It is important for investors to understand the 7 key steps of company formation in Mexico in order to successfully start commercial activities in the country. Mexico is expected to become one of the top ten economies in the world in the next decade, making it an attractive environment for business due to consistent GDP growth, a weak peso, an expanding middle-class, and improved security and safety. These factors have led to domestic business growth and increased foreign investment in Mexico. In the first half of 2023, Mexico received US$29 billion in foreign direct investment, a 41% increase compared to the same period in 2022. However, many foreign investors are unsure of where to start. It is necessary to understand the process of company formation in Mexico to begin commercial activities effectively and efficiently.
According to Mexican law, foreign investors must appoint a legal representative for their company formation in Mexico. This legal representative can be a Mexican national or a foreign resident in Mexico with the legal right to work in the country. The legal representative will act on behalf of the company before the Mexican authorities and will be responsible for communication between government organizations and private entities. This process can be complex and time-consuming due to the requirements involved. Therefore, it is highly recommended to have a legal representative in Mexico to establish the company efficiently.
The 7 key steps for company formation in Mexico are as follows:
Step 1: Decide on the type of Mexican legal entity to use. The two main types are Sociedad Anónima (SA) or Corporation, and Sociedad de Responsabilidad Limitada (S de RL) or Limited Liability Company. These entities have differences in terms of capital stock representation, transferability of shares or equity quotas, managerial roles, and surveillance requirements.
Step 2: Decide on a company name. If you have a foreign company and this is your first investment in Mexico, you can request the use of the name of your foreign entity from the Ministry of Economy. It is important to have 3-4 alternative names in case the desired name is not available in Mexico. Translating the current business name into Spanish may require consultation with a Spanish-speaking individual to ensure it is suitable for the company.
Step 3: Identify the Ultimate Beneficial Owner (UBO). Since January 1st, 2022, it is necessary for any entity to be incorporated in Mexico to identify its controlling beneficiaries for tax compliance purposes. The UBO is the individual or group of individuals who obtain the benefit derived from participation in a legal entity or exercise control over it.
Step 4: Draft the company’s by-laws. The by-laws, also known as articles of incorporation, establish the legal structure of the company, its governance, shareholder rights, capital structure, and compliance with laws and regulations. They provide clarity and legal certainty to shareholders and help maintain order and effective corporate management.
These are the first four steps of company formation in Mexico. It is important to have a legal representative and follow these steps to successfully establish a company and begin commercial activities in Mexico.
