What is the main source of law authorising this entity form?

The General Law of Business Organizations (Ley General de Sociedades Mercantiles) (“GLBO”)

Give a brief summary of this entity form, including

Does the entity possess separate legal personality?

Pursuant to Article 2 of the GLBO, Mexican entities duly registered before the Public Registry of Commerce (Registro Público de Comercio , and for its initials in Spanish, “RPC”), are commercial legal entities, separate and different from their Shareholders; with their own legal personality and standing. This means that the liability of Shareholders is limited to the amount of the capital of their shares. Notwithstanding the foregoing, once an entity is incorporated, it must be recorded in the RPC in order to be effective against third parties and have such separate legal personality and standing, otherwise a S.A. which has not been registered will be deemed as irregular entity and its Shareholders will be jointly liable for the acts and operations carried out by the relevant entity;

(Maximum) period of existence

The period of its existence may be indefinite;

Governing document(s)

For Mexican entities, the governing document is the by-laws, which shall be agreed upon in the incorporation deed and may be amended from time to time as approved by the Shareholders;

Liability of incorporators / shareholders

The S.A. is governed by the General Shareholders Meeting ( Asamblea General de Accionistas); managed by a Sole Director or a Board of Directors ( Administrador Único o Consejo de Administración ); and overseen by an Examiner (C omisario ). The Board of Directors as an organized body will be invested with the powers and authorities set forth in the by-laws;

(Governing) bodies

The corporate capital of the S.A. is represented by shares (with or without par value), which are evidenced through the issuance of stock certificates, which are negotiable instruments under Mexican law. Shares shall be registered in a Shares Registry Book, which evidences the holders thereof. Shareholders may hold one or more shares issued by the S.A.

Other particularities

N/A

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

S.A. entities may participate in international restructuring, mergers and acquisitions, among others, as long as it is permitted by the corporate purpose ( objeto social) and authorized in the by-laws thereof.

Can this type of entity be publicly listed or held?

In order to be listed on the Stock Exchange Market any entity must adopt the form and corporate regime set forth in the Securities Market Law ( Ley del Mercado de Valores) (“SML”) as either a Publicly Traded Investment Promotion Stock Corporation (Sociedad Anónima Promotora de Inversión Bursátil) or a Publicly Traded Corporation (Sociedad Anónima Bursátil), such type of entities shall be organized and governed in accordance with the general provisions of the GLBO with a specific and more flexible regime than that applicable to a regular S.A.

Can this type of entity be used for a non-profit or charitable organization?

No, S.A.s are commercial entities, thus they are deemed to have profit/commercial purposes. There are other entities that may be used for non-profitable or charitable purposes, such as a civil association (asociación civil ) or a private assistance institution ( institución de asistencia privada ) both of which are governed by civil regulation.

Give a brief summary of the process of incorporation, formation, or organization, including

Main documents required

In general terms the incorporation process, for a S.A., it takes approximately from 3 to 5 weeks, plus the time it takes to register the incorporation deed with the Public Registry of Commerce, which depending on the workload of such registry may take from 1 to 3 months. The incorporation deed must be formalized with a Mexican Notary Public and then it shall be registered with the Public Registry of Commerce correspondent to the domicile of the incorporated entity.

Prior to initiating the incorporation process, pursuant to Mexico’s Federal Law for Preventing and Identifying Operations with Illegal Resources (Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita - “Anti-Money Laundering Law”), certain documents and/or information must be provided to the Notary Public and (if applicable) to the individuals who will incorporate the entity on behalf of the Shareholders. Such information and documents consist mainly of identification information of the Shareholders.

Involvement of notary, company register, governmental authorities

Aside from the information and documents regarding the Shareholders, the corporate documents and/or information regarding the new entity that are required to be provided to the Notary Public, are the following:

• Permit issued by the Ministry of Economy (Secretaría de Economía) in order to have the exclusive right to use a corporate name (the issuance of this permit takes between 3 to 5 business days approximately);
• By-Laws which must include at least the following:
• Corporate Purpose;
• Amount of Corporate Capital;
• Management of the Company and the authority to be granted to the management body;
• Officer(s) (if applicable, in Mexico, corporations are not required by law to have officers, and officers do not have any authority to represent a corporation, unless powers of attorney have been expressly granted to them);
• Examiner(s);
• Attorneys in fact and the powers of attorney and authority to be granted in their favor; and
• Granting of a power of attorney for tax purposes in favor of an individual in order to record the entity with the Federal Taxpayers Registry (Registro Federal de Contribuyentes , for its initials in Spanish “RFC”); and

Incorporation proxies granted in favor of the individuals who will appear before Notary in Mexico to incorporate the relevant entity on behalf of the Shareholders (if the proxies are granted abroad before a foreign Notary, such proxies must be apostilled or legalized, translated into Spanish (if applicable) by a certified translator, and thereafter, notarized by a Mexican Notary.

Timing (estimate)

Once the Notary Public is provided with all the documents and information, he/she will proceed to prepare the draft of incorporation deed of the new entity. Usually, the Notary Public takes between 3 to 5 business days to prepare such draft. The Notary Fees for the incorporation of an entity may vary but are approximately US$1,200 plus VAT (16%) as of April 2021.

Main costs, including registration and similar fees (excluding legal fees)

The governmental fees for recording the incorporation deed of the new entity with the RPC is approximately US$180. This process could take between 1 to 3 months depending on the workload of the RPC.

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

Finally, no description of the anticipated business or purpose of the entity is required to fulfill the process of incorporation; however, the corporate purpose must be contained in the by-laws of the entity being incorporated.

Minimum number of incorporators / shareholders and residency requirements

S.A.’s require a minimum of two individuals or entities as Shareholders. In the S.A. there is no restriction regarding the number of Shareholders.

Pursuant to an amendment to the GLBO made in 2016, it is now permitted to have one shareholder entities called Simplified Joint-Stock Company (Sociedad por Acciones Simplificada), however, this type of entity may only be incorporated by Mexican individuals.

In principle, Mexican entities may have foreign Shareholders unless set forth otherwise in the corresponding by-laws of the entity. Furthermore, the Foreign Investment Law (Ley de Inversión Extranjera) establishes that certain activities that must be carried out solely by Mexican individuals or entities with no foreign investment (e.g., ground public transportation for people, tourism and freight, excluding courier and shipping services).

Minimum number of directors (or other applicable officers) and residency requirements

The GLBO does not require a specific number of directors or, if applicable, officers.

The S.A. may be governed by one or more individuals, being a Sole Director or a Board of Directors comprising two or more members.

There is no restriction as to the nationality or residence of the Sole Director or the members of the Board of Directors except as otherwise provided in the by-laws of the entity.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

There is no minimum of corporate capital or share capital. Payment of the corporate capital depends on the provisions set forth in the relevant by-laws.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

Only Shareholders are required to appear before the Mexican Notary Public in order to incorporate the entity, however, such Shareholders may be represented through a proxy, as explained above.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

Once the entity is incorporated, it must be recorded with the Federal Taxpayers Registry. A legal representative in Mexico of the entity must submit an application before the Tax Administration Service (Servicio de Administración Tributaria, for its initials in Spanish “SAT”) in order to obtain a tax identification number and card of the entity. A domicile of the company for tax purposes within Mexico will also be required.

What is the title of the applicable company registry?

Public Registry of Commerce (Registro Público de Comercio).

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles , Ownership identification (direct and/or indirect ownership, 'beneficial owners') , Group structure , Share capital , Directors , Accounts , Insolvency, good-standing, liquidation , Liens and encumbrances on the shares , Liens and encumbrances on assets of the entity , Other (e.g. litigation, tax matters)

In accordance with article 18 of the Commercial Code (Código de Comercio), the legal acts of mercantile nature, the acts related to merchants and other acts that pursuant to law must be registered to be effective against third parties, shall be registered at the Public Registry of Commerce. Regarding entities, the following acts/documents must be registered:

• The incorporation deed;
• Conversion of the type of entity;
• Mergers and spin-offs;
• Granting of powers of attorney for negotiable instruments;
• The appointment of liquidators;
• The dissolution and liquidation; and
• Cancellation of the mercantile folio of the entity.

Liens and encumbrances on the assets and shares of the entity need to be recorded with the Public Registry of Commerce, as well as in the Sole Register of Movable Guarantees (Registro Único de Garantías Mobiliarias).

All the information or documents registered with the Public Registry of Commerce are publicly available.

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

Although the Shareholders’ Meeting is the supreme body of the S.A., being invested with full power and authority to approve any matter concerning the entity’s affairs, the S.A. may be managed by a Sole Director/Board of Directors. The Sole Director/Board of Directors will be granted the powers of attorney and authority to act on behalf of the company. In the case of a Board of Directors, such authority and powers of attorney must be exercised jointly as a body. There is no minimum or maximum number of members; however, typically, the principal or common positions of members in a Board of Directors are: Chairman (Presidente), Secretary (Secretario), and Members (Miembros).

Pursuant to the GLBO, an S.A. must appoint one or more Examiners. The Examiner(s) are the person(s) in charge of the overseeing the financial and accounting standing of a S.A. and certain activities and obligations of the Board of Directors. Pursuant to Mexican law, employees may not be appointed as Examiners. Typically, an external accountant is appointed to perform as Examiner.

The Board of Directors or the Sole Director will submit an annual report to the Shareholders’ Meeting, which must contain a description of the entity’s operations and financial information regarding the preceding fiscal year. The Examiner is in charge of supervising that such report has been prepared correctly.

The appointment of members of the Board of Directors or Sole Director will be temporary and may be removed (or ratified) by the Shareholders’ Meeting

The Board of Directors or Sole Director is in charge of the general management of the entity, compliance with the laws, compliance of the resolutions adopted by the Shareholders’ Meetings, among other responsibilities.

How are the members of the executive body appointed, dismissed and replaced?

The ratification, removal and appointment of the members of the Board of Directors or Sole Director will be made by resolutions passed at the Shareholders’ Meetings. In such meetings, the Shareholders will also have the right to revoke or modify the authority/powers of attorney conferred to the governance body at any time.

Is it possible to appoint corporate directors or must all directors be natural persons?

The governance body is competent to appoint special delegates to carry out certain activities and it is also competent to grant powers of attorney in the name of the entity. All directors and managers must be natural persons.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

No, under the GLBO it is not mandatory to have non-executive directors. However, the same may be appointed, removed or ratified by the Shareholders’ Meeting, with the authorities and powers and under the structure determined by resolution passed at the Shareholders’ Meeting.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

The supreme governing body in business entities is the Shareholders’ Meeting. Pursuant to the GLBO, Shareholders must hold a Shareholders’ Meeting at least once a year in order to resolve, among others, the following matters:

• Discuss, approve or modify the report prepared by the Sole Director or Board of Directors, as applicable, and the report submitted by the Examiner for the preceding fiscal year;
• Remove, appoint and/or ratify in their positions the members of the Board of Directors or Sole Director, examiner(s), as applicable; and
• If applicable, determine the remuneration that the members of the Board of Directors or Sole Director and the examiner(s) may receive.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Unless otherwise provided in the by-laws of an S.A., the quorum to hold a General Ordinary Shareholders’ Meeting is shareholders present in person or by proxy representing at least 50% of the corporate capital. Resolutions of the General Ordinary Shareholders’ Meeting require approval of a majority of the votes cast by the shareholders in attendance at the meeting.

The quorum for a General Extraordinary Shareholders’ Meeting in a S.A., is shareholders present in person or by proxy representing at least 75% of the issued shares. Resolutions of the General Ordinary Shareholders’ Meeting require approval of at least 50% of the issued shares.

In addition, these majority and quorum requirements may vary, as agreed by the Shareholders in the relevant by-laws of the entity.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

Entities listed on the stock exchange shall comply with special governance requirements set forth under the SML (e.g., Minimum members of a Board of Directors, independent members, minority rights, among others).

There are specific corporate governance provisions applicable to certain regulated entities, such as banks, financial corporations, insurance companies and other financial institutions, which are set forth in the relevant laws and regulations governing those entities.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

The financial statements must be annually submitted by the Board of Directors or the Sole Director to the Shareholders’ Meeting. The financial statements must contain financial information regarding the prior immediate fiscal year.

Is the entity permitted to determine its own financial year?

As a general rule, fiscal year in Mexico runs from January 1st to December 31st. However, during the year that the entity was incorporated, the fiscal year shall be deemed to have started whenever the entity was incorporated and shall be completed on December 31 of that same year, and it is considered as an irregular fiscal year.

Is the entity subject to any statutory (external) auditor obligations?

As explained, in the case of an S.A., it is mandatory for the company to have an examiner (comisario) who will be in charge of the review of the financial statements, operation and administration of the entity. Each year the statutory auditor/examiner must submit an annual report on the truthfulness of the annual report submitted by the management body regarding the activities of the entity to the Shareholders’ Meeting.

It is optional for commercial entities to appoint external auditors.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

It is optional for the Shareholders’ Meeting to appoint other officers, Secretary(ie)s not member(s) of the Board of Directors, internal auditors, etc. Such positions will depend on the company’s needs and their functions and limitations may be established in the by-laws, as well as their powers of attorney, if granted. As a general rule there are no residency requirements for Directors.

What is the title designated for ‘ownership interests' (e.g. shares, quota, interests, membership)?

In case of the S.A., ownership interests are in the form of shares. Shareholders can have more than one share and can buy any number of shares as long as the shares are fully paid and the procedures to provide the other shareholders which have pre-emptive rights the rights to exercise such rights have been completed as set forth in the by-laws of the entity or in the GLBO, as applicable.

Are different classes of ownership interests possible? If so, what are some examples of different classes?

In case of the S.A., as a general rule article 112 of the GLBO sets forth that shares shall have the same value and confer the same rights. Notwithstanding the foregoing, the by-laws of the entity may establish different classes of shares conferring different rights among the shareholders. Each share shall confer the right of one vote, unless set forth otherwise in the by-laws. In the event there are shares with limited votes, the shareholders may provide in the by-laws that their holders shall have minority rights as well as other privileges.

Such different classes and their rights shall be set forth in the by-laws of an entity and the limitations may consist, among others, (i) not conferring the right to vote or restricting voting to certain matters; (ii) granting non-economic corporate rights, other than voting rights or exclusively granting voting rights; and (iii) conferring veto rights or requiring the favorable vote of one or more Shareholders, with respect to certain resolutions of the General Shareholders' Meeting.

What documentation is required for the transfer of ownership interests?

If a S.A. has issued stock certificates a share transfer shall be made through the endorsement of such certificates, and then such transfer shall be registered in the Share Registry Book. The S.A.’s by-laws may set forth additional requirements, such as the prior approval of the Board of Directors. If no provision is established thereof, the share transfer may be carried out without requiring any approval, however compliance with the procedures for the exercise of the preemptive rights is required if such rights are provided in the by-laws.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

In addition to the requirements set forth in the preceding paragraph and as required pursuant to a reform to the GLBO published on June 14, 2018 in the Official Gazette of the Federation and effective December 15, 2018, the S.A. must disclose the transfer of shares that are recorded in its Share Registry Book.

The corresponding disclosure must be carried out through a publication in the electronic system for publications of commercial companies of the Ministry of Economy (Portal de Sociedades Mercantiles). In case of the publications made by a S.A., the Ministry of Economy must keep the shareholders' name, nationality and domicile confidential, save for those cases in which the judicial or administrative authorities require the disclosure of the information for the due performance of their duties.

Are there any applicable stamp duties imposed when transferring ownership interests?

No, under Mexican law there are no stamp duties applicable to the transfer of ownership interests.

How are shares issued? (including information on payment obligations, registration requirements)

In a S.A. the procedure for the issuance of shares is established in the GLBO and in the relevant by-laws. Stock certificates must contain a minimum of requisites and information and their issuance must be recorded in the Share Registry Book.

Further information on equity contributions, e.g. , Non-cash payments on shares; (Share premium) contributions without issuance of shares , Can partially paid shares/ownership interests permitted and what are the restrictions on them?

Pursuant to article 141 of the GLBO, the shares in a S.A. paid in whole or in part through contributions in kind or non-cash payment (pago en especie) must be kept as a deposit in the company for two years. If within this term it appears that the value of the assets that were used for payment purposes is less the value for which they were contributed, the shareholder is obliged to pay the difference to the company, which will have a preferential right over any creditor for the value of the deposited shares.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

Article 9 of the GLBO provides that an entity may increase or reduce its capital. The specific requirements are based on the type of entity. Capital reductions are normally made by reimbursement to the Shareholders depending on the amount paid and the acquired shares. These capital reductions shall be published in the electronic system of the Ministry of Economy.

Share repurchases are forbidden for an S.A.; however, it is permitted for certain entities such as the S.A.P.I. governed under the SML.

Pursuant to article 135 of the GLBO, a capital reduction by reimbursement to the shareholders and the cancellation of the shares, must be made before a Notary Public or Public Broker, unless all Shareholders unanimously agree on the shares to be cancelled.

Any requirements with respect to distributions to shareholders?

The distribution to the Shareholders must be made once the financial statements of the corresponding fiscal year are approved. Distributions are not made until the losses of the entity are covered and duly paid by profits.

Once the aforementioned requirements are fulfilled, in both cases the profit distributions will be made proportionally to the Shareholders in accordance with their corresponding interest and participation in the capital of the relevant entity, depending and according to the number of shares and their value.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes. The agreement executed by and between Shareholders is only binding within the parties and it is not enforceable to the entity itself, unless, such agreements are reflected in the entity’s by-laws.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

The annual maintenance costs will depend on the activities of the entity. Other relevant items to consider in terms of maintenance costs are volume of transactions, their complexity, if there are intercompany transactions, and special tax rules that would be applying for certain industries. Likewise, the corporate activity of an entity may also have an impact on the annual cost for maintenance.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

In general terms, business entities will be subject to Value Added Tax (Impuesto al Valor Agregado,) (“IVA”), which is levied at a 16% (sixteen percent). There is a 0% IVA regimen for certain items and there are exemptions as well. This is an indirect tax and normally it is only considered an expense to the final consumer.

The Mexican Corporate Income Tax (Impuesto Sobre la Renta) (“ISR”) is levied with a 30% rate based on the Net Taxable Income reported by each company at year end. The calculation of ISR could be complex as there are statutory calculations that involve inflationary accounting and other specific rules for deductions.

Summary of any specific matters, e.g. recent or prospective major legal developments

The federal administration, which took office by the end of 2018, announced ambitious plans for focusing efforts on conducting exhaustive audits on companies respecting their tax compliance, detecting corporate schemes or practices aimed at avoiding payment of corporate taxes, as well as for detecting and sanctioning corrupt practices, with a particular emphasis on those companies that are government contractors.

This will require business entities to use major efforts to focus on corporate governance and the sophistication and to implement programs aiming to establish risk controls and mechanisms to avoid liabilities from a tax, labor, anti-money laundering and anticorruption standpoint.