Company Formation In Mexico

Company formation in Mexico is the first step for a foreigner to start a business in the country. There are many business opportunities across key industries, and Mexico has a very open foreign investment policy. And, although Mexico is indeed a bureaucratic country, don’t worry; we are here to help. If you are considering incorporating a Mexican company, please get in touch with one of our account executives, and we’ll guide you through the process. 

First, let’s get something out of the way:

Foreigners can own 100% of a company in Mexico.

So don’t worry; you don’t need to partner with a Mexican citizen unless you want to, and it makes sense from a business perspective. You do, however, need a legal representative.

Legal Representative

Foreigners can own 100% of a company’s equity in Mexico. However, for successful company formation in Mexico, you will need a person to represent the company and operate it. This person can be a foreigner or a Mexican citizen. However, if he is a foreigner, he would need to obtain a Mexican residency visa, a Mexican tax ID, and a Unique Population Registry Code (CURP) to represent the company. You must start looking for this person when you begin your expansion if you wish to establish a legal entity.

You have three options:

1. At Start-Ops, we offer this service to some of our clients.
2. You can hire an employee to serve as your company’s legal representative.
3. You can obtain a Mexican residency visa and represent the company yourself (you would need to travel to the country often).

Overview of Company Formation in Mexico

Company formation in Mexico is governed by the Law of Commercial Companies (Ley General de Sociedades Mercantiles). This federal law sets out the requirements for incorporating a Company in Mexico.

Every Mexican company must have at least two shareholders. Both foreign individuals (natural persons) and foreign legal entities (companies, trusts, etc.) can be shareholders. That said, one shareholder can own 99.9% of the company to comply with the formalities. This gives the first shareholder total control over the company.

A Notary Public or Public Broker must perform company formation in Mexico. The incorporation deed and the company bylaws are drafted into a single document.

This incorporation deed must comply with the following:

1. Shareholders’ Information (Names, nationality, and address).
2. Duration of the company (usually indefinite)
3. Corporate purpose (what your business is about).
4. Corporate Name.
5. Capital stock (there is no minimum, but it’s recommended to keep it within business standards).
6. The social address of the company.
7. Corporate management structure.
8. The appointment of special managers and POAs.

Other elements must be drafted into the incorporation deed, but they are strictly tied to each incorporation deed’s legal formula. The above-stated elements are the first elements you must decide on to initiate the company formation process in Mexico. 

Now, let’s take a look at the legal vehicles foreigners can choose for company formation in Mexico.

Legal Vehicles for Company Formation in Mexico

Even though there are many different types of legal entities in Mexico, only two make sense for foreigners from a business perspective.

• Sociedad de Responsabilidad Limitada S. de R.L (the Mexican Limited Liability Company).
• Sociedad Anónima S.A.(the Mexican Corporation).

Company Formation in Mexico through a Sociedad de Responsabilidad Limitada

The Mexican LLC is called Sociedad de Responsabilidad Limitada. You may notice the words de Capital Variable or de C.V. following all types of Mexican companies. This just means that you can inject more equity into the company down the line. Although it’s uncommon, the figure also exist where you cannot inject more equity. But, almost all companies are de C.V.

• US Equivalent: The Mexican equivalent of the American “LLC.”

• Advantages: This is the darling of US companies for one massive reason: Tax Strategy. With this entity you can “use” your losses if the parent comapny is an LLC. Also, it does not have the figure of a Statutory Auditor, which is a figure that oversees the board of directors and reports back to the shareholders. This keeps your compliance load lighter and aligns perfectly with foreign holding companies.

• Shareholders’ Limit: It can only have up to 50 shareholders.

• Pro Tip: 95% of our clients opt for the S. de R.L. to maximize tax efficiency and keep compliance simple. Don’t overcomplicate things unless you have to.

Company Formation in Mexico through a Sociedad Anónima

A Mexican Sociedad Anonima (S.A.) is a legal entity with two or more shareholders (owners). The owners have their liability limited to the amount of capital they invested in the company. It is a stock corporation. Therefore it issues stock of shares to the owners. Also, these shares are negotiable. This means owners can sell and buy them freely.

• US Equivalent: Think of this as the standard U.S. “C-Corp.”

• When to Choose It: Best if you plan to have many shareholders, if you anticipate raising capital from VCs later.

• The Shareholders Growth Factor: It conveys “Enterprise” status. It’s flexible enough to add unlimited shareholders.

The Process And Timeline Of Company Formation In Mexico

This is the execution phase. In the US, you can form an LLC online in 20 minutes. Mexico is different. It is formal, notarized, and requires physical presence (or very specific powers of attorney). The process of company formation in Mexico takes about a month from the moment we receive your documentation. But, to get the bank account open, which would leave you with a fully functional company, takes 3-4 months. 

If you decide to move forward, we will give you access to our bank-grade secure portal, where we will request the shareholders’ documents and information. 

Step 1: Name Authorization 

To begin a company formation in Mexico, we must request the company’s name from the Secretaría de Economía (Mexican Ministry of Economy).

• The Bottleneck: It takes three weeks to get a resolution, and some names are rejected. Which means you have to request a new one.

• The Fix: Be creative. Combining words or using abstract terms helps the approval.

• Timeline: 3 weeks in the best case scenario.

Step 2: Shareholders’ Information

As we said, the company’s partners may be natural persons or legal entities. Here is the information and the documents we need from each.

1. Natural Person. If the partners are natural persons, we will only require their passports, proof of address, and some general information. With this information, we will draft a POA that you will have to get notarized and apostille in your country and send to us via FedEx.
2. Legal Entities. If the partners are to be legal entities, we require the following documents:
   1. Certificate of Formation 
   2. Certificate of Legal Standing
   3. Bylaws (if there are any)
   4. Document stating the appointment of the legal representative
   5. The ID of the legal representative and some general information
   6. TIN (Tax Identification Number)

We need documents 1, 2, 3, and 4 duly apostilled.

*Please consider that a court-certified translator must translate these documents into Spanish.

• Timeline: Depend on the client.

Step 3: The “Acta Constitutiva” (The Bylaws and Certificate of Formation)

This is your company’s Bible. It outlines your purpose, your capital, and your management. This is done through a Mexican Notary Public or Public Broker. Unlike in the US, a Notary here is a high-level government-appointed lawyer. They are the gatekeepers of legality. 

• Timeline: 1-2 weeks. It can be synced with the first two steps to save time.

Step 4: Registration (RPC)

Once the shareholders have signed your company (either in person or through POA), we take the deed to the Registro Público de Comercio (Public Registry of Commerce). This officially births your company in the eyes of the state. As of this moment, you officially own a company in Mexico.

• Timeline: Immediately or 1-2 weeks depending on the state. Jalisco and CDMX have an electronic registry. Some states don’t have it.

Step 5: The Tax ID (RFC) – The Boss Level

This is the most challenging part of the entire process of company formation in Mexico. You need a Registro Federal de Contribuyentes (RFC) or a Tax ID. This is obtained at the SAT, the Mexican Tax Administration Service. This is done through an appointment in which the legal representative of your company must take the company’s incorporation deed and proof of address.

• The Reality: Getting an appointment at the SAT is not difficult, but it is lengthy. There is a digital queue system (Fila Virtual) that can take weeks. Moreover, the legal rep must queue twice: once to obtain the Tax ID and again to obtain the e-signature. 

• Timeline: 4-6 weeks.

Step 6: The Foreign Investment Registry (RNIE)

Do not skip this. If foreign capital owns the company, you must register with the Registro Nacional de Inversiones Extranjeras.

• The Risk: Failure to do this within 40 business days results in a fine. But don’t worry, it starts at around US $150, and it has a maximum of around $500.

• Timeline: This does not affect the timeline

Step 7: The Bank Account

Your company formation in Mexico is done. You have the Tax ID. Now you need to transact money. Mexican banks are conservative. They want to know exactly who the “Ultimate Beneficial Owner” is. This means the individual (or individuals) ultimately making the decisions in the company. The more convoluted the corporate structure is, e.g the company being owned by trusts or other companies owned by more companies, the harder it gets to open a bank account.

• Timeline: 2-4 weeks.

Conclusion

Company formation in Mexico can be a challenging endeavour. But with the right help, it feels like a breeze. Nevertheless, you must be realistic about the timeframe: it can take 3-4 months to get the company up and running. 

If you are ready to begin your expansion, please get in touch with us. We would be happy to assist you and become your trusted partner in Mexico.