Starting a Business in Mexico: A Guide For Foreigners

Options To Start Operations In Mexico

If you wish to start operations in Mexico, you have three different ways; the one you choose will depend directly on your business model and the size of your operation. We will arrange these options according to how fast you can start, from fastest to slowest. 

Employer Of Record (EOR)

The fastest way to start operations in Mexico is through an Employer Of Record (EOR). With this service, another Mexican company recruits and employs your workers, then invoices every month for the entire payroll plus a fee. Essentially, it is a three-sided contract between the employees, the EOR, and you (or your company abroad) where:

• Your company maintains a direct relationship with the employee, allocating him work tasks and managing their performance.
• As the one responsible for legal employment, the Employer Of Record oversees the operational side, such as payroll, taxes, benefits, etc., ensuring compliance with all Mexican legal regulations.
• The employee, the third party to the agreement, fulfills all their work obligations for your company. 

Employer Of Record Timeframe

Pros 

• Quickly expand your business and “test” the waters.
•  EOR takes care of all benefits administration required by law.

Cons

• You may feel less in control.
• Harder to instill a company culture.

If you wish to know more about our EOR service, you can check out our Employer of Record Service page or schedule a meeting with one of our account executives. 

Buying a Shelf Company

The second fastest way to start a business in Mexico is by purchasing a shelf company. A shelf company is a company that has had no activity. It was created and left with no activity or “put on the shelf,” hence its name. The company can then be sold to someone who wishes to start a company in Mexico without going through all the procedures of creating a new one. As we will explain later in this chapter, Mexico’s legal system is bureaucratic and slow for business standards, so this option has become quite popular. Essentially, you will buy the equity stock from the current owners. To do this, you will sign a purchase/sale agreement. Once this is done, the current owners transfer corporate control to you by celebrating a shareholders’ meeting and announcing you are the new owner. 

This may be an oversimplification. But it is a lot faster anyways.

Shelf Company Purchase Timeframe

Pros 

• You can get incorporated fast.
• You don’t deal with the administrative hassle of getting the tax I.D. and opening the bank account.

Cons

• It’s more expensive than regular incorporation

Incorporating A Company 

The third way to start operations in Mexico is by incorporating a legal entity. This would be the natural way to start operations; however, it has a minor setback that many of our clients tend not to like: it’s a slow process. 

Handwritten signatures are essential in Mexico’s legal system, so many activities to get a business open in Mexico require a legal representative’s physical presence. Besides, you are bound by the meetings assigned to you by the authorities, so there is no way to move faster. If you were given appointments in two months, you can only wait and be there on time. 

If you have time to plan and accommodate the timeframes, this can be your way to start operations.

Incorporating A Company Timeframe

Pros 

• You get a fresh and clean company.

Cons

• It can take a long time to get the company ready to operate.

Starting A Business In Mexico: A Legal Overview

Starting a business in Mexico means you must comply with the Mexican legal system. This system is different than the one used in the United States. The U.S. legal system is based on Common Law, which has a more dynamic approach that gives more weight to judicial decisions. Mexico, on the other hand, has a legal system known as Civil Law. This system originated in the Roman legal tradition and had a lot of influence from the French Napoleonic Customary Law. 

Therefore, Mexico’s legal system is very formal and bureaucratic. And Americans may find it slow. Legal procedures can indeed get pretty convoluted. But don’t worry; we are here to help.

In Mexico, the legal figure of the Notary Public is crucial. Although there are public notaries in the U.S., the figure in Mexico has much more weight and importance. In Mexico, a notary public is a law expert into whom we, the people (and the government), invest our trust (the word in Spanish is closer to “faith”). As a result, many legal acts need to happen in front of them (physically). We call this “formalizing” or “protocolizing.” Notaries public formalize almost every meaningful legal action that you perform in Mexico. If you purchase land or real estate, you must formalize it before a notary public. If you open a business in Mexico, you must formalize the articles of incorporation before a notary public, and so on.

Opening a business in Mexico is not hard. But, as a foreigner, the path you have to follow may not be obvious. But don’t worry; this guide will walk you through all the steps to start your business in Mexico. It will show you all the legal and administrative aspects you must consider.

Can I Start a Business in Mexico as a Foreigner?

Sure you can! Foreigners can own 100% of a business in Mexico. Therefore, there is no need for a foreigner to partner with a Mexican citizen.

This is clearly stated in Article 4 of the Mexican Foreign Investment Law; let us see the critical part.

Foreign investment may participate in any proportion in the capital stock of Mexican companies, acquire fixed assets, enter new fields of economic activity or manufacture new lines of products, open and operate establishments, and expand or relocate existing ones, except as provided in this Law.

Foreigners don’t need a visa to start a business in Mexico. You don’t need to set foot in Mexico to open your business; it can be done through a Power Of Attorney (POA). All you have to do is sign a POA (we sent you the draft), get it apostilled (A way to make it internationally valid), and send it to us. As a result, we can start your business in Mexico on your behalf. However, if you want to work for your Mexican business, you must obtain an immigration visa.

That said, some economic activities are restricted to foreign investment.  These activities are subject to maximum foreign participation limits.

Mexican Economic Activities Restricted To Foreigners

Like most countries, Mexico has some economic activities reserved for the state. Article 5 of the Mexican Foreign Investment Law enlists them. 

Economic Activities Reserved To The Mexican State

1. Petroleum and other hydrocarbons;
2. Basic petrochemicals;
3. Electricity;
4. Nuclear energy generation;
5. Radioactive minerals;
6. Telegraphs;
7. Radiotelegraphy;
8. Post office;
9. Issuance of banknotes;
10. Coinage of currency;
11. Control, supervision, and oversight of ports, airports, and heliports; and
12. Any others expressly indicated in the applicable legal provisions.

These activities cannot be performed by foreigners nor Mexican citizens.

There is another set of activities, stated in Article 6 of the Foreign Investment Law, that Mexican citizens can perform but are restricted to foreigners.

Mexican Economic Activities Restricted To Foreigners

1. Domestic land transportation of passengers, tourism, and cargo (excludes courier and parcel services).
2. Retail trade of gasoline and distribution of liquefied petroleum gas;
3. Development banking institutions, under the terms of the law of the matter; and
4. The rendering of some professional services (stated in the applicable laws).

Foreigners cannot participate in these activities and companies in any way. Nor through trusts, agreements, or any mechanism that grants them control. There are, however, some legal mechanisms for foreigners to invest in these activities with limited corporate rights as long as the National Commission of Foreign Investments approves it. Also, there are some activities with specific regulations for foreigners. These are stated in Article 7 of the Foreign Investment Law.

Mexican Activities With Special Regulations For Foreigners 

Foreign investment may participate in the following activities according to the following percentages.

1. Up to 10% in:
   1. Production cooperative societies.
2. Up to 49% in:
   1. Manufacture and commercialization of explosives, firearms & ammunition.
   2. Printing and publication of newspapers for exclusive circulation in Mexico.
   3. Series “T” shares of companies that own agricultural, livestock, and forestry lands.
   4. Fishing in freshwater, coastal, and the exclusive economic zone (excluding aquaculture). 
   5. Management of ports (Air, Sea, Land).
   6. Port services of pilotage to vessels.
   7. Shipping companies engaged in the commercial operation of vessels for inland navigation (with some exemptions).
   8. Supply of fuels and lubricants for vessels and aircraft and railway equipment
   9. Broadcasting.
   10. Domestic air transportation service.

And finally, there is a set of activities in which, if foreigners wish to participate with more than 49%, they need to get approval from the National Commission of Foreign Investment. These activities are stated in Article 8 of the Foreign Investment Law.

1. Port services to vessels to carry out their inland navigation operations, such as towing, mooring of lines and launching;
2. Shipping companies dedicated to the operation of vessels exclusively in deep-sea traffic;
3. Companies holding concessions or permits for public service aerodromes;
4. Private preschool, primary, secondary, high school, middle school, higher, and combined education services;
5. Legal services;
6. Construction of pipelines for the transportation of oil and its derivatives;
7. Drilling of oil and gas wells; and
8. Construction, operation, and exploitation of railroads are general means of communication and provision of public railroad transportation services.

Legal Representative

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

Starting A Business In Mexico: The Legal Vehicle

There are many legal entities to start a business in Mexico. However, 98% of the time, it boils down to two options. The Sociedad Anonima, similar to the U.S. Corporation (Corp.), and the Sociedad the Responsabilidad Limitada, similar to the U.S. Limited Liability Company (LLC). In some cases, like lending companies and fintech, there are other options. If you believe starting your business in Mexico requires a complex structure, contact us. We will advise which legal entity fits better according to your needs. 

Sociedad Anonima: The Mexican Corporation

One way of starting a business in Mexico is to incorporate a Sociedad Anonima. This is the most common Mexican legal entity. It is the Mexican Corporation, the equivalent of the U.S. Corporation. There is no restriction to the number of partners, and you can increase or decrease equity as you please (within limits established in the by-laws, of course). And the most critical part, shareholders have their liability limited to their stock interest in the company. Awesome. Check out our article on Sociedad Anonima to see if this type of company fits your needs.

Sociedad Anonima Characteristics

• Owners are called shareholders
• It can have an unlimited amount of shareholders.
• The shareholders have their liability limited to their stock interest in the company.
• The Board of Directors or Sole Administrator manages the company
• May increase or decrease its capital stock
• Shares are transferable and can be traded
• A Statutory Auditor is mandatory

Sociedad Anonima Requirements

• No minimum capital requirement
• A minimum of two shareholders is required
• Minimum of one Director (Sole Administrator)
• A fiscal address
• Appointment of a statutory examiner, a third party who supervises operations and represents the interests of the shareholders.
• Mandatory shareholder annual meetings

Stocks In A Sociedad Anonima

SA is a stock corporation. This is probably the most well-known legal entity type worldwide. These companies issue stock shares, which are the shareholders’ property titles. Stock shares in Mexico have the same legal requirements that many years ago. So up to this day, they look like this. 

Sociedad de Responsabilidad Limitada: The LLC in Mexico

Another way to start your business in Mexico is by incorporating a Sociedad de Responsabilidad Limitada. The S. de R.L. is a Mexican LLC. Just as in the S.A., partners have their liability limited to their investment in the company. This type of partnership has become popular among foreign companies, particularly those who want to reduce their tax liabilities in the U.S. Besides, since a Statutory Auditor is not mandatory, its management is more straightforward.

S. de R.L. Characteristics

• Owners are called partners.
• Partners have their liability limited to their investment in the company
• Directors will be fully liable for the administration of the company
• No requirement to appoint a statutory examiner
• Shares in the company must not be freely transferable and cannot be traded publicly.

S. de R.L. Requirements

• There is no minimum capital requirement
• A minimum of two partners
• Maximum of 50 partners
• Minimum of one Director (Sole Administrator)
• A fiscal address
• Mandatory shareholder annual meetings