Analysis of the Simplified Joint Stock Company

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).[1]

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:

  1. 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).
  2. Shareholders should have the certificate of advanced electronic signature (FIEL) as an essential requirement.
  3. 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)).
  4. 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.
[2]

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.

 

[1] http://www.dof.gob.mx/nota_detalle.php?codigo=5429707&fecha=14/03/2016 (spa).

[2] http://www.elfinanciero.com.mx/opinion/ni-en-un-dia-ni-a-cero-costo.html (spa).

 

Professional migration in Mexico: The VISA for job offer and investor’s VISA.

Migration in Mexico requires a VISA (except for tourism for some foreigners, traveling less than 180 days[1]).

Article 52 of the Migration Act of Mexico (hereinafter “MAM“)[2] provides that foreigners can stay in Mexico in the status of:

  1. Visitor for a residence period of less than 180 days;
  2. Temporary resident to stay for longer than 180 days until 4 years; and
  3. Permanent Resident to stay for and indefinitely period. The permanent resident status requires the temporary resident status during 4 years.

These residence conditions can be given for various reasons (family reunification, job offer, investment, adoption, education, travel, humanitarian reasons, asylum ….).[3]

Various VISAS allow the applicant to perform an economic activity in Mexico, such as the following:

  • The visitor VISA to perform remunerated activities for less than 180 days (especially used in case of: board meeting, temporary work, liberal profession);
  • Border worker VISA;
  • The VISA for job offer; and
  • The investors VISA.

This article aims to study the characteristics of the VISA for job offer and the investor’s VISA. These VISAS permits to obtain the  temporary residence in Mexico for any person from a foreign country for economic reasons.

The job offer VISA and investor’s VISA have their own characteristics (II) although they grant common benefits (I).

 

I. The common regime  of the job offer and investor‘s VISAS

These common characteristics concerns in a more general way to all temporary residence VISAS.

Duration

Temporary residency VISAS are issued for a period of one to four years and may be renewed within 30 days before the expiration date  (for a maximum total duration of 4 years).[4]

After 4 years of staying as a temporary resident in Mexico, the VISA holder can apply for obtaining permanent resident status.[5]

Procedure to obtain the VISA       

Article 41 of MAM states that VISA applications are introduced before a Mexican consular office and, as a consequence, these applications can’t be held directly in Mexico before the National Institute of Migration (hereinafter the “NIM” )[6].

As an illustration, a French citizen in Mexico without VISA (tourist staying for less than 180 days) who wish to obtain a job offer VISA would have to leave Mexico territory in order to introduce  the VISA application within a Mexican consular office (not necessary a consular office located in his home country).

As an exception of the previously mentioned rule, the same article states that for family reunification purposes, the application for the VISA for job offer may be filled directly in front of the NIM in Mexico.

After the application before a consular office, the applicant will receive a migration document and will have visit Mexico within 6 months after the issuance of the document. Once in Mexico, the applicant will have 30 days to get before the NIM his temporary resident card which attests a regular migratory situation.[7]

Family and departure of the territory

Article 52 VII of the MAM establishes, that the migrant wife or partner, his children and his parents could migrate into  Mexico, during the period of validity of his or her  VISA, as temporary residents with the possibility to obtain a work permit.

The temporary status VISA allows the holder to freely enter and departure the territory.

Changing circumstances    

Article 63 of the MAM provides that foreigners are obliged to communicate to the NIM any change about civil status, nationality, domicile or workplace within 90 days after such change.

 

II. Specific characteristics of the job offer and investor‘s VISAS

1. The VISA for job offer

The VISA for job offer allows the holder to carry out a remunerated activity in Mexico.[8]

The Employer shall be a Mexican company. Thus, foreign companies wishing to establish a company in Mexico and sending foreign staff must first incorporate the company (the incorporation of a company in Mexico is open to foreigners in most of the business areas. For more information: http://tmclegal.com/la-inversion-extranjera-en-mexico-en-camino-a-muchas-y-mejores-oportunidades/?lang=eng) and then, hire the foreign staff through the Mexican company.

The employer must be registered as such before the  NIM in order to be able to hire foreigners.[9]

The company making a job offer shall indicate the following elements:

Position, contract term, remuneration, workplace and the registration of the employer before the NIM.[10]

2. The investor‘s VISA

This VISA allows the temporary residence in Mexico to the person who invested in the following areas[11]:

  • Participation in the capital stock of Mexican companies;
  • Fixed assets or capital assets for economic or entrepreneurial purposes; and
  • The development of economic and business activities in the national territory which are job-creating.

The minimum investment amount required for the grant of the VISA varies according to the consular offices.

Contrary to the VISA for job offer, the investor‘s VISA does not allowed his titular to carry out a subordinated activity which is remunerated in Mexico.

 

In order to conclude, if these two VISAS correspond to different purposes, they grant various common benefits.

These temporary residence VISAS may become permanent residence VISAS, after 4 years. It is recommended to be duly diligent with the renewal procedure of the VISA in order to not be deprived of the prior benefit and have to restart the migration process from the very beginning.

TMC Legal advice and accompanies its clients in all their migration process before the consular offices and the National Migration Institute of Mexico.

 

[1] http://www.inm.gob.mx/gobmx/word/index.php/paises-no-requieren-visa-para-mexico/ (spa).

[2] Migration Act of Mexico (spa) and Regulation of the Migration Act of Mexico (spa).

[3] Migration Act of Mexico, title IV, Chapter 2, Article 52.

[4] Regulation of the Migration Act of Mexico, Article 156.

[5] Regulation of the Migration Act of Mexico, Article 157.

[6] Migration Act of Mexico, title IV, Chapter 1, Article 41.

[7] Migration Act of Mexico, title IV, Chapter 2, Article 59.

[8] Ibid., footnote 3.

[9] Regulation of the Migration Act of Mexico, Article 115.

[10] Ibid., footnote 9.

[11] Regulation of the Migration Act of Mexico, Article 107.

Foreign Investment in Mexico: On the Way to More and better Opportunity

Mexico is now ranked as the 38th Best Place for Business according to World Bank Doing Business 2016 Report and continues to climb the ranks annually. [1]  This shows Mexico’s efforts to lure foreign investment in order to create additional employment and to increase industrial output.

This openness to foreign investment has resulted from a constantly evolving legal framework, as per ratification of international free trade agreements—for example, the North American Free Trade Agreement in 1992 and the Mexico-European Union Free Trade Agreement in 1997—and pro-foreign investment federal legislation.

Nowadays, foreign investors can choose to freely invest in Mexico (I). However, they may encounter restrictions in certain areas, which will be summarized hereafter (II).

 

I. Absence of restrictions for foreign investors

Articles 25 to 28 of the Political Constitution of the United Mexican States (hereinafter the “Constitution“)[2]  and the Law on Foreign Investment of Mexico (hereinafter the “LFE“)[3] are the most important basis of Mexico’s legal framework for foreign investment.

This legal framework has been modified constantly, to demonstrate a drive towards liberalization—for example, the opening of the oil and gas sector to foreign investors in 2014— these dispositions reflect changes in Mexico’s economic policy.

Article 4 of LFE stipulates that foreign investors may hold 100% of the capital stock of a Mexican corporation or association. The previous law restricted this participation to 49%.

These stipulations are not applying to neutral investment (financial investment without control rights) which belong to a specific title of the FIL.[4]

LFE grants to every foreign investor the same rights. There are no restrictions according to the investor’s nationality.

However, a State which entered into a Free Trade Agreement with México may have less restrictions on investment on some reserved activities according with the dispositions established in the treaty.

Except for reserved activities, foreign investors are free to invest in or set up companies in Mexico.

However, all foreign investors that aims to incorporate a company in Mexico,  require  to comply with specific obligations (as the registration before the National Registry of Foreign Investment of Mexico “Registro Nacional de Inversiones Extranjera”).

 

II. The ​​reserved activities

The Constitution provides in Articles 25 to 28, that foreign investors cannot hold freely 100% of the capital stock on some strategic activities in Mexico. The LFE applies the provisions of the Constitution and outlines the activities in which investment is limited and their regime.

These reserved activities are therefore an exception to Article 4 of LFE.

There are different legal regimes applicable according to the activities:

  • The activities which are reserved exclusively for the State both listed by the Constitution and Article 5 of LFE (exploration and extraction of oil and hydrocarbons ; electricity ; nuclear power ; radioactive minerals ; telegraph and radiotelegraph services ; postal services ; minting of coins ; supervision control and surveillance of ports, airports and heliports (…)[5]).
  • The activities which are reserved exclusively for Mexican investors listed by Article 6 of LFE (domestic land transportation for passengers, tourism and freight not including messenger or courier services ; development banking institution ; rendering of professional and technical services provision expressly defined by the applicable legal provisions (…)[6]).
  • The activities subject to a specific participation percentage listed in Article 7 of LFE where foreign investment is authorized up to the following percentages: (up to 10% in cooperative companies for production; up to 25% in Air transportation and up to 49% in firearms, explosives, newspaper, series “T” shares in companies owning agricultural, fresh and coastal water fishing (…)[7]).
  • The activities requiring prior approval defined in Article 8 of LFE. This approval must be given by the Foreign Investment Committee for a higher stake to 49% (port and marine services; air terminals; private education; legal services; construction; exploitation and operation of general railways (…)[8]).

This list may change according to legislative reforms.

 

As an outgrowth of its legal and structural changes, Mexico stands today as a reference country for foreign investment.

For several years, TMC Legal has advised many clients throughout investing in Mexico in order to develop and realize their projects both legally and strategically.

For more information, ProMéxico[9] (English website) https://www.promexico.gob.mx/ is a federal entity responsible for attracting foreign investment.

 

 

[1] World Bank Doing Business 2016 Report is available in both English and French.

[2] Political Constitution of the United Mexican States of 1917 (Spanish).

[3] Law on Foreign Investment of Mexico (Spanish).

[4] Ibid., footnote 3, FIL, Title 5 “Neutral Investment”

[5] To see the full list: Ibid, footnote 3, FIL, Article 5.

[6] To see the full list: Ibid, footnote 3, FIL, Article 6.

[7] To see the full list: Ibid, footnote 3, FIL, Article 7.

[8] To see the full list: Ibid, footnote 3, FIL, Article 8.

[9] ProMéxico website is available on French, English and Spanish.

An innovative type of Company in Mexico

The Congress adopted an opinion whereby it proposes to amend various provisions of the General Law of Commercial Companies (GLCC) in Chapter XIV about “the Simplified Stock Company”

 The following reform seeks to create the Simplified Stock Company (SAS), which grants the following benefits:

  • It can be constituted by one or more shareholders, who are only required to pay their contributions it is important to underline that it is only for individuals.
  • It simplifies the process for the establishment of micro and small companies.
  • There are no limitations for foreign investment, therefore the shareholders may be foreign, highlighting that the shareholder(s) must be individuals.
  • Shareholders should express their consent through the electronic system of incorporation, without the intervention of a notary public for such purpose, speeding up and simplifying the process of incorporation.

How does a (SAS) operate?

The SAS may be constituted as a company with variable capital, which shall be registered in the Public Registry of Commerce.

  • The shareholder(s) of the company, shall express their consent to establish the SAS, through the bylaws available through the electronic incorporation system, streamlining the process. This electronic system established for the incorporation of the SAS is in charge of the Ministry of Economy, functioning and operation is governed by the rules issued by the Secretariat itself.
  • The supreme body, the SAS will be integrated, by the shareholder(s) themselves who must have the certificate of advanced electronic signature as a prerequisite. This reform provides that under no circumstances individuals may be simultaneously shareholders of other companies as referred in sections I to VII , Article 1 of the GLCC , if it is the case that their involvement in these corporations allows them to have control of the company or its management  in the light of (Article 2 , section III of the Securities Market Law).
  • The total annual revenues of SAS, may not exceed 5 million Mexican pesos, and in case of exceeding this amount, it must be transformed into another corporate scheme as established in the GLCC.

TMC Legal lawyers, will continue to report in relation to the present newsletter, and likewise, we will keep attentive to any questions or comments regarding the latter.

Concluded WTO historic Nairobi Package

On 19 December was concluded the Tenth WTO Ministerial Conference in Nairobi. The Nairobi Package includes six Ministerial Decisions on agriculture, cotton and least-developed countries (LDCs) related issues. The most important decision (the Ministerial Decision on Export Competition (WT/MIN(15)/W/47)) hails from the fact of abolishing export subsidies for farm. Roberto Azevêdo, the general director of the organization, commented by saying that it is “the most significant outcome on agriculture” secured in the 20-year WTO history. The other decisions include safeguard mechanism for developing countries, public stockholding for food security matters, as well as preferential treatment for LDCs concerning services and criteria for determining whether exports from such countries might benefit from trade preferences.

Furthermore, WTO members concluded a landmark IT trade deal thanks to which tariffs on information technology products, valued at over $1.3 trillion per year, will be eliminated. Accordingly, all WTO members will benefit from the agreement by enjoying a duty-free market access to the markets of the members that eliminated tariffs on such products.

 

The Ministerial Decision on Export Competition

The Ministerial Decision on Export Competition is very significant as export subsidies have distorting effects not only on domestic product but also on trade overall. Such subsidies impose high costs on taxpayers of the subsidizing countries and they also reduce the price of competing products on the international market to the detriment of producers in developing and LDCs. However, on the other hand, they do benefit consumers in food-importing countries, several of which are developing countries.
By this decision, developed countries have agreed to remove export subsidies immediately; developing counties will do so by 2018, whereas the poorest and food-importing countries will enjoy additional time.

 

Decisions that benefit LDC

The first decision concerns the preferential rules of origin for LDCs (in particular, key beneficiaries will be sub-Saharan African countries). This will facilitate opportunities for LDCs’ exports of goods to both developed and developing countries. Such decision give detailed guidelines on specific issues, such as methods of determining when a product can qualify as “made in a LDC”.

The second decision concerns LDCs trade in services, the Ministerial Decision on Implementation of Preferential Treatment in Favour of Services and Service Suppliers of Least Developed Countries and Increasing LDC Participation in Services Trade (WT/MIN(15)/W/39). Such decision extends the current period, by 15 years (that is until 31 December 2030) under which non-LDCs WTO members might grant preferential treatment to LDCs services and service suppliers. Accordingly, WTO members are allowed to deviate from the MFN obligation under the GATS.

OVERVIEW OF CHAPTER 3 OF THE TPP: RULES OF ORIGIN AND ORIGIN PROCEDURES

The objective of Chapter 3 of the TPP is to set rules of origin in order to ensure that TPP Parties fully enjoy the benefits provided by such FTA. Rules of origin are important as they define whether a good is originating and thus suitable to enjoy the TPP preferential tariff benefits.

According to Article 3.2, a good is originating if it is:

  1. Wholly obtained or produced entirely in the territory of one or more of the Parties (in the meaning of Article 3.3);
  2. Produced entirely in the territory of one or more of the Parties, exclusively from originating materials;
  3. Produced entirely in the territory of one or more TPP Parties using non-originating materials provided that the good satisfies all applicable requirements of Annex 3-D,

Furthermore, the good must satisfy all the other applicable requirements of Chapter 3.

This chapter also provides for accumulation. Accordingly, an originating good and/or material coming from one or more TPP Party that is used in the production of another good within the territory of another Party to the Agreement shall be considered originating in the territory of the other Party.

Another contribution of chapter 3 is to create a rules-system of showing and verifying that goods produced in the TPP meet the rules of origin. Thanks to this system, business can easily operate in the TPP region. In order to enjoy the benefits provided by the preferential treatment related to tariffs, importers must present the concerned documentation (for example, the importer of the good must provide a written request for information, as prescribed by article 3.27).

Furthermore, the Parties hereby establish a Committee on Rules of Origin and Origin Procedures that is entitled to consider any possible matter arising under this chapter.