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 Quota Holders; with their own legal personality and standing. This means that the liability of Quota Holders is limited to the amount of the capital of their quotas. 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. de R.L. which has not been registered will be deemed as irregular entity and its Quota Holders 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 the incorporation deed and may be amended from time to time as approved by the Quota Holders;

Liability of incorporators / shareholders

The S. de R.L. is governed by the General Quota Holders’ Meeting (Asamblea General de Socios) and managed by a Sole Manager or a Board of Managers (Gerente Único/Consejo de Gerentes). Under GLBO it is optional for the S. de R.L. to appoint a Supervisory Council (Consejo de Vigilancia) instead of the mandatory Examiner (Comisario) provided for the S.A. The Board of Managers 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. de R.L. is represented by equity quotas (partes sociales), which do not need to (but may) be physically issued and represented by certificates, however, these are not negotiable instruments. In either case, quotas shall be registered in a Quota Holders Registry Book, which evidences the holders thereof. A Quota Holder, in principle, may only hold 1 (one) quota (that may represent different values) (unless there are quotas granting different rights to their holders, in which case a Quota Holder may hold more than one quota).

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. de R.L. 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 Corporations (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. de R.L.

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

No, S. de R.L.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. de R.L. takes approximately 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.

Involvement of notary, company register, governmental authorities

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 Quota Holders. Such information and documents consist mainly of identification information of the Quota Holders.

Aside from the information and documents regarding the Quota Holders, 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);
• 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 Quota Holders (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. de R.L.s require a minimum of two individuals or entities as Quota Holders. The S. de R.L. may only have up to 50 Quota Holders.

Pursuant to an amendment to the GLBO made in 2016, it is now permitted to have one quota holder 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 Quota Holders 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 Managers or, if applicable, officers.

The S. de R.L. may be governed by one or more individuals, being a Sole Manager or a Board of Managers comprising two or more members.

There is no restriction as to the nationality or residence of the Sole Manager or the members of the Board of Managers 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 quota 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 Quota Holders are required to appear before the Mexican Notary Public in order to incorporate the entity, however, such Quota Holders 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 quotas 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.

In addition to the recording before the Public Registry of Commerce, any entity shall be registered with the Federal Taxpayers Registry (Registro Federal de Contribuyentes) and if the entity has any foreign investment, such entity must be recorded with the National Foreign Investment Registry (Registro Nacional de Inversión Extranjera).

In addition to the foregoing, other registrations may be applicable or required for specific purposes, for example, in order for an entity to hire employees it must be registered as an employer with the Mexican Institute of Social Security.

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

Although the Quota Holders’ Meeting is the supreme body of the S. de R.L., being invested with full power and authority to approve any matter concerning the entity’s affairs, the S. de R.L. may be managed by either a Sole Manager or Board of Managers. The Sole Manager or the members of the Board of Managers will be granted with the powers of attorney and authority to act on behalf of the company. In the case of a Board of Managers, 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 Managers are: Chairman (Presidente), Secretary (Secretario), and Members (Miembros).

The Board of Managers or the Sole Manager will submit an annual report to the Quota Holders’ Meeting, which must contain a description of the entity’s operations and financial information regarding the preceding fiscal year.

The S. de R.L. is not required to appoint an Examiner, unless as set forth otherwise in the relevant by-laws.

The appointment of members of the Board of Managers or Sole Manager will be temporary and may be removed (or ratified) by the Quota Holders’ Meeting.

The Board of Managers or Sole Manager are in charge of the general management of the entity, compliance with the laws, compliance of the resolutions adopted by the Quota Holders’ 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 Managers or Sole Manager will be made by resolutions passed at the Quota Holders’ Meetings. In such meetings, the Quota Holders 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. A director or manager must be a natural person.

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 Quota Holders’ Meeting, with the authorities and powers and under the structure determined by resolution passed at the Quota Holders’ 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 Quota Holders’ Meeting. Pursuant to the GLBO, Quota Holders shall hold a Quota Holders’ Meeting at least once a year in order to resolve, among others, the following matters:

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

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

The quorum for a Quota Holders’ Meeting of an S. de R.L. is 50% of the equity is present in person or by proxy. Resolutions of the Quota Holders’ Meeting require approval of a majority of the corporate capital present in person or by proxy at the meeting. Under GLBO, there are certain specific acts for which a higher quorum is required.

In addition, these majority and quorum requirements may vary, as agreed by the Quota Holders 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 in 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 Managers or the Sole Manager to the Quota Holders’ 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?

In case of the S. de R.L., it is optional for the entity to appoint a Surveillance Committee or Examiner who will be in charge of the surveillance of the financial auditing of such entity.

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 Quota Holders’ Meeting to appoint other officers, Secretary(ie)s not member(s) of the Board of Managers, internal auditors, etc. Such positions will depend on each 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 Managers.

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

In the case of a S. de R.L., ownership interests are in the form of quotas. Each Quota Holder may own only one quota; however, the Quota Holder may enlarge its quota by additional contributions, increasing its value. If there are quotas granting different rights, then a Quota Holder may hold more than one quota, for example, Quota Holders may have one quota representative of the fixed portion of the corporate capital and other quota representative of the variable portion of the corporate capital.

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

In the case of a S. de R.L., quotas may have different value and have different category and confer different rights to their holders.

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 Quota Holders, with respect to certain resolutions of the General Quota Holders’ Meeting.

What documentation is required for the transfer of ownership interests?

The quotas in a S. de R.L. are not freely transferrable, since their transfer is subject to the prior approval of the Quota Holders’ Meeting. Once the quotas’ transfer has been approved by the Quota Holders’ Meeting, then the relevant assignment agreement shall be executed between the assignor and assignee. An S. de R.L. must register any quota transfer in the Quota Holders Registry Book. In addition to the foregoing, 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. de R.L. must disclose the transfer of shares or quotas that are recorded in its Quota Holders 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. de R.L,, the Ministry of Economy will not keep the quota holders’ name, nationality and domicile confidential.

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 the case of a S. de R.L., quotas are issued by the approval of the Quota Holders that represent the majority of the corporate capital of the entity as long as the corporate capital is fully paid and their issuance must be recorded in the Quota Holders 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 70 of the GLBO, when established in the by-laws of a S. de R.L., quota holders may be obliged to make additional contributions in proportion to their initial contributions.

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 Quota Holders depending on the amount paid and the acquired quotas. These capital reductions shall be published in the electronic system of the Ministry of Economy.

Equity quotas repurchases are forbidden for a S. de R.L.; however, it is permitted for certain entities such as the S.A.P.I. governed under the SML.

Any requirements with respect to distributions to shareholders?

The distribution to the Quota Holders 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 Quota Holders in accordance with their corresponding interest and participation in the capital of the relevant entity, depending and according to the value of the quotas.

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 Quota Holders 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.