Real Estate & Finance

Real Estate & Finance
“The Mexican LLC (S. de R.L.), have it your way”

By Agustin Galindo

If you have the rare habit to read labels of the products that you consume every day, you can observe that the majority of corporations in Mexico that elaborate them are S.A. de C.V. (Joint stock company of variable capital) but regarding American products if you look carefully, it is getting more common everyday to see a S. de R.L. de C.V., to do business in Mexico; why is that?

Merchants, notaries, lawyers and accountants in Mexico are more familiar with a Sociedad Anonima (S.A.), because historically this company had the benefit that the shareholders were anonymous and, in addition to the limited liability, the easiness to trade shares and possibility to become public, gave a lot of tax benefits to this company over the remaining commercial corporations provided by law.

However, in 1982, the law regulating commercial corporations was amended and anonymous shares were forbidden, even though the S.A., is still called Sociedad Anonima (Anonymous Corporation), but the shares now are nominative; the S.A., lost its tax charm. However up until now big entrepreneurs kept using the S.A., because this type of company gives limited liability up to the contribution of the shareholders and the possibility to become public, i.e., exchange in the stock market; small and medium entrepreneurs keep customarily incorporating as a S.A., mainly for limited liability reasons.

Generally if you ask a foreign or Mexican investor why she/he incorporated an S.A., the response will be for the limited liability before creditors.

Then why I am writing you about an S. de R.L.? And the reason is because if an entrepreneur or investor needs to incorporate a corporation, not looking to become public, I will suggest him/her to incorporate this company for the following reasons:

• The initial corporate capital is $3,000 Pesos, approximately US$300 while the S.A., needs a $50,000 Pesos approximately US$5,000 for corporate capital, the corporate capital of the S. de R.L., is easy to pay and for accounting purposes is easier to handle.

• Has limited liability up to the capital contributions of the partners

• Is a closely held corporation and is necessary to get authorization or approval from the partners for the entrance of new partners; this can be a benefit over an S.A., because you will have certainty of who your partners are.

• The company can admit up to 50 partners (please be aware that a minimum of two partners is required to incorporate) and can be subject to the Variable Capital (C.V.) regime such as the S.A., which allows commercial companies to increase or reduce corporate capital, in accordance with certain restrictions.

This company is legally and accounting easier to handle than a S.A., and offers to U.S. citizens certain tax benefits in the U.S., regarding treatment of dividends and losses (the “Check in the box provision”), but in this regard my recommendation is to get the opinion of a U.S. and Mexican tax accountant or lawyer, or both, in order to get the ultimate tax benefits within the legal frames of both countries. In the last years accountants and lawyers have legally transformed in Mexico a lot of S.A.s with U.S. investments into S. de R.L.s for this reason.

In order to incorporate this type of company you need to have a name approved by the Ministry of Foreign Affairs, at least two partners, a minimum initial corporate capital of approximately US$300, by-laws, a manager or board of managers and an agent to carry out the day to day operations of the company and incorporate it before a notary public in Mexico.

Please be aware that as a general rule the company can be owned by foreigners in a 100% basis, unless the company corporate scope preview for a restricted activity to foreigners, which as of this date are very few. Also please be aware that a S. de R.L. de C.V., is a good type of company to own real estate for commercial purposes or perform commercial activities, for the legal benefits afore mentioned.

After your company is incorporated before a notary public, it is necessary to register it before the following authorities:

• Public Registry of Commerce;
• Foreign Investment Registry, with the understanding that certain reports must be filed annually, quarterly or after changes are made to the information provided at the time of registration (address changes, etc) mainly for statistical purposes.
• Ministry of Finance, in order to get a tax identification number known in Mexico as R.F.C., for the abbreviation in Spanish for Federal Registry of Contributor (i.e., Tax Identification Number) in order that the company can declare taxes in Mexico.

When you plan to incorporate a company in Mexico to do business be sure that the company created for you can be handled in the easiest manner for legal and accounting purposes and the tax benefits you can get in your country by incorporating this type of company in accordance to international tax treaties and domestic law.

One of the biggest hamburger companies in the U.S. uses the motto “have it your way” ®, a good idea when you plan to incorporate a company in Mexico to do business or acquire property, have it your way. Not everything is a cheeseburger or an S.A., so please consider the possibility to incorporate an S. de R.L.

Agustin Galindo is an attorney at law and founder of Galindo Abogados, S.C. Fully bilingual, he specializes in real estate, tax, civil and commercial matters including litigation. You can contact him at agustingalindo@prodigy.net.mx or you can visit the firm’s website at www.galindoabogados.com Telephone numbers: 755-554-9915 and 755-554-9916

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