Mexico is one of the principal countries receiving foreign investment, obtaining more than 40% of the direct foreign investment in Latin America, especially in the sectors of manufacturing, transportation and communications, as well as the financial services sector.
This has been possible through deregulation and administrative simplification, as well as a legal framework that establishes clear and permanent rules that provide legal security and make investing in Mexico attractive.
Under current law, foreigners that wish to channel their economic and commercial activities into Mexico can do so through: the incorporation of a Mexican company or by participating as partners or shareholders in already existing Mexican companies; establishing branches and income-earning representative offices, or establishing a non-income earning representative office if the only purpose is to have an entity in Mexico that provides information on and promotes the activities, products or services that the foreign company provides abroad.
The general rule in Mexico is that foreign individuals and entities can engage in any economic activities in Mexico; however, the Foreign Investment Law establishes certain activities in which foreign investment is not allowed and others in which such investment is limited.
Among the reserved activities are: activities reserved to the Mexican State, among which are those related to petroleum and other hydrocarbons, basic petrochemicals, electricity, generation of nuclear power, mail, as well as the control, supervision and oversight of ports, airports and heliports, among others; and activities reserved to Mexicans, among which are those related to national land transportation of passengers, tourists and cargo (not including messenger and courier services), retail sale of gasoline and distribution of liquid gas petroleum, broadcasting and other radio and television services (other than cable television).
The Foreign Investment Law also establishes certain activities from which foreigners are not excluded, but are limited to certain percentages, among which are the following:
10%: cooperative production companies.
25%: National air transport, air taxi transport, specialized air transport.
49%: Insurance companies, guaranty companies, money exchange firms, integrated port administration, companies with concessions in different areas of telecommunications, among others.
Finally, there are limited activities in which foreign investment can surpass 49% with the prior authorization of the National Foreign Investment Commission, among which are private education services, legal services, securities rating firms, insurance agents, cellular telephony, construction, operation and exploitation of railways and provision of rail transportation services to the public, among others.
With regard to commercial companies, it should be mentioned that among the entities most used is the Stock Corporation (Sociedad Anónima) (S.A.) and the Limited Liability Company (Sociedad de Responsabilidad Limitada) (S. de R.L.), which is due primarily to the fact that in both cases the liability of the shareholders or partners to the company and to third parties is limited to the amount of their contributions.
The S. de R.L. must have a minimum capital of $3,000 Mex. Pesos and the number of partners it can have is a minimum of two and a maximum of fifty. The company can be managed by a sole manager or a board of managers, whose members can be partners or persons unrelated to the company and of any nationality. The supreme body is the partners meeting, in which every partner has the right to participate in the decision-making, enjoying one vote for each peso, such partner has contributed to the company. The S. de R.L. may also have an oversight body, formed by one or more partners or persons unrelated to the company, whose function will be to watch over and scrutinize the management of the company.
The S. de R.L. is commonly used by American companies in particular because of the “check-in-the-box” tax treatment it is given with respect to the American company that holds its capital stock.
On the other hand, the S.A. is a company that exists under a corporate name and is composed exclusively of shareholders whose obligation is limited to the payment of their shares. The S.A. is incorporated with a minimum of two shareholders and with a minimum capital of $50,000 Mex. Pesos, represented by shares, which makes it easier to verify and transfer the status and rights of the shareholders. This company is managed by a sole administrator or a board of directors made up of two or more members of any nationality, and they can be shareholders or persons unrelated to the company. If the S.A. has a board of directors, the shareholder or group of shareholders representing at least 25% of the capital stock will have the right to appoint one member of the board. The S.A. must appoint one or more statutory auditors, who may be shareholders or persons unrelated to the company.
Finally, to promote the venture capital and private equity market in Mexico, a new type of company called a Investment Promotion Stock Corporation (Sociedad Anónima Promotora de Inversión) (S.A.P.I.) was recently created, which allows a promoted company to adopt a much more flexible regime than the S.A. to be able to engage in venture capital transactions and establish mechanisms of divestiture that would not be possible with a S.A.