The Mexican equivalent of a corporation is the sociedad anónima (SA). The SA is regulated by the General Law of Business Organizations (Ley General de Sociedades Mercantiles) (LGSM) of 1934, as amended. In the early 2000s, the Mexican Congress tried unsuccessfully – due to political reasons – to modify the LGSM to loosen the restrictions on the content of an SA’s bylaws to allow its shareholders to include a number of rights and obligations that the Mexican courts were ruling as null or void.
The solution by the Mexican Congress to such impasse was to introduce a new type of entity, the Investment Promoting Company (Sociedad Anónima Promotora de Inversión) (SAPI), as part of the 2005 amendments to the Mexican Exchange Law (Ley del Mercado de Valores) (LMV). Due to its flexibility as described below, the SAPI has been one of the most used forms of entity in Mexico since 2006.
However, in June 2014 the LGSM was amended to, among other changes, modify the restrictions on the bylaws of SA’s, as attempted by the Mexican Congress years ago. Now the distinctions between the SAPI and the SA have been minimized and the question is whether there is any need to incorporate a SAPI or modify an SA into a SAPI.
The SAPI is regulated by the LMV, which was amended in December 2005 and enacted in June 2006. The SAPI was created to provide more adequate protection for shareholders’ rights and, in particular, more effective minority rights than those available for shareholders of an SA. Although the SAPI is regulated by the LMV, the SAPI is not supervised or inspected by the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores). Therefore, the SAPI operates as a company incorporated under the LGSM.
The provisions of the LMV that regulate the SAPI exempt the SAPI from certain obligations provided by the LGSM, specifically those limiting the transfer of certain corporate and economic rights. Consequently, the LMV expressly recognizes that shareholders of a SAPI may execute shareholders’ agreements to: (a) prevent the assignment or transfer of stock or any interest in the SAPI, in addition to those formerly applicable to the SA; (b) provide certain events in which shareholders may be excluded or exercise rights of withdrawal or separation or even have their shares redeemed, in addition to those events formerly provided in the LGSM; (c) issue stock different from stock regulated by the LGSM; (d) restrict or even prohibit voting rights in certain matters to be submitted to shareholders; (e) limit or broaden profit distributions or other economic rights, regardless of limits formerly set forth in the LGSM; (f) confer a veto right or even require the affirmative vote of certain shareholders in general shareholders meetings; (g) establish any type of mechanisms for specific matters with the purpose of avoiding dead-locks; (h) broaden, limit or even nullify the right of first refusal regardless of the terms provided in the LGSM; and (i) limit cvil responsibility for damages and prejuices caused by the directors and relevant managers of the SAPI.
A SAPI is managed by a board of directors, whilst the surveillance of the company is performed either by a statutory examiner or by an external auditor. The LMV also provides for special provisions that regulate shareholders’ agreements executed among its shareholders and for additional minority rights that are more favorable than those formerly available to the shareholders of an SA.
Finally, shareholders of a SAPI may agree and implement tag-along and drag-along rights; call and put options; rights of first refusal; mechanisms for the sale of shares; pooling voting and preemptive rights; and agreements for the transfer of stock in public offerings.
Due to the provisions described above, the SAPI has been a very popular form of entity used in Mexico and many SAs have changed their legal regime to a SAPI.
In June 2014, the LGSM was amended, among other changes, to allow the inclusion of provisions in the bylaws of an SA similar to those available for a SAPI, as well as to modify shareholders’ minority rights. Due to such amendments, the present main differences between the SA and the SAPI are the following:
Click here to view table.
There are several proponents who believe the use of the SAPI will be reduced dramatically. Unless there is a reason to opt for a SAPI based on the differences described above, the SA may now be used as a proper vehicle to structure a transaction between shareholders with different interests and may include relevant protections and voting mechanisms through the by-laws.
Likewise, in the past many companies decided not to transform their entity from a SA to a SAPI due to the consequent burdens, many of which were more practical than legal, such as having to give notice to authorities, banks, customers and suppliers, the need to obtain a new tax ID number or to adapt invoices. Now an existing SA may be able to modify its bylaws and adapt them to reflect the different positions of its shareholders without suffering such nuisances.
Finally, the changes to the SA also may affect views regarding the SAPI from abroad. For example, due to the former differences between the SA and the SAPI, in certain jurisdictions the SAPI was considered a pass-through entity for tax purposes. As a cautionary matter, parties may want to review such decisions in light of the similarities between SA’s and SAPI’s since last year.
Will the SAPI survive? It is still too early to know.