On March 14th, a decree was published on the Official Gazette of the Federation (Diario Oficial de la Federación), amending and supplementing various provisions of the General Law of Trading Companies (Ley General de Sociedades Mercantiles) (LGSM).
Such reform includes the creation of the Simplified Joint Stock Company (Sociedad por Acciones Simplificada) (SAS), which provides various benefits same as will be explained later. However, it is important to highlight that this type of company seek specific purposes, and has special features to be taken into consideration, prior to its recommendation.
It is presumed that the SAS will speed up and simplify the process of incorporation for micro and small companies, and that shareholders will give their consent through the electronic system of incorporation, without needing the intervention of a public notary, expediting and simplifying the process.
However, it must be taken into consideration the characteristics of the SAS, same that may not be the most effective option for shareholders seeking to establish a company in Mexico.
The constitution of the SAS, is based on the following compliance with the following requirements in particular:
- Externalize the will of the shareholders (only physical persons liable for their contribution), through the same bylaws that will be electronically signed by all shareholders, using the electronic signature certificate in force, through the electronic system for the constitution of the SAS which will be in charge of the Ministry of Economy (Secretaría de Economía). The system will generate digitally ballot registration of the simplified joint stock company in the Public Registry of Commerce (Registro Público de Comercio); (This system will be implemented within 6 months following the publication of the decree mentioned).
- Shareholders should have the certificate of advanced electronic signature (FIEL) as an essential requirement.
- The Shareholders, natural persons in any case can be simultaneously shareholders of other trading companies referred to at sections I to VII, Article 1 of the LGSM, if their participation in these corporations allows them to have control the company or its management (Article 2, section III of the Securities Market Law of (Ley del Mercado de Valores)).
- The total annual income cannot exceed 5 million pesos (if that amount is exceeded, the company must be transformed into other corporation type provided in the LGSM).
It is important to highlight, that although there are no limitations on foreign investment in Mexico even if the reform is mute on this issue, it is a prerequisite that shareholders have the FIEL, which can only be requested by nationals or persons with residence visa.
In the same way, the total annual income is capped, and the administration of the company should be managed by a shareholder, is for these particularities, that the constitution of this type of company seems to be focused for certain scenarios.
The President of the Association of Notaries of Mexico (Presidente del Colegio de Notarios) issued its opinion regarding the approval of the reform LGSM on 3 March 2016 and highlighted the following:
“… Our country needs more and better companies, promoting competitiveness and streamline procedures while reducing costs, but needs above all have solid, safe and effective tools to promote economic activity. The risks associated with the opinion stated that generated public notaries (fedatarios públicos) have pronounced the review of this bill, although if it comes from good intentions, given to its omissions and weaknesses is risky and regressive.
…Concerning the payment of taxes or tax compliance, it does not create incentives to misuse it. But now, it will not be surprising that companies register the names of people who will not even be aware of that act.
…Moreover, the “one day and at zero cost” advertising its misleading because,
first, you must have the FIEL, which requires time, being optimists it could be given in 24 hours.
Then you have to start the process before the Ministry of Economy to have the corporate name of the company, which takes at least 48, if not 72 hours more. We’re coming in three or four days. The World Bank itself notes that in several of the cities of greater economic activity in our country, a company is incorporated in six days. Finally, we will spend that period to four or five days, but with the added difficulty of the huge gap that opens for money laundering plus the fact that no longer will the more than 4,000 public notaries in the country to use their resources and infrastructure for these purposes but one (or two?) office inside the Ministry of Economy, with the consequent cost to the notary public. “
In conclusion although the constitution of a SAS is an innovative type of company and could say “faster”, it should be taken into consideration that it cannot be the best model of society to choose, this will depend on the shareholders to decide if this type of company results optimal according to their needs, due to the above mentioned.
TMC, lawyers, will stay attentive and look forward to answer any questions or comments regarding this newsletter, and will continue to report information regarding the same.