Forming a Mexican Corporation

by Jose Amate

Historical Background

Since 1993, Mexican foreign investment law has provided international investors most of the same rights of commerce enjoyed by Mexican citizens. This includes, fee simple ownership of real property for both inland and coastal regions. The property purchased and held in a Mexican corporation must be used for commercial purposes. If a foreigner wishes to buy a home for personal use, a trust must be established at a Mexican bank. Bank trusts (fideicomisos) function exactly like living trusts in the U.S., securing the investment in perpetuity.

Most business activities in Mexico are unrestricted to foreign ownership. The minimum number of share holders is two, and both can be foreigners, owning 100% of the company's shares and assets. Business activity exceptions are: petroleum, energy, transportation, banking and fishing. Within these activities, with the exception of petroleum, foreign investor participation is allowed; subject to Commerce Department limitations.

Prior to 1993, Mexico, with some minor exceptions, excluded foreign investment in finance. Now, foreign banks can and do maintain majority shareholder interest in Mexican financial institutions. Biscaya -Bilbao, a Spanish bank, recently purchased Bancomer, one of Mexico's largest banks.

Construction activities, until last year, were restricted for foreigners. As a result of NAFTA's timetable for inclusion, U.S. and Canadian contractors can now compete with Mexican firms, after establishing a Mexican corporation.

Another once restricted activity is agriculture. Now unrestricted, both small and large foreign growers have created a boom in Baja produce shipped across the border and overseas.

How to Establish a Mexican Corporation

The first step is a permit from The Department of Exterior Relations in which you register the name of your Mexican corporation. Three names for the company are submitted, and a computer search of those names is completed to avoid duplicating an existing name. Approval of the company name, and a permit authorizing same, is done within 24-48 hours.

The next step is developing the articles of incorporation. This task requires the services of a "Notario". These are not notaries as we know them in the states. The name is similar, but the Notario in Mexico has incredibly vaster powers. The notario is a keeper of the public record, a licensed attorney, willing to forsake litigation, who passes the notario exam and is appointed by the state. The number of notarios in a county is based on population. This restricts the number of notarios and thus guarantees their millionaire status. For example, Ensenada with a population of 400,000 has only five notarios. Puerto Peñasco has 2.

Notarios must put their approval on all property transfers, publicly recorded contracts, wills, and public registry of all corporations. As you can imagine, they are very busy people. Notarios, like all professionals, vary in terms of: competency, accessibility, and promptness of completed work.

Via a process of elimination, over a ten to fifteen year period, I have identified notarios from Ensenada to Chiapas (on the border with Guatamala) who work efficiently and posses a comprehensive understanding of foreign investment law. A good notario is absolutely essential to accomplish the maximum benefits for my foreign clients. If a real estate purchase is the objective, the sale can be managed as an escrow. The notario can be instructed to then act as the escrow agent.

Notarios tend to differ in the legal criteria they use in permitting certain transactions. Often an individual notario will not agree with what I and my client want to accomplish. If I know it is legally appropriate, I simply go to a notario who understands the appropriateness of the transaction.

Once the articles of incorporation are recorded in the public record, we begin to obtain the necessary permits: Hacienda (tax boys), Dept. of Commerce, State Registry, a mandatory Chamber of Commerce (by industry), SIC code data base, Import/Export permit, and the Dept. of Immigration. Additional permits are required specific to certain industries. All of the above permit fees, including the Notario's, usually come to around $1,500. Consulting fees for processing the paperwork and completing registries is additional.

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Jose Amate is an associate in the law firm of Lara and Associates. You can call him from the U.S. direct at 011-526-176-6759 or email him at amate@telnor.net

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