INCORPORATION CHECKLIST FOR MEXICO

DAVID D. SPENCER
Attorney at Law

©2003 David D. Spencer
Updated February 2011


This checklist pertains to the formation of a stock corporation or limited liability company, and related matters, under the laws of the United Mexican States. The corporation is known as a “Sociedad Anónima” or by the initials S.A. Typically it will be a variable capital entity, known as a “Sociedad Anónima de Capital Variable”. The entity name will include the initials “S.A.” or “S.A. de C.V.” The limited liability company is known as a “Sociedad de Responsibilidad Limitada”. This entity is also typically established with the right to vary its capitalization. Therefore the company name will include the initials “S. de R.L. de C.V.”

DISCLAIMER: This checklist is not intended as legal advice and should not be relied upon as such. Because of the complexity of the issues and the possibility of legislative and regulatory change, no representation of completeness or accuracy is made by the author or the Spencer Law Office. In addition to being subject to change at any time, some of the legal requirements discussed here may vary from one Mexican state to another, just as they do in the United States. Accordingly, this checklist is intended only as a guide. The author strongly suggests that U.S. and Mexican counsel be consulted when a business entity is formed under Mexican law.

1. POWER OF ATTORNEY

The U.S. shareholder must issue a bilingual power of attorney to its Mexican attorneys, to empower them to take the necessary incorporation steps before Mexican governmental authorities and a Mexican notary. In some circumstances, depending on the policy of the Mexican notary who will formalize the company charter, a certificate of an officer of the U.S. shareholder must be notarized to verify the authority of the officer who signed the power of attorney.

2. NAME PERMIT

An application must be made to the Ministry of Foreign Relations (Secretaria de Relaciones Exteriores, or SRE) for authorization to use the name chosen for the Mexican company. The application must indicate three choices for the name, in order of preference.

3. CHARTER

The charter for the entity, known as the “Acta Constitutiva” or “Estatutos” is a combination of what in the U.S. are known as articles of incorporation and bylaws. This document will designate the initial shareholders (a minimum of two are required), members of the Board of Directors (or, alternatively, the Sole Administrator) of the Mexican company, its principal officers and statutory auditor (“Comisario”). The charter will also approve the issuance of powers of attorney to one or more key representatives of the Mexican company for “acts of dominion”, “acts of administration”, “lawsuits and collections”, etc. The charter must contain a clause (the so-called “Calvo clause”) to the effect that the Mexican company’s foreign shareholders waive any right to seek the protection of their own governments in the event of any dispute regarding the Mexican company.

4. FOREIGN INVESTMENT AUTHORIZATION

If the Mexican company is to engage in a business that is subject to restrictions under the Foreign Investment Law (e.g. banking, oil, telecommunications), an application for authorization must be submitted to both:

a. The corresponding Ministry, and

b. The Foreign Investment Commission, an agency within Ministry of Commerce (“Secretaría de Comercio”).

5. U.S. SHAREHOLDER DOCUMENTS

To the extent one or more U.S. legal entities, rather than individuals, will be shareholders of the Mexican company, each such entity must provide a certified copy of its articles of incorporation, duly issued by the Secretary of State of its state of incorporation. A certified translator must then translate the articles and bylaws of each such entity into Spanish. If the translation is done in the U.S. rather than Mexico, which is often the case, the requirement that the translator he “certified” may be satisfied by a variety of official qualifications, such as certification from associations of translators or state-issued certifications, such as those that are issued to official court interpreters.

The translator must attach a certification to the translation of the articles and bylaws, and the translator’s signature on the certification must be notarized. The whole package, with the notarized certification on top, must then be sent to the Secretary of State’s office for an “apostille” (an internationally recognized authentication certificate). The apostille verifies the U.S. notary’s capacity and identity.

6. NOTARIZATION

All the foregoing items must be delivered to a Mexican notary. The Mexican notary will protocolize the act of incorporation by recording the charter in his notarial books. He will then issue a certified copy to the attorneys for the entity formed.

7. TAX ID NUMBER

To be able to open bank accounts, sign leases, keep records of tax deductible expenses, etc., the new company must obtain a Federal tax identification number, called “Registro Federal de Causantes, or “RFC”). To obtain an RFC, an application that includes a certified copy of the charter, as recorded by the notary, must be filed with the Ministry of Finance and Public Credit (“Secretaría de Hacienda y Crédito Público” or “Hacienda”). The application for the RFC must be signed by someone empowered by the Mexican company to do so (see item 1 above). The RFC should be obtained from the regional office of Hacienda where the Mexican company has its domicile. If the RFC is obtained elsewhere, a conforming filing must be made at the appropriate regional office.

8. REGISTRATION OF FOREIGN INVESTMENT

The Mexican company must be registered with the Foreign Investment Commission, and its foreign shareholders must be registered with the National Registry of Foreign Investments.

9. FILING WITH PUBLIC REGISTRY

The act of incorporation for the new Mexican company must be filed with the Public Registry of Commerce with jurisdiction over the company’s domicile.

10. POST INCORPORATION REGISTRATIONS

a. SOCIAL SECURITY. The Mexican company must be registered with the Mexican Social Security Institute (“Instituto Mexicano del Seguro Social” or “IMSS”) upon hiring its first employee. To obtain such registration, the company must deliver a copy of its act of incorporation to an office of the IMSS. The IMSS will provide an application form to be completed by the company. Once this form is processed the IMSS will issue an employee identification card naming the company as the employer. Each time the company hires or terminates an employee, it must give notice to the IMSS within 15 days.

b. INFONAVIT AND SAR. The company must also be registered with the National Institute for the Workers’ Housing Fund (“INFONAVIT”) and the Retirement Savings System (“SAR”). Registration forms may be obtained from the bank where the company maintains its checking account. Each bank has its own customized forms for this purpose. The bank gives the company an ID number, and every two weeks the company is required to deposit funds in segregated accounts with the bank to cover the amounts due to INFONAVIT and the SAR. These amounts are equal to 5 percent for INFONAVIT and 2 percent forSAR, of the amount of the gross salary of the respective employee.

c. CHAMBER OF COMMERCE. Under Article 5 of the Law of Chambers of Industry and Commerce, every industrial or commercial company is required to join a chamber of commerce responsible for the company’s category of activities. The Mexican Supreme Court has declared this requirement to be unconstitutional, but the law has not yet been amended to conform to the court’s decision. So it is still advisable for any company to register with the corresponding chamber in the month following that in which the company begins operating.

11. MISCELLANEOUS ISSUES

a. STRUCTURING. The client may need a determination as to whether the foreign tax credit for Mexican income taxes paid by the Mexican company can be utilized effectively by the United States incorporating entity or individual. This analysis affects the decision of whether to form the Mexican company as a stock corporation (S.A. de C.V.), limited liability company (S. de R.L. de C.V.) or other type of legal entity.

b. CHECK-THE-BOX. If a limited liability company is formed, an SS-4 form needs to be filed in the United States to obtain an Employer Identification Number (IN) on behalf of the Mexican Company. The EIN is needed to complete IRS Form 8832 entitled ELECTION OF ENTITY CLASSIFICATION, which is the “check-the-box” form. The election for “partnership” classification needs to be filed within 75 days of the date of organization.

c. SERVICE COMPANY. The client may want to consider forming a Mexican services company to provide administrative and labor services to an operating company in Mexico. Considerations include efficiency of business operations, centralizing functions, liability under the labor law and profit sharing. The shareholders of the operating company and those of the services company should not be the same in order to minimize the risk that the companies will be considered to be “de facto” the same. For the same reason, it is advisable that the service company provide services to more than one entity, if possible.

d. IMPORT REGISTRATION. The “Padrón de Importadores” is a mandatory registration with Hacienda that is required of all companies importing into Mexico. This is a requirement separate from an import permit. In order to fill out the form, the RFC number is required. The form is processed in Mexico City by mail and takes about 12 days to process.

e. MAQUILA, PITEX, ALTEX AND PROSEC BENEFITS. Tax benefits in the form of VAT zero rate and lower import tariffs may be available to the new company if it intends to import components, raw materials or production equipment relating to products to be exported from Mexico.

FOR ADDITIONAL INFORMATION, PLEASE CONTACT:

DAVID D. SPENCER
Attorney at Law
1621 Lake Mount Drive
Snohomish, WA 98290-1730
Tel 360.862.9101 or 206.650.7048
Fax 206.508.3999
Email: spencer@davidspencerlaw.com
www.davidspencerlaw.com

ACKNOWLEDGMENT:

I gratefully acknowledge my long-time co-counsel, collaborator and friend, Fernando Rivadeneyra, Esq. for his help in reviewing each update of this checklist. Fernando is a Mexican business lawyer and founder of the firm of Rivadneyra y Treviño in Puebla, Mexico.