Introduction

If you are considering starting a business in Mexico or expanding your business into the North American market, it may be helpful to know which type of company is best for you.

I am Giovanni Braccini, Mexican qualified lawyer. My firm, Braccini&Partners, provides legal, corporate, and tax assistance to both individuals and companies looking to form a company in Mexico and expand their business in the North American country. If you need further information, feel free to contact me at any time by clicking here.

The three most common “vehicles” for starting a business in Mexico are listed below, along with the main characteristics of each. This will help you evaluate which type is best for you.

For foreign investors, the best Mexican companies are:

• Sociedad Anónima de Capital Variable (S.A. de C.V.)
• Sociedad de Responsabilidad Limitada de Capital Variable (S. de R.L. de C.V.)
• Sociedad Anónima Promotora de Inversión de Capital Variable (S.A.P.I. de C.V.)

What does “Capital Variable” mean?

As you noticed, all three types are with “Capital Variable“. What does this mean? It means that their share capital consists of a fixed part and a variable part.

The fixed part can only be modified through an extraordinary shareholders’ meeting formalized (in Mexico, this is called “protocolizada“) by a Notary and causing an amendment to the bylaws.

The variable part, however, can be increased or decreased without special formalities, in a much simpler and more flexible manner. Unless the bylaws specify otherwise, a simple ordinary shareholders’ meeting without Notary protocolization is enough.

Are they limited companies?

All three types mentioned above are limited companies, which means that the liability of shareholders is limited to the capital invested. This makes them better than to partnerships, which, although they exist in Mexico, are rarely used by foreign investors.

The Sociedad Anónima de Capital Variable (S.A. de C.V.)

In my opinion, if you want to start a business in Mexico, the Sociedad Anónima de Capital Variable is the best solution.

The share capital is represented by shares and no minimum capital is required to form it. In theory, it could be opened with just two Mexican pesos (though this is not recommended).

Another important aspect (that has in common with both the S. de R.L. and the S.A.P.I.) is that it requires at least two shareholders to be incorporated and to exist after incorporation. These can be either individuals or companies and, in most cases, can also be all foreigners.

The feature that makes this corporate “vehicle” most suitable for doing business in Mexico is its great flexibility. This flexibility manifests in various aspects, with very interesting practical implications.

For example, it grants shareholders full freedom to include any type of agreement and rule in the bylaws to govern relationships both among themselves and with third parties. If used properly, this possibility provides significant advantages and avoids many problems.

Additionally, it allows the issuance of different classes of shares to confer different rights to the respective shareholders.

The transfer of shares is also quite easy and flexible. In theory, it could be formalized with a simple endorsement of the share certificates. In practice, transferring shares involves more complex procedures than a simple endorsement, considering the tax implications.

For companies with more complex shareholder structures, it is possible to agree on specific mechanisms and procedures to transfer shares, such as drag-along and tag-along rights.

The governing body of an S.A. de C.V. can be entrusted to either a sole director or a board of directors. Also, the shareholders can be appointed for this charge.

In S.A. de C.V. an internal audit (comisario) or a board of auditors must be appointed, and powers of attorney cannot be granted to them.

The supreme body of the S.A. de C.V. is the shareholders’ meeting, which can be ordinary or extraordinary. Here too, there is full freedom to define quorums and mechanisms for resolve on specific matters and for overcoming potential deadlocks.

These are just some of the characteristics of an S.A. de C.V. However, they can give you the idea on its flexibility and why it is the best option for starting and doing business in Mexico, especially for foreign investors.

The Sociedad de Responsabilidad Limitada de Capital Variable (S. de R.L. de C.V.)

The S. de R.L. de C.V. is also a good option for starting a business in Mexico and is often used by foreign investors.

It shares many aspects with the S.A. de C.V. but also has differences.

The main common aspects are:

• it limits the liability of the partners to their respective equity participation;
• it requires at least two partners to be formed; and
• does not require a minimum amount of share capital.

It also has good flexibility and allows partners to agree on detailed rules to govern their relationships.

The share capital is represented by equity participations and not than shares.

Unlike the S.A. de C.V., appointing an internal auditor is not mandatory. The governing body is held by a Gerente único (sole director), or, if it has multiple members, it is called Consejo de Gerentes.

S. de R.L. does not have the distinction between ordinary and extraordinary meetings; however, partners are free to agree on different quorums for each topic to be resolved.

In general, the S. de R.L. de C.V. is a good option for those situations where the partners structure is not particularly complex.

The Sociedad Anónima Promotora de Inversión de Capital Variable (S.A.P.I. de C.V.)

Lastly, I will briefly mention the Sociedad Anónima Promotora de Inversión de Capital Variable.

As the name suggests, it is a particular type of Sociedad Anónima. Until 2014, it differed significantly from the “ordinary” S.A., primarily due to the flexibility the latter did not have at the time.

Therefore, the S.A.P.I. was the best “vehicle” for attracting investments, especially foreign ones. However, with the 2014 reform, those elements that differentiated it were extended to the S.A., making these two types of companies very similar.

The S.A.P.I., however, continues to maintain certain aspects that still make it a valid alternative for doing business in Mexico. The main differences from the S.A. include:

• The possibility to limit or extend the distribution of dividends through an express bylaws provision. This is not allowed in S.A.
• In the S.A.P.I., the governing body can’t be held by a sole director; a board of directors is requested.
• Minority can exercise certain rights with a lower quorum than that for the S.A.
• The S.A.P.I. can acquire its own shares; the S.A. cannot,
• In the S.A.P.I., it is possible to appoint an external auditor in addition (and independent) to the comisario to exercise a better control.

In conclusion, despite the reform, the S.A.P.I. keep certain peculiarities that makes it a very valid type of company, especially for cases involving many investors requiring a better protection and controls.