you have legal problems, etc. I like to add my accountant´s name to the paperwork, giving him the power to take care of administrative tasks, so that he can do a lot of the basic paperwork related to taxes or social security without my intervention.
You will need to be specific in the paperwork about what kind of businesses the corporation is going to do, but also think hard about what you might be interested in doing in the future. Your company´s business may change and expand in the future, so try to think of as many business possibilities as you can now, changing them in the future is costly. Many lawyers have a boiler-plate list of activities that the company will be authorized to do, look it over and make any additions that you find necessary.
At this point the lawyer will start to draw up the constitution papers and will also need you to choose a name for your company, he will ask for a list of options to verify that their are not other companies with that specific commercial name. The name that your company uses in it´s constitution papers is not necessarily the name you have to use in your advertising, you can call your company “Inmuebliaria Maximiliano y Asociados” but your ads can say “Max´s Homes”.
I have some suggestions for choosing the name of your company, not so much legally based, but more based on my experience doing business in Mexico:
1. Use words in Spanish that are easy to say, spell and remember. People will need to know your business name when issuing fiscal receipts, so its better to have it be a name that is easy. In one of the companies that I work with I have the english word “Management”, which I always have to spell letter for letter.
2. Try not to use numbers in your name, I worked for a company with “5ta” in it, which is pronounced “quinta, and I constantly had to be careful that it wasn´t spelled out.
3. Initials are a good idea, I work with a company that uses the first initials of each partner in its name, its easy to say and easy to remember. A great name would be “ABC Casas” or something along those lines.
After your lawyer receives your list of names, he must submit them to the Secretaria de Relaciones Exteriores for approval and at this point notify this Secretaria that your corporation will allow foreign investors (you). This transaction has a fee of about $1000 pesos, payable to the government, anything you pay more than that is being paid to your lawyer.
Your lawyer will receive approval from the SRE and then will have to submit all the paperwork to a notary to have it registered in the public records and later in the Public Registry of Commerce. This is going to be the most expensive step in the process, the notary charges will be anywhere from $8000 to $12,000 pesos, depending on the notary. At this part of the process, ask your lawyer how much the notary is charging, if it seems to be high you can check other notaries. The business of being a notary in Mexico has become competitive, some are willing to lower their prices in order to attract more business.
After you, and your partners, have all signed the proper documents for the notary to register the creation of your society, you will receive a certified copy of the constitution paperwork with notary stamps on all the pages and a letter (also stamped and signed by the notary) stating that the paperwork has been registered with the Public Registry of Commerce. This certified copy is important, you will need copies of it for many other transactions.
Your next step will be to get registered as a taxpayer in Mexico, by registering with Hacienda and receiving an RFC number. The last time I registered a society, the notary who I used was able to register the tax-payer ID right there in his office, through a special agreement that some notaries now have with the tax bureau. This saves a lot of hassle, talk to your lawyer about this possibility. When you have this step done, you will receive your RFC number and some paperwork called the “Alta de Hacienda” which will be used for proof of inscription of your tax-payer ID.
Now that you have done all this, you or your representative will want to open a bank account, get facturas printed and get all your immigration paperwork done. These additional steps are crucial for the operation of the corporation, all require copies of all the paperwork that you obtained in the rest of the article, as well as an updated proof of address (electricity or water bill) from the fiscal address of your company.
This process should take one to three months, though I have had experience with it taking up to a year. Please remember, this article shouldn´t replace qualified legal advice, but gives you a place to start so that you do not go into the process blind.