Mexico.

Please find below a brief explanation of the most used for-profit corporate organizational forms in Mexico:

LIMITED LIABILITY COMPANY (SOCIEDAD DE RESPONSABILIDAD LIMITADA – S. de R.L.):

• Background: As per the General Corporations Law, a Limited Liability Company is incorporated by partners who are only liable for the amounts which they have contributed to the Company.
• Equity Interests: The Capital Stock of the Company, established during its incorporation, shall be divided in Equity Interests which may be of different value and type, but shall always be a multiple of $1.00 MXN peso. Such Equity Interests may not be represented by any Certificate and shall only be transferable by complying with the provisions stated in the General Corporations Law, as the celebration of a General Partners Meeting for the approval of the transfer of the equity interest, among others. Each partner may only have one equity interest at a time. Transmission of Equity Interests by inheritance shall not require any additional formalities unless otherwise stated in the Corporation’s bylaws. Existing Partners shall have preferential rights to acquire any new Equity Interests granted by the Company.
• Partners: A Limited Liability Company must necessarily have two partners as a minimum and may not have more than 50. In order to admit new partners to the Company, there must be the approval of at least the majority of the existing partners, unless otherwise stated in the Company’s By-laws.
• Board of Managers: The management of the Limited Liability Company shall be overseen by a Sole Manager or a Board of Managers which may be partners of the Company or third parties and may be named temporarily or for an indefinite amount of time.
• Decision Making:  The Partners Meeting is the supreme body of the Company. In order for the Partners Meeting to approve a resolution, there must be a favorable vote of at least the majority of the Partners who equal at least 51% of the capital stock of the Corporation. Partners Meetings have several authorities which include but are not limited to:
  • Discussing and approving the financial statements of the Company;
  • Carrying out the distribution of dividends;
  • Appointing and removing Managers;
  • Requesting additional or supplementary contributions;
  • Amendment of the articles of incorporation of the Company;
  • Admit new partners or transfer Equity Interests;
  • Increase or decrease the capital stock;
  • Dissolve the Company.

Meetings must be carried out at least once a year in which at least the financial statements and the Board of Managers must be approved or ratified, in its case.

• Surveillance: A Surveillance Body is optional for a Limited Liability Company. If the articles of incorporation state it, Statutory Auditor must be named by the Corporation, which may be a partner or a third party.
• Check-in-the-box: Pursuant to US tax provisions, a Sociedad de Responsabilidad Limitada is equivalent to a US Limited Liability Company, as it complies with “check in the box” provisions.

LIMITED LIABILITY STOCK CORPORATION (SOCIEDAD ANÓNIMA – S.A.):

• Background: As per the General Corporations Law, a Limited Liability Stock Corporation is incorporated exclusively by shareholders who shall only be liable for the payment of their shares.
• Shares: The capital stock of a Limited Liability Stock Corporation is divided in shares which shall be represented in deeds that will evidence the quality and rights of the shareholders. These shares are of equal value and shall confer equal rights, though it may be stated in the bylaws that there are different types of Shares with other corporate rights.
• Shareholders: There must be at least two shareholders in the Corporation, with each subscribing at least one share. There is no maximum number of shareholders pursuant to Law.
• Board of Directors: The management of the Corporation shall be overseen by a Sole Director or a Board of Directors, who may be shareholders of the Corporation or third parties, and who will be temporary and revocable. These directors shall have certain obligations stated by law and may be liable whenever acting with faulty administration. The authorities and duties of such Director(s) shall be stated in the Corporation’s bylaws, these authorities and duties usually comprise the day-to-day operations of the Corporation.
• Decision Making:  The Shareholders Meeting is the supreme body of the Corporation and may ratify and agree to any act or operation carried out by such. Limited Liability Stock corporations have two types of Meetings:
  • Ordinary: which shall gather at least once a year in order to review the financial statements of the Corporation and ratify the members of the Board of Directors. In order for these meetings to be legally gathered, at least 50% of the capital stock of the Corporation must be present and its resolutions shall be approved by the majority of the attending parties.
  • Extraordinary: which shall gather to review the following matters:
    • Extend the duration of the Corporation
    • Dissolve the Corporation;
    • Increase or decrease capital stock;
    • Change the corporate purpose;
    • Change the nationality of the Corporation;
    • Transform (change corporation type);
    • Mergers;
    • Granting of preferential shares;
    • Granting of bonds;
    • Or any other amendment to the articles of incorporation.

In order for these meetings to be legally gathered at least 75% of the capital stock must be represented and its decisions shall be approved by more than 50% of the capital stock.

• Surveillance: A surveillance body, called Comisario (Statutory Auditor/Inspector), is obligatory for all Limited Liability Stock Corporation. Such Statutory Auditor shall be in charge of reviewing all of the financial information of the Corporation as well as the operations carried out, in order to ensure its compliance to applicable legal provisions.
• Purchase/Sale Options: Pursuant to the General Corporations Law, the shareholders may agree to have drag-along rights and tag-along rights.

INVESTMENT PROMOTION CORPORATION (SOCIEDAD ANÓNIMA PROMOTORA DE INVERSIÓN – S.A.P.I.):

• Background: These types of Corporation were included in Mexican legislation as a way for medium and small companies to be able to participate in the stock market. It is a modality of the Limited Liability Stock Corporation that offers additional rights and protections to shareholders in a way that promotes Investment in the Company.
• Shares: Such as in a Limited Liability Stock Corporation, the capital stock of an Investment Promotion Corporation is divided in shares which shall be represented in deeds that will evidence the quality and rights of the shareholders. These shares are of equal value and shall confer equal rights, though it may be stated in the bylaws that there are different types of Shares with other corporate rights.
• Shareholders: There must be at least two shareholders in the Corporation, with each subscribing at least one share. There is no maximum number of shareholders pursuant to Law.
• Board of Directors: The management of the Investment Promotion Corporation shall be in charge of a Board of Directors.
• Decision Making:  The Shareholders Meeting is the supreme body of the Corporation and may ratify and agree to any act or operation carried out by such. Such as Limited Liability Stock Corporations, Investment Promotion Corporations have two types of Meetings:
  • Ordinary: which shall gather at least once a year in order to review the financial statements of the Corporation and ratify the members of the Board of Directors. In order for these meetings to be legally gathered, at least 50% of the capital stock of the Corporation must be present and its resolutions shall be approved by the majority of the attending parties.
  • Extraordinary: which shall gather to review the following matters:
    • Extend the duration of the Corporation
    • Dissolve the Corporation;
    • Increase or decrease capital stock;
    • Change the corporate purpose;
    • Change the nationality of the Corporation;
    • Transform (change corporation type);
    • Mergers;
    • Granting of preferential shares;
    • Granting of bonds;
    • Or any other amendment to the articles of incorporation.

In order for these meetings to be legally gathered at least 75% of the capital stock must be represented and its decisions shall be approved by more than 50% of the capital stock.

• Surveillance: A surveillance body, called Comisario (Statutory Auditor/Inspector), is obligatory for all Limited Liability Stock Corporation. Such Statutory Auditor shall be in charge of reviewing all of the financial information of the Corporation as well as the operations carried out, in order to ensure its compliance to applicable legal provisions.
• Purchase/Sale Options: Pursuant to the General Corporations Law, the shareholders may agree to have drag-along rights and tag-along rights.
• Additional Provisions to the Limited Liability Stock Corporation: In addition to the provisions that the Limited Liability Stock Corporation must include in its articles of incorporation, Investment Promotion Corporations may also include the following provisions which are unique to such type of company:
  • To limit or restrict the transmission of shares or rights regarding shares;
  • To establish causes for removal of the Corporation, or to exercise rights of separation or withdrawal;
  • To issue shares which:
    • Have voting restrictions;
    • Grant social rights different to the right of vote;
    • Limit or widen the distribution of dividends or grant other special economic rights; and
    • Confer the right of veto or which requires an additional vote of another shareholder.
  • To implement procedures in case no shareholder resolution is agreed upon;
  • To expand, limit or deny the right of preferential acquisition of shares which are to be transferred by existing shareholders of the Corporation; and
  • To limit the liability of Directors and Officers.

Finally, please be advised that all of the aforementioned Companies can be incorporated under the variable capital stock regime. What this means is that the capital stock will be divided into two parts: fixed and variable capital, instead of only having a fixed amount. We recommend having this in order to facilitate the process to carry out capital stock increases or decreases. In case of only having fixed capital, an Extraordinary Shareholders/Partners’ meeting would have to be carried out which, as mentioned earlier, has more formalities than an Ordinary meeting.

a. In Mexico, usually Limited Liability Stock Corporation and Investment Promotion Corporation are the most used types of corporation to seek financing from investors, which permits to have multiple owners.

b. Social enterprises are usually incorporated as non-profit organizations such as the Civil Partnership, or as the figure of an Organized Civil Society, which intend to fund the business but not to enter into the Market, that is to say not to sell or commercialize. If the Social Enterprise intends to sell or commercialize its recommended to incorporate a Limited Liability Company, a Limited Liability Stock Corporation, or an Investment Promotion Corporation.

Shareholders or Partners’ Meeting is the supreme body of decision making; however, Board of Managers/Directors may take decisions as authorized by the bylaws of the Company.

In such a document the Shareholders/Partners may authorize or limit the Board for day to day or major decision making, it is important to note that Board Members will be jointly liable for the decisions that they take during their development as directors/managers.

No there is no organizational forms designed for Social Enterprises. However, the aforementioned civil and mercantile, non-profit and profit companies may be used in order to achieve the corporate purpose.

As we do not have a specific form for Social Enterprises, it will depend on the corporate purpose that is intended to be achieved the type of company that will be formed.

Yes, however, it is not very common to incorporate a Cooperative which is a form of social organization made up of people based on common interests and on the principles of solidarity, self-help, and mutual aid, with the purpose of satisfying individual and collective needs, through the realization of economic activities of production, distribution and consumption of goods and services.

It is ruled by its own regulations (Cooperative Company Act), which may be convenient for tax and risk purposes, but could be difficult if intending to obtain financing funds.

No, as there is no special form for Social Enterprises, there are not reporting requirements other than the required for the type of Company incorporated.

No, there is no meaningful jurisprudence around Social Enterprises as is not a specific form of Company regulated in Mexico.

Depending on the type of Company incorporated, certain corporate governance will be required, such a surveillance body, annual review of administration bodies and so on.

The Mexican government has certain environmental regulations and organisms that may apply depending on the Corporate purpose of the Company, however there is no ESG applicable pursuant to Mexican legislation.

No.

Yes, starting from the first day of 2022, all the pension fund investment companies will have to consider ESG factors in their investment activities. Regardless, there has been an increasing trend in Mexico of investors reviewing ESG factors in their activities.

Yes, recently the National Retirement Saving System Commission (Comisión Nacional del Sistema de Ahorro para el Retiro) (CONSAR) acknowledged the importance of taking into consideration ESG factors in order to generate awareness of contemporary trends such as population growth, scarcity of raw materials and globalization, and how these impact on the risks and opportunities of the strategies they are developing. In connection with the aforementioned, CONSAR has made it mandatory for pension fund investment companies to consider ESG issues starting in 2022. Please note that, arising from the important sector regulated, other important factors are taken into consideration by these companies, in order for them to be able to invest.

No other major investor is required by any legal provision to look at ESG issues but since they are not prohibited to consider them, there has been an increasing trend in Mexico for investors to look over such issues when doing their investment activities.

Not from a finance law viewpoint.

An increasing trend has been developing in Mexico for investors to search for enterprises distinguished for their social responsibility (responsabilidad social) as they are considered to add future value to the corresponding assets.

Additionally, the Mexican Stock Exchange (Bolsa Mexicana de Valores) informed in January of 2021 that six new ETF Green Bonds (Bonos Verdes) were issued.

Also, there has been increasing participation of important enterprises such as BBVA (commercial bank) in the issue of green bonds as well as others, such as Rotoplas having issued Sustainable Bonds (Bonos Sostenibles).

In 2018, the Mexican Stock Exchange (Bolsa Mexicana de Valores) informed that Institutionalized Trusts in Connection with Agriculture (Fideicomisos Instituidos en Relación con la Agricultura or FIRA) issued the world’s first Green Bond in the agriculture sector.

Yes, the Federal Government through the National Institute of the Social Economy (Instituto Nacional de Economía Social) has a series of actions tending to help entities of the social sector of the economy, whether already existing or prospectus as long as they are a viable and sustainable productive project.

In this sense, only enterprises from the social sector of the economy and projects of this kind may obtain funds from this Federal Fund as long as they fulfill the requirements set forth by the authority in each call for applications.

The support given from the government ranges from Social Stock Fundings and consulting in the incorporation of the Social Enterprise to qualification on different areas to be considered by the Social Enterprise.

No, there are no Social Enterprises listed in the Mexican Stock Exchange (Bolsa Mexicana de Valores), but there are an increasing number of enterprises that develop several social programs.

Additionally, there are two enterprises that, while not being a Social Enterprise, develop activities with a social focus which are: (i) Vinte Viviendas Integrales, S.A.B. de C.V. which is a real estate company that develops low-income housing projects; and (ii) Promotora Ambiental, S.A.B. de C.V. which main aim is waste treatment and development of environmentally friendly chemicals.

There is no legal provision requiring publicly traded Enterprises to disclose and/or consider ESG factors in their annual reports, public fillings nor relevant events disclosure. Regardless, many public traded Enterprises are voluntarily participating in the WS&P / Total Mexico ESG Index, which is jointly issued by the Mexican Stock Exchange (Bolsa Mexicana de Valores) and Standard and Poor’s Dow Jones Indexes.

Impact bonds are not as prevalent in Mexico as they have only been issued twice by governmental entities. In this sense, the first impact social bond was issued by Institutionalized Trusts in Connection with Agriculture (Fideicomisos Instituidos en Relación con la Agricultura or FIRA) as a Green Bond which had as its main aim the funding of their credit operations regarding the agricultural sector developed through the Special Fund for Agricultural Financing (Fondo Especial para Financiamientos Agropecuarios or FEFA).

More recently, the local government of Toluca issued Forest Carbon Bonds in order to fund Commissariat of Communal Property of Santiago Tlacotepec (Comisariado de Bienes Comunales de Santiago Tlacotepec) and Mexico CO2 Platform (Plataforma México CO2) in their activities regarding the maintenance of the woods located in the Nevado de Toluca.

Additionally, and as referred through this document, Enterprises which aim to do a public listing tend to consider several factors which include ESG factors such as environmental and social programs to be developed with a part of the funds to be raised.

Mexico's Foreign Investment Law (the “FIL”) and its regulations, impose some restrictions on foreign investment in Mexico, which while considerably relaxed in recent years, still have an impact upon foreign investors in Mexico.

There is no specific restriction on foreign investments or donations that are unique to Social Enterprises.

All Mexican companies with foreign investment in its corporate capital either profit or Nonprofits shall comply with the provisions contained in the FIL.

Foreign investors can participate in any proportion in the capital of any Mexican corporation or partnership, enter new fields of economic activity or manufacture new product lines, open, and operate establishments, and expand or relocate existing establishments, except as otherwise provided in the FIL and its regulations (Article 4, Foreign Investment Law 1993).

Crowdfunding is legal in Mexico, it is regulated by the Law for Financial Technology Institutions (Ley para Regular las Instituciones de Tecnología Financiera). In this sense, such Law and the general provisions issued by the financial authorities in Mexico, establish the amount limits as well as the requirements for the offering of projects through such entities.

As a general rule, there are no limitations for bigger Enterprises to connect with investors through such entities, but certain limitations established by the aforementioned provisions may discourage big enterprises from acquiring funds through such entities.

Additionally, the requirements set forth by the Law for Financial Technology Institutions (Ley para Regular las Instituciones de Tecnología Financiera) tend to be less restrictive than the requirements for public offerings (debt and/or securities) as the legislator intended for a flexible system which may adapt to the technological progress.

Yes. Nonprofits (whether or not Social Enterprise) are exempt from Income Tax. Mexican Income Tax Law set forth the legal entities that are considered as non-profit legal entities.

In addition, legal entities authorized to receive deductible donations are exempted for Value Added Tax (“VAT”) purposes when engaged in the transfer of goods, the provision of services and the grant of temporal use and enjoyment of goods or services within Mexico and for the donations received. Under certain local tax laws, they could access to additional tax incentives.

Donors (individuals or entities) are allowed to deduct for income tax purposes all donations granted to charitable organizations capped to the 7% of their gross income of the prior fiscal, provided that such donations are not granted as a consideration for services or goods.

In this respect, organizations eligible for the non-for-profit tax status include charity or aid institutions, civil associations and partnerships that establish in their corporate purpose the following activities: (i) assistance activities; (ii) social development activities; (iii) educational activities; (iv) scientific or technological research; (v) cultural activities; (vi) environmental activities; (vii) scholarships; (viii) financial support to other authorized non-for-profit organizations; and (ix) perform work and public services. For these organizations, authorization for acting as a non-for-profit organization is mandatory to recognize their tax-exempt status.

In addition, such organizations may request authorization to receive donations from US tax resident donors under the terms of the Mexico-US relevant Tax Treaty in force.

An authorized non-for-profit organization must comply with several requirements; particularly, must pursue the purposes for which it was incorporated; their assets shall be used exclusively for the purposes for which they have been authorized to receive deductible donations; and they may not grant proceeds from the distributable balance to any individual or to their members, unless transfer its assets to other authorized organization or as remuneration for services effectively rendered. Upon their liquidation or change of residence for tax purposes, as well as in cases of revocation, expiration or cancelation of its authorization without re-obtained or renewed within the twelve months following the date in which such events take place, all assets must be transferred to other authorized organization; it may not participate in political campaigns or be involved in propaganda activities; shall keep the information of the authorization to receive donations available to the general public, among other obligations.

Legal entities and trusts authorized to receive tax-deductible donations may obtain revenue from certain activities that differ from their corporate purposes, but if such revenue exceeds 10% of their total revenue in the fiscal year, the organization must pay the relevant tax with respect to any excess. However, if the earning income represents more than 50% of their total income for the fiscal year, the organization may forfeit its authorization as a tax-exempt entity.

No.

No.

Yes. France-Mexico and US-Mexico Tax Treaties included provisions in connection with tax exempt organizations.

In connection with applicable provisions of the US-Mexico Tax Treaty, article 22 establish that an organization resident in a Contracting State that is operated exclusively for religious, scientific, literary, educational, or other charitable purposes shall be exempt from tax in the other Contracting State in respect of items of income, provided that certain requirements are met.

No.

The current Mexican Federal Government decided to cancel diverse economical supports which had been granted for a long period of time to different Social Enterprises, under the argument, that, as a measure to combat the corruption, the economical supports shall be granted directly by the government to the people that need the aid. Because of this measure, diverse Social Enterprises did not receive public resources in 2019. 

Given the pandemic caused by COVID-19, the Mexican government implemented the granting of loans for small and familiar businesses, being the most know one named loan without guarantee (“Crédito a la Palabra”).

The compliance requirements are mostly the same. Nevertheless, please note that there are certain activities considered as “vulnerable” regarding anti-money laundering issues; pursuant to the Federal Law for the Prevention and Identification of Illicitly Founded Operations (“Ley Federal para la Prevention e Identificación de Operaciones con Recursos de Procedencia Ilicita” or “AML Law”).

Vulnerable activities are those relating to gambling and betting, sales of tickets for prizes and raffles, credit cards, pre-paid cards, services cards, travelers checks, loans, construction and building, purchases and leases of real estate, cars, jewelry, art, armored vehicles, and others.

In these cases, the company would have the following additional obligations before the Ministry of Finance:

• Formal online application to be recorded as a vulnerable activity.
• Keeping a record of the client/user with information for its appropriate identification.
• In some cases, report the activity if the threshold for the operations as established in the AML Law is exceeded.
• On-compliance with the reporting obligations to Hacienda under the AML Law will carry fines and penalties of up to US$275,000 (approximately); or from 10 percent to 100 percent of the value of the transaction.

No.

No.

Depending on the type of Company to be incorporated and once you have all the corresponding documentation, the time for incorporating a company may vary. However, usually takes a month to incorporate a Mexican Company. In addition to the foregoing, the usual filing fees will be approximately USD$ 150.00 plus notarial fees (approximately USD$500.00 or USD$700.00 plus VAT).

In order for an organization to be considered as a tax-exempt entity, it is necessary to obtain an authorization from the Tax Administration Service (Servicio de Administración Tributaria) to issue tax deductible invoices for donations received from donors.

For obtaining the authorization, the articles of incorporation (bylaws) of a charitable organization should include certain irrevocable provisions to meet the tax-exempt status.

Likewise, it is necessary to evidence the execution of its charitable activities, for which it would be necessary to obtain a letter from the relevant governmental office stating that the activities are or could be effectively conducted.

All donations received without the aforesaid authorization shall be considered as regular income subject of tax in Mexico. Accordingly, the organization shall be required to pay the general tax rate (30 %) for such income (donations).

Non-for-profit status must be renewed every year and may be revoked by the tax authorities if the organization does not comply with its tax obligations.

In order to incorporate a company, many administrative steps will be required, such as form the company before a notary public, obtain tax ID, among others; however, there are certain types of platforms that help startups to start with their operations. There is additionally a type of Company (Simplified Stock Company or SAS) that is recently developed for small companies to start their operations being incorporated online. However, in Mexico, it could be not so easy to form and flourish for startups or other entrepreneurial enterprises.  

As Mexico does not have a special form for Social Enterprises, will be the same procedure to form and flourish a civil or mercantile company. It is recommended to hire an accountant and an attorney for incorporation and corporate advice, at it is not so easy, however it is not impossible.  

There is no regulations for Social Enterprises in Mexico.

Yes. In Mexico, there are major concerns due to corrupt conducts. The current administration of the President López Obrador is in a position to tackle corruption as a political symbol of his government. Thus, corrupt cases (or scandals) have very negative consequences for the Mexican entities (including of course social entrepreneurships). Thus, nowadays the incorporation of compliance programs is one of the most relevant elements to consider for the operation of an entity in Mexico.

The regulatory framework for the control of corrupt practices is the National Anti-Corruption System (“Sistema Nacional Anticorrrupción”; hereinafter “SNA”), entered into force in July 2017. The SNA is a group of laws and institutions responsible of outlining the anti-corruption practices that would be considered as obligatory for both: authorities and individuals.

Severe corrupt practices arise administrative and criminal sanctions to the involved parties. Please consider that the most relevant of those sanctions with regards companies would be the order to disincorporate the entity. Nevertheless, if any employee or representative of a company is found guilty regarding any corrupt practices; the existence of a compliance program within the organization would be considered as a pre-constituted evidence in favor of the company.

Therefore, for the correct operation of the company, it must count with a compliance program which,  at least, must comply with the following elements:

• Should be written and well-publicized.
• There should be a designated compliance officer or commitee.
• Should establish an effective training program for the employees or representatives to be aware of its contents.
• Effective communication media, monitoring and constant auditing processes.
• Enforcement and prompt response.

 Creating the figure of Social Enterprises providing tax benefits, and regularizing crowdfunding as well.

1. The transparency of public environmental information would be desirable since in Mexico information related to the infractions committed by corporations, sanctions imposed by the authority because of those violations, etc. is not available unless it is required through an application. A unique standard would be useful to standardize the information reports published by companies. 
2. Creating ESG regulations that will be mandatory to all types of Companies.

No.