Incorporation Issues
8. When should I consider setting up a Mexican corporation?
Answer: When one of the following 9 needs or conditions exist, a foreign company should probably consider incorporation in Mexico:
- Channel market complexity requires local, direct presence, warehousing, and distribution
- Market potential and importance to overall export sales warrants investment in proprietary staff and distribution
- Selling through intermediaries is not viable: Demand for products but price sensitivity won`t allow for intermediary margins/commissions
- Local invoicing needed or “required” by clients
- When a company feels it needs to use a rep but needs to stock product
- When service requirements require local presence
- Large retail/OEM client requires presence to continue doing business
- When Import registrations or NOM control issues require the company to set up to be there own “master distributor” for importing purposes.
- Government procurement viability needs
9. What is required to set up a corporation in Mexico?
Answer: A foreign company or person wishing to set up a Mexican corporation needs the following 9 elements:
- The selection of a corporate name to be confirmed by Mexican authorities.
- A Minimum of two shareholders, who can normally be foreign persons or companies. Only if a foreign entity is looking to set up a company in one of the very few areas restricted to Mexican nationals would a foreign entity not be able to set up a company or be required to have a Mexican partner/shareholder or a certain percentage of its shares be held by Mexican shareholders.
- The selection of an incorporation form. In most cases, companies selling products chose between two forms of limited liability corporations: SA and S de RL. In the case of a service or consulting company, an unlimited liability partnership called an SC is often used or at least considered as well.
- The declaration of a small amount of paid in capital, depending on the terms of the selected incorporation form which in all cases is relatively low and nothing but an accounting function.
- A set of bylaws depending on the regulations and characteristics of the selected incorporation form.
- The preparation and sending of notarized and apostillized documents, bylaws and powers in the case of a corporation or only a power in the case of an individual shareholder. Your Mexican attorneys will review said documents with the notary and obtain said translations by an official Mexican government translator.
- A Mexican attorney to confirm the corporate name, to draw up the bylaws, to put together required powers and translated documents, to represent the foreign shareholders (companies or persons) at the incorporation with the notary, and to obtain the federal tax payer number (RFC) immediately after the incorporation.
- A Mexican notary to notarize the bylaws and to file the bylaws with the appropriate commercial and property registration office.
- If sales run through the Mexican corporation, a Mexican accountant will be needed as well for accounting and tax paying reasons.
10. Do I need a Mexican partner or shareholder to set up my Mexican corporation?
Answer: As mentioned above, only if your products or activities are considered in the Mexican Foreign Investment Law as restricted to domestic entities will a foreign entity ever need to include a Mexican partner or shareholder within their Mexican corporation. And, 95% of all activities are not regulated or restricted by this law. As a result, under most circumstances, a foreign entity wishing to set up a corporation in Mexico can have two foreign individuals, two foreign corporations, or a combination of the two to meet the minimum Mexican partner or shareholder requirement for incorporation.
11. How long does it take to set-up a Mexican corporation and how much does it cost?
Answer: A Mexican corporation normally requires 3-6 weeks to be set up, depending on the cooperation of the foreign shareholders and whether said shareholders are corporations (longer period) or individuals (shorter period). If a foreign entity needs to establish a corporation in less than 2 weeks, there are legal ways to make this happen that can be used but are not normally recommended because they involve the setting up of the corporation by Mexican individuals and the subsequent “selling” of the shares of said corporation to foreign individuals or corporations.
12. Are there restrictions on foreigners setting up corporations in certain sectors?
Answer: Yes, the Mexican Foreign Investment Law establishes the following areas as being restricted to exclusive or at least partial domestic participation:
- Activities reserved exclusively for the Mexican State are: petroleum and other hydrocarbons, basic petrochemicals, electricity, nuclear energy, radioactive minerals, postal service, money printing, and control, supervision y vigilance of ports, airports and heliports;
- Activities reserved exclusively to Mexican citizens or Mexican corporations with exclusively Mexican shareholders are: national transportation of passengers, tourism and freight, noy including mailing and shipping services, retail distribution of gasoline and liquefied petroleum gas, broadcasting and other radio and television services different from cable television, development banking institutions.
- Foreign investment may participate:
I. Up to 10%:cooperative production entities;
II. Up to 25% : national air transportation
III. Up to 49%: insurance and bonding institutions, money exchange houses, fiscal warehouses, corporations mentioned in article 12 of the Securities Market Act, retirement fund administrators, manufacturing/sale of explosives, firearms, cartridges, ammunition and fireworks not including the purchase and use of explosives for industrial and extractive activities.
- A favorable resolution is required from the Foreign Investment Commission if a foreigner wants to be able to invest with a higher percentage than 49% in economic activities and companies mentioned below:
I. Port services to conduct vessel operations for inland navigation, such as towing and mooring.
II. Shipping companies engaged in high seas traffic.
III. Aerodrome services
IV. Private services for preschool, primary, secondary, or high school.
V. Legal services,
VI. Credit information companies,
VII. Security rating institutions,
VIII. Insurance agents,
IX. Cellular telephones companies,
X. Construction of pipelines for petroleum,
XI. Drilling of oil and gas wells,
XII. Construction and operation of railroad services.
13. What restrictions for purchasing property/buildings exist for foreign corporations or Mexican corporations with foreign partners?
Answer: Most people believe that there are significant restrictions to foreigners or foreign companies buying and holding property out right in Mexico, but that really is not the case, especially for foreigners with companies in Mexico. Unless property/buildings are located within 50 miles of the coasts or 100 miles of the Mexican border, foreigners or foreign-owned companies can own real estate without limitation and without a Mexican partner or shareholder. If real estate is located within the above areas, companies with foreign shareholders or partners can still own property without restriction but foreign individuals must use a 99 year renewable trust to purchase said property.
14. Can I set up a Mexican corporation without a physical presence and/or without any employees?
Answer: Yes, you can set up a corporation in Mexico without having an office or true physical presence and without any employees. In said case, only a fiscal domicile is required and attorneys or other Mexican service companies can and will provide this service for a reasonable fee. A corporation must have a board of directors or a sole administrator designated by the bylaws, but it does not have to have a general director or any employees. And, if a Mexican corporation is set up in this manner, adding a Mexican location or Mexican employees can be done without restriction or significant costs. Many foreign companies set up Mexican companies without needing or wanting office or employee presence in the country in order to be the importer of record or to hold an onerous or strategic NOM or other type of product permit.