Types and formation of partnerships

Sources of partnership law

What is the statutory basis for partnerships, and partnership-like structures in your jurisdiction? To what extent do these laws overlap or share features with company law?

Partnerships, partnership-like structures and companies are largely regulated by the General Law of Commercial Companies. Partnerships are also regulated by the General Law of Cooperative Partnerships, while commercial companies are further regulated by the Securities and Exchange Law. These are all federal laws.

Partnerships and companies must have a business or company name and are considered legal entities with their own legal personality. The law contains provisions that specifically apply to limited liability stock companies. The provisions apply mutatis mutandis to the other types of partnership, partnership-like structure and company.

Types of partnerships

Identify the types of partnerships or other partnership-like structures permitted in your jurisdiction. What are they typically used for?

The General Law of Commercial Companies also regulates:

  • general partnerships;
  • limited partnerships; and
  • limited partnerships by shares.

 

That said, general partnerships are no longer used and there are increasingly fewer limited partnerships and limited partnerships by shares. This is largely owing to the fact that the partners in most partnership structures are unlimitedly and jointly liable for all of the partnership’s obligations.

Partnerships are typically used for savings and loan cooperatives or recreation centres.

Differences between types of partnership

What are the key differences between the various types of partnerships (and similar entities) available in the jurisdiction? Are partnerships treated as bodies of persons or bodies corporate?

As partnerships have their own legal personality, they essentially respond as a single person which can acquire obligations on its own name. However, while corporations’ shareholders respond with limited liability exclusively for what they have contributed to the corporation’s social capital, partners respond unlimitedly, unless otherwise provided in the by-laws.

Reasons for choosing a partnership structure

What are the typical reasons that businesses choose to operate through a partnership structure in your jurisdiction? Do any factors discourage adopting a partnership structure?

Mostly small communities will adopt some sort of partnership to represent their common interests. However, the most common types of business are corporations and limited liability companies, rather than partnerships.

Limited liability stock companies are the most common company structure to operate businesses, since they are relatively easy to constitute and operate just as well as limited liability partnerships do in other countries. However, most international companies constituting subsidiaries in Mexico opt for limited liability companies, since partnerships in Mexico are rare.

Formation (formalities and bars to formation)

How are partnerships and the similar structures available in your jurisdiction formed?

For a partnership to be established, a formation document or by-laws stating the partners intent to form a partnership must be provided. Within these by-laws, the partners must specify the name, nationality and address of the individuals or entities that constitute the partnership, as well as their corporate purpose, which will determine the partnership’s activities. The by-laws must also include the duration of the partnership, which can be indefinite, provided that this is stated in the by-laws. Likewise, the by-laws must refer to the corporate capital and what each partner will initially contribute.

Within limited partnerships, the by-laws may also include the specific responsibilities of each partner and who has unlimited and limited responsibility. The by-laws must also include the partnership’s address, which can be a city or municipality; this will set the jurisdiction in case of controversy and the administration of the partnership if it will not be managed by all partners. Finally, the by-laws can include:

  • reasons for dissolution;
  • details on liquidation processes to terminate the partnership; and
  • reasons (other than the ones provided in the law) for a partner to withdraw from the partnership.

 

The formation document must then be ratified before a notary, who will issue a public deed. Once the formation document has been ratified, the partnership will be registered with:

  • the tax authorities to obtain an identification or taxpayer contribution identification; and
  • the Public Registry of Property and Commerce.

 

Once all of these formalities are complete, the partnership becomes its own legal entity.

Law stated date

Correct on:

Give the date on which the above information is correct.

August 2020.