Company Formation in Mexico: What are the 7 Key Steps?

There are seven key steps that investors must follow for company formation in Mexico. Successful completion of the incorporation process will allow investors to begin commercial activities within the country.

Positive developments in Mexico have contributed to a surge in foreign investors seeking to incorporate a company in Mexico. For many, the biggest obstacle is that they are unsure where to begin. This guide will help you understand the process for company formation in Mexico so you may soon begin commercial activities in the country.

Mexico is on the way to becoming a top-ten economy in the world within the next decade. Over recent years, Mexico has become an increasingly low-risk, high-growth economy. It has consistent GDP growth, its middle class continues to expand, and the security situation is improving. These factors have set the stage for domestic business growth and increased levels of international investment. According to the Ministry of Economy, during the first half of 2023, Mexico received a total of US$29 billion in foreign direct investment (FDI), 41% more than in 1H22.

Do I Need a Legal Representative to Form a Company in Mexico?

Mexican law mandates that company formation in Mexico must involve a legal representative. This must be either a Mexican national or a foreign national residing in Mexico with a legal permit to work in Mexico. This individual will represent the company and act on its behalf before the law. The legal representative will also be responsible for communications between the company and any government agencies.

Company formation in Mexico can be lengthy and complex, and it requires working with multiple government agencies. Therefore, it is highly recommended that you have a legal representative in Mexico before you start the process so you can navigate it efficiently.

What are the 3 Most Common Types of Companies in Mexico?

Before forming your company in Mexico, it’s essential to know the different entity types available. Here are the three main entity types in Mexico:

1. Sociedad Anónima de Capital Variable (S.A. de C.V.): This type of company is similar to a corporation in the US. It requires at least two shareholders and has the flexibility to increase or decrease its capital over time. It is suitable for larger businesses or those planning to go public in the future.
2. Sociedad de Responsabilidad Limitada de Capital Variable (S. de R.L. de C.V.): This is similar to an LLC in the US. It requires at least two partners and offers limited liability protection. It is suitable for smaller businesses or those with fewer shareholders.
3. Sociedad Anónima Promotora de Inversión de Capital Variable (S.A.P.I de C.V.): This is a subtype of S.A. de C.V. It is designed for companies that promote investment and innovation. It has fewer restrictions on the transfer of shares and is suitable for companies seeking to attract foreign investment.

What are the Minimum Requirements to Incorporate a Limited Company in Mexico?

7 Key Steps for Company Formation in Mexico

The steps to form a company in Mexico are:

• Step 1 – Decide which Mexican Legal Entity to use.
• Step 2 – Decide on a Company Name.
• Step 3 – Identifying the UBO.
• Step 4 – Drafting the Company’s By-laws.
• Step 5 – Obtaining a Tax Identification Number (RFC- Registro Federal de Contribuyentes).
• Step 6 – Obtaining a Fiscal Address.
• Step 7 – Opening a Corporate Bank Account.

Step 1. Decide which Mexican Legal Entity to use

The first step of company formation in Mexico is establishing a legal entity. In Mexico, there are two main types of companies: a Corporation or Sociedad Anónima (SA) and a Limited Liability Company (LLC) Sociedad de Responsabilidad Limitada (SRL). These are some of the main differences between the two:

Sociedad Anónima (SA) // Corporation	Sociedad de Responsabilidad Limitada (SRL) // Limited Liability Company
The capital stock is represented by shares, which may be issued at par value or non-par value. The shares must have equal value and confer equal rights. However, it can be agreed that the capital be divided into several classes of shares with different values and rights, for each class.	The equity capital is represented by quotas, typically one per partner, which represent the partners’ overall capital contribution
Shares are negotiable instruments and have no restrictions on their transferability to third parties unless stated in the company bylaws	Shares are not negotiable instruments and transfer of equity quotas to third parties requires approval by the majority of partners, unless a higher threshold is stated in the company bylaws. If a partner wants to sell its equity quotas to a third party, the other partners will have a right of first refusal to acquire those equity quotas, otherwise, there must be a unanimous agreement to accept the new partner.
Owners of shares are referred to as shareholders (accionistas) and managers are referred to as directors (administradores).	Owners of equity quotas are referred to as partners (socios) and managers are referred to as managers (gerentes).
Surveillance of the company’s management by one or more statutory examiners (comisarios), who represent the shareholders, is mandatory. The statutory examiner may or may not be a shareholder.	Surveillance of the company’s management by one or more statutory examiners is optional. The statutory examiners may or may not be partners of the Company.

Establishing a legal entity can be lengthy and complex. It is highly recommended you already have a legal representative in Mexico before you begin the process.

Most investors incorporating a company in Mexico choose to establish a stock corporation, which is a for-profit company, where each of its shareholders owns a part of the company through shares of stock.

Step 2. Decide on a Company Name

Finding a company name can be a tedious process since the business name you desire may not be available in Mexico. Therefore, it is important to develop 3-4 possible options and order them according to preference.

If this is the first time you are incorporating a company in Mexico and you already own a foreign company, we can request that the name of your foreign entity be registered before the Ministry of Economy.

If you wish to translate your current business name directly into Spanish, then make sure you consult with a local contact to ensure the Spanish business name reads well and is the right fit for the company.

Step 3.  Identifying the UBO

Since January 1st, 2022, when the fiscal law in Mexico was updated, the controlling beneficiary (UBO) is the individual or group of individuals who: 

A: Directly or by means of any legal act, obtains the benefit derived from its participation in a legal entity, a trust or any other legal figure, as well as from any other legal act, or is the one who ultimately exercises the rights of use, enjoyment, enjoyment, use or disposition of a good or service or on whose behalf a transaction is carried out, even if it is done or they do it in a contingent manner; or, 

B: Directly, indirectly or contingently, exercise control of the legal entity, trust or any other legal entity.

Any entity incorporated in Mexico must identify its controlling beneficiaries on the official documentation to comply with tax provisions.

Step 4. Drafting the Company’s By-laws

The bylaws of a company, also known as the articles of incorporation, are a set of rules and regulations that govern the internal and external operations of a company. They serve several important purposes:

• Legal Framework: the bylaws establish the company’s legal structure, with its name, purpose, and registered office. They also outline the rights and responsibilities of shareholders, directors, and officers.

• Corporate Governance: they specify how the company is managed, including the procedures regulating the appointment and removal of directors and officers, the frequency and conduct of board meetings, and the decision-making processes within the organization.

• Shareholder Rights: they outline the rights of shareholders, including voting rights, dividend distribution, and procedures for shareholder meetings. This helps ensure transparency and fairness in corporate decision-making.

• Capital Structure: they may detail the company’s capital structure, outlining procedures regarding the issuance of shares, transfer of ownership, and the restrictions on these processes.

• Protection of Interests: they provide a clear framework for resolving disputes and addressing conflicts of interest. Thus, they help protect the interests of shareholders, directors, and officers.

• Compliance: they help ensure that the company complies with relevant laws and regulations in the jurisdiction where it operates.

In summary, the bylaws of a company are a foundational document that defines the structure, operation, and governance of the organization. They provide clarity and legal certainty to all shareholders, helping to maintain order and facilitate effective corporate management. The company owners create and develop the bylaws. Developing effective company bylaws is a crucial part of company formation in Mexico.

In the bylaws, there will be specifications on who has the power to make decisions legally on behalf of the company, and potentially a breakdown of day-to-day decision-making.

It is common for foreign investors to assign a Power of Attorney (POA) in Mexico to act on behalf of the company. A POA provides safety for foreign investors who know they have a qualified local expert acting on their behalf. Having a POA also helps avoid complications during the implementation of the bylaws.

Once the by-laws have been finalized, the POA will often sign the bylaws on behalf of each shareholder with the public notary serving as a witness. Once this has been done, The Public Registry of Commerce will need to receive the company bylaws.

Step 5. Obtaining a Tax Identification Number (RFC- Registro Federal de Contribuyentes)

Your newly formed company will need a tax identification number before you can start doing business in Mexico. The tax ID can only be obtained by a local (Mexican or foreign) resident. If this is not possible, then a POA must be appointed to acquire the tax ID issued by the SAT (Servicio de Administración Tributaria) on the company’s behalf. The individual obtaining the tax ID will need to go to the tax authority with the company’s public deed.

Step 6. Obtaining a Fiscal Address

To register a company in Mexico, it is a legal requirement that you establish a fiscal address within Mexico and register it with Mexico’s equivalent of the Internal Revenue Service (IRS), the Servicio de Administracion Tributaria (SAT).

Once your company is registered, this fiscal address will be used for all business communications including tax purposes.

Step 7. Opening a Corporate Bank Account

To finish incorporating a company in Mexico, you must open a corporate bank account. The particulars of the process are regulated by bank policy. Generally, you will need to provide the bylaws of the company to the bank.

You must ensure that the bank account is opened by a legal representative with the authority to open and manage the account.

The bank will review all requested documents in addition to the legal representative’s photo identification, the company’s tax ID, and the ‘Proof of Fiscal Situation’, a document that proves the tax ID is active. The bank should then process your application for a corporate account.

The bank may require the legal representative to sign an anti-money laundering legal document. This helps the bank prevent any illegal activity by monitoring financial transactions.

How Long Will It Take to Successfully Incorporate a Company in Mexico?

If the steps outlined above are followed correctly and the legal representative is a local expert, company formation in Mexico should take 10 – 12 weeks after all required documentation has been provided from the client.

Company formation in Mexico can be overwhelming for foreign investors. Fortunately, there are experienced local corporate legal service providers that can assist foreign companies in successfully incorporating their business in compliance with Mexican law.

Important Tip: Please remember that you do not need to visit the country to complete company formation in Mexico.

FAQs on company formation in Mexico

Answers to some of the most common questions we get asked by our clients.

Contact Biz Latin Hub for Support with Company Formation in Mexico

Company formation in Mexico is complex and requires due diligence to ensure the success of market entrants.  

Biz Latin Hub ensures your company is fully compliant with local regulations and can operate with minimal delay. Offer a range of market entry and back-office services to support your commercial success in Mexico. The Biz Latin Hub team is built of well-experienced, bilingual, and knowledgeable accountants and lawyers striving to offer premium service.

The Biz Latin Hub team of local and expatriate professionals offers responsive, tailored legal and accounting solutions in Mexico where procedures tend to be lengthy and complex. If you want to set up a company, then Biz Latin Hub is your professional partner.

Reach out to our team of local experts for advice and comprehensive market services.

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