Forming a subsidiary in Mexico represents a strategic alternative for foreign companies that wish to expand their business operations, establish a corporate presence and participate in the Mexican market through a commercial company legally independent of their parent company.
However, where the investor is a legal entity incorporated in another country, the procedure requires documentary preparation other than that applicable to foreign natural persons.
In EEEsponda Abogados We explain the main documents to be considered by foreign companies interested in establishing a subsidiary in Mexico, as well as the legal aspects to be analyzed before starting the constitution procedure.
1. How can a foreign company set up a subsidiary in Mexico?
In our previous publications we addressed two fundamental issues for foreign investors.
In the first article, "Can I set up a company in Mexico without travelling?"We explain how foreign investors can participate in the formation of Mexican commercial companies through duly authorized representatives, without the need to move personally to the country for the signature of the constituent act.
Subsequently, in «What documents do you need to set up a company in Mexico being a foreigner?», we analyze the main documents that must be prepared by investors who participate as natural persons.
In this third publication we will address a different scenario: when a foreign company wishes to form a subsidiary in Mexico and participate as a partner or shareholder of a Mexican trading company.
This scenario can be presented in operations of international expansion, foreign direct investment, corporate reorganization and the establishment of new business units.
2. What does it mean to set up a subsidiary in Mexico?
A subsidiary is a company legally independent of its parent company, in which the latter maintains a shareholding or corporate holding that allows it to exercise control.
For example, a company incorporated in Chile, Peru, Ecuador, Guatemala, China or the United States may participate in the formation of a Mexican commercial company, retaining a majority shareholding or, where permitted by law, the totality of its capital.
The Mexican company will have its own legal personality and will be subject to the corresponding corporate, fiscal, labor and regulatory obligations.
It is important to distinguish this figure from a branch, since the latter constitutes a form of establishment of the foreign company itself and is subject to a different legal regime.
The choice between a subsidiary and a branch must meet the characteristics of the investment project, the corporate structure and the operational needs of the foreign company.
3. Constitutive act or document proving the legal existence of the foreign company
One of the key documents for to establish a subsidiary in Mexico is one that allows to prove the legal existence of the foreign company that will participate as investor.
Depending on the legislation of the country of origin, this document may be called:
- Constitutive act.
- Certificate of incorporation.
- Certificate of legal existence.
- Certification of the Commercial Registry.
- Equivalent document issued by the competent authority.
Its purpose is to prove that the foreign company is legally constituted and has legal capacity to participate in the transaction.
When these documents have to produce legal effects in Mexico, it will be necessary to verify whether they require apostille, legalization or Spanish translation.
Therefore, it is advisable to review in advance the corporate documentation of the parent company.
4. Current social regulations of the parent undertaking
Another important document is the current social statutes of the foreign company.
Its revision makes it possible to know the rules governing the organization and functioning of society, as well as to identify the bodies empowered to make decisions and represent it.
Among the aspects to be analysed are:
- Name or business name.
- Social object.
- Administrative structure.
- Powers of representation.
- Rules for taking corporate decisions.
- Provisions relating to investments or participations in other companies.
In some countries, the constituent act and the statutes are incorporated in the same document; in others, they are independent instruments.
It is therefore important to identify equivalent documents in accordance with the legislation of origin.
5. Corporate resolution authorizing investment in Mexico
Depending on the social statutes and the legislation applicable to the foreign company, it may be necessary to have a decision by the competent corporate body authorizing its participation in the Mexican company.
For example, the resolution may establish:
- The decision to form or participate in a Mexican commercial company.
- The amount of the investment and the percentage of participation.
- Authorization to subscribe to shares or social partners.
- The designation of the persons responsible for carrying out the operation.
- Authorization to grant the necessary powers.
This document may adopt different designations according to the country of origin, such as assembly agreement, decision of the board of directors or decision of the competent corporate body.
Not all foreign companies need to issue an independent corporate resolution. Its enforceability will depend on its statutes, the legislation of origin and the characteristics of the transaction.
6. Power of attorney of the legal representative of the foreign company
Where the foreign company does not appear through a person who already has sufficient powers to represent it, it will be necessary to prove representation through the relevant legal instruments.
One of the most widely used mechanisms is the power of attorney granted abroad.
This document allows a person to represent the parent company during the incorporation procedure of the Mexican company.
What powers should the power of attorney contain?
Depending on the characteristics of the operation, the power may include powers to:
- To appear before the Mexican public fedator.
- To participate in the constitution of society.
- Sign social statutes.
- Subscribe shares or social partners representing the foreign company.
- Sign the documents relating to the constituent act.
- To take further steps when expressly authorized.
It is important that the powers conferred be sufficient in accordance with Mexican law and the requirements of the public fedator that will formalize the operation.
Should the power of attorney be apostilled or legalized?
Where power is granted to a foreign notary or authority, it must be verified whether it is appropriate to use the apostille or legalization procedure.
The apostille applies to public documents covered by the Hague Convention, where the country of origin and Mexico are parties to that instrument.
In other cases, diplomatic or consular legalization may be required.
It should also be determined whether a translation into Spanish or any additional formality is necessary to use the document in Mexico.
The apostille or legalization accredits certain aspects of formal authenticity, but does not replace the analysis of the powers of the representative.
Therefore, we recommend reviewing the power project before it is granted abroad.
7. Tax identification of the foreign company
Another document that may be relevant is the record of the tax identification of the parent company in its country of residence.
Depending on jurisdiction, the identifier may be called:
- Tax Identification Number (TIN).
- Employer Identification Number (EIN).
- Tax Identification Number (NIF).
- Single Taxpayer Register (RUC).
- Other equivalent tax identifiers.
This information may be necessary for identification procedures, corporate documentation and compliance with tax obligations.
It is important to distinguish the foreign tax identifier from the Mexican Federal Taxpayers Registry.
The subsidiary company incorporated in Mexico shall have its own tax obligations, irrespective of those of the parent company in its country of residence.
8. Identification of legal representatives and controlling beneficiaries
The participation of a foreign company in a Mexican company may also involve the obligation to provide information related to its legal representatives and controlling beneficiaries.
In particular, it will be important to identify natural persons who directly or indirectly exercise control over the corporate structure or comply with the assumptions set out in the applicable tax provisions.
Depending on the characteristics of the operation, information such as:
- Official identification of representatives.
- Documentation proving his faculties.
- Shareholding structure.
- Information on natural persons exercising control.
- Complementary documents to accredit the corporate chain.
In corporate structures comprising various companies incorporated in different countries, this analysis may require a broader legal review.
Therefore, it is advisable to identify in advance the ownership and control structure of the parent company.
9. Should all foreign corporate documents be apostillated or legalized?
Not necessarily.
The applicable formality will depend on the nature of the document, its country of origin and the purpose for which it will be used in Mexico.
For example, certain foreign public documents may require apostille or legalization to formally prove their authenticity.
On the other hand, other documents used solely for identification or due diligence purposes may be subject to different requirements.
Likewise, when the documentation is written in a language other than Spanish, it must be verified whether translation by authorized expert is required.
A proper documentary review allows us to identify in advance which instruments should be apostillated, legalized, translated or formalized before the constitution begins.
10. What type of company should be established as a subsidiary in Mexico?
Once the documentation of the foreign company has been reviewed, it will be necessary to determine the appropriate corporate structure to develop its operations.
Among the legal figures that can be considered are:
Company Anónimo de Capital Variable (S.A. de C.V.)
This figure may be suitable for projects that require an equity structure, corporate governance rules and mechanisms for the transmission of shares.
Limited Liability Company of Variable Capital (S. de R.L. de C.V.)
This company may be suitable for certain investment structures, considering its rules of participation, administration and transmission of social partners.
The choice should take into account the needs of the parent company, the investment structure, fiscal aspects and economic activities to be carried out by the company.
It should be borne in mind that these figures, in accordance with their general regime, require plurality of partners or shareholders. Therefore, a foreign parent seeking to maintain control must design a structure that respects the applicable corporate requirements.
It will also be necessary to observe the restrictions and obligations provided for in the Foreign Investment Act.
11. What obligations should be fulfilled after the establishment of the subsidiary?
The constitution of Mexican society does not necessarily represent the conclusion of the business establishment process.
Depending on the characteristics of the project, a number of obligations should be met.
Registration in the Public Register of Commerce
The company must comply with the registration formalities corresponding to its formation.
Federal Taxpayers Register and e.signature
It will be necessary to meet the requirements established by the Tax Administration Service for the tax registration of the company and the obtaining of its electronic signature.
National Register of Foreign Investments
When the cases provided for in the Foreign Investment Act and its regulations are updated, the registration and reporting obligations must be met.
Corporate compliance
The company shall maintain its corporate documentation and comply with the obligations relating to social books, decisions of its organs and other applicable provisions.
Permits and authorizations
Depending on the economic activity, additional permits or authorizations may be required to start operations.
Opening of bank accounts
Financial institutions may require corporate, fiscal and identification information from Mexican society, its representatives and persons exercising control.
Therefore, the planning of the investment should consider both the formal constitution and the obligations necessary to operate.
12. Why is it important to have specialized legal advice?
Forming a subsidiary in Mexico It involves much more than formalizing a constitutive act.
The operation requires analysing the documentation of the parent company, verifying the powers of its representatives, defining the corporate structure and meeting the obligations arising from foreign participation.
Inadequate legal preparation may lead to delays, additional costs or difficulties in formalizing certain corporate acts.
For example, if a power of attorney granted abroad did not contain sufficient powers, it might be necessary to issue a new instrument and repeat the corresponding formalities.
Therefore, to have specialized legal advice from the planning of the project allows anticipate risks and to coordinate properly the different stages of the investment.
13. How can EEEsponda Abogados help establish a subsidiary in Mexico?
In EEEsponda Abogados We provide specialized legal advice to foreign companies interested in establishing commercial transactions in Mexico.
Our accompaniment includes:
- Analysis of the foreign investment structure.
- Revision of corporate documents of the parent company.
- Review and preparation of notarial powers.
- Design of the corporate structure.
- Preparation and revision of social statutes.
- Legal coordination of the constitution procedure.
- Advice on foreign investment and corporate compliance.
Our approach seeks to provide legal certainty and professional accompaniment during the establishment of business operations in Mexico.
Is your company considering expanding to Mexico?
At EEEsponda Abogados we can help you identify the legal and documentary requirements applicable to your project, as well as design a corporate structure suitable for your business objectives.
EEEsponda Abogados
E-mail: d.esponda@eblaw.com.mx
Telephone: 55 4006 3599
Website: www.eblaw.com.mx