If you are about to open a business, and need a corporate entity to operate it, surely you have asked yourself what are your options and legal implications exist, but more than anything, what type of organization best meets your needs. This article, divided in two, will touch on the this theme, first dealing with the theme of corporations in general and later delving into a deeper analysis of the two corporation types most used in Mexico, the “Anonymous Society” (S.A.) and the “Limited Responsibility Society” (S. de R.L.)
To start, we should understand what a corporation is: the classic theory defines a corporation as an agreement between two or more people who unite their efforts and resources in order to accomplish a legal and determined goal, predominately focused on commercial speculation and economic gains.
At incorporation a new entity is born which has its own legal identity and its own assets, which will possess all the attributes that correspond to a collective legal entity, such as name (denomination or trade name), address, nationality, legal capacity and assets.
The primary legislation in Mexico that contemplates corporations is the Ley General de Sociedades Mercantiles, which regulates the incorporation, organization and function of corporations, as well as the common rules for corporations, including those not mentioned in this law, as well as rules for some corporations in particular.
Some of these common rules are of utmost importance, such as the required contents of the incorporation papers: names, nationalities and addresses of the members which make up the corporation, the trade name or denomination, the primary objective of the corporation, its duration, location, start-up value and breakdown of what each partner contributes to the corporation in terms of money or property, the values attributed to these contributes and the criteria for evaluating the value of the contributions.
As well as the previous requirements, the statutes should contain the rules of organization and function, meaning the manner in which the corporation is made up, the rights and obligations of the partners, the form of management and legal representation, as well as the methodology to follow in case of dissolution or liquidation of the corporation.
It is important to mention that as well as the corporate models mentioned in the Ley General de Sociedades Mercantiles, other corporations exist in the Mexican legal framework, such as those contemplated in the Ley de Mercado de Valores, which regulates the Mexican stock-market system.
The corporation most used in Mexico is the “Anonymous Society” (which is similar to the Inc. of common-law tradition); however, the use of this type of corporation is more because of custom than because it properly matches the particular necessities of the of the determined business. Other options exist which on occasion better meet the needs of the company, but due to lack of knowledge or proper council, are not taken into account, such is the case of the Sociedad de Responsibilidad Limitada (similar, but not equal to, the common-law LLC), which will be analyzed along with the Sociedad Anónima in the next installment.