When an investor appears on the horizon, most growing companies in Mexico face the same situation: they have been operating for years under a corporate structure that nobody reviewed since incorporation. What seemed like an administrative decision turns out to determine who can call a shareholders’ meeting, how shares are transferred, and what real protection each partner has if the relationship becomes complicated.
The basic structures: SA and SRL
The two most commonly used corporate vehicles in Mexico are the sociedad anónima (SA or stock corporation) and the sociedad de responsabilidad limitada (SRL or limited liability company). In both, shareholders are liable for corporate debts only up to the amount of their contributions or shares. That limitation of liability is, in most cases, the main reason for choosing one over the other.
Both require a minimum of two shareholders. The SRL cannot have more than fifty partners, which makes it suitable for closed, family-controlled structures but impractical if multiple investors are expected to join.
Regarding paid-in capital, neither requires a minimum at incorporation. In the SRL, at least 50% of the capital must be contributed at the time of incorporation. In the SA, 20% of cash shares and 100% of shares were paid with non-cash assets.
The most relevant practical difference is in the transfer of ownership interests. In the SRL, partnership interests are not represented by negotiable instruments, and the law imposes additional requirements for their transfer: a shareholders’ meeting must authorize the assignment and admit the new partner. In the SA, shares are nominative instruments, and their transfer does not require a meeting, although the bylaws may require prior board approval or other restrictions.
The SRL is more rigid for the entry and exit of partners. That can be an advantage when preserving control is the priority, but a limitation when the company needs to attract outside capital quickly.
The alternative when venture capital enters: the SAPI
When the company’s profile changes—when a fund, an external investor, or simply more sophisticated governance rules are needed—the sociedad anónima promotora de inversión (SAPI or Investment Promotion Corporation) offers advantages that the ordinary SA does not contemplate or restricts.
The SAPI was introduced by the Securities Market Law (LMV), published on December 30, 2005 and in force since June 2006, with a specific purpose: to create a corporate instrument that facilitated venture capital investment, protected minority shareholders, and made corporate governance more flexible. An existing SA can adopt this structure by resolution of an extraordinary general shareholders’ meeting.
The concrete advantages the SAPI offers over the ordinary SA are significant for any company negotiating the entry of a new shareholder.
Minority thresholds to exercise rights are considerably lower. In an ordinary SA, appointing a statutory auditor or a board member requires 25% of the capital stock (Articles 144 and 171 of the General Law of Commercial Companies, LGSM). In a SAPI, 10% suffices (Article 16 I and II LMV).
Calling a general shareholders’ meeting in an ordinary SA requires 33% of the capital (Article 184 LGSM). In a SAPI, 10% (Article 16 III LMV).
Requesting postponement of a matter at a meeting due to lack of information requires 25% in an SA (Article 199 LGSM) and 10% in a SAPI (Article 16 III LMV).
Bringing a civil liability action against directors requires 25% in an SA (Article 163 LGSM) and 15% in a SAPI (Article 16 IV LMV), even with non-voting shares.
Judicially challenging assembly resolutions requires 25% in an SA (Article 201 LGSM) and 20% in a SAPI (Article 16 V LMV).
Additionally, the LMV allows SAPI shareholders to agree on non-compete obligations among themselves, limited in time to three years, subject matter, and geography. That clause does not operate under the same terms in an ordinary SA.
When does each structure make sense?
The SRL works for closed structures with a limited number of known partners, where control is the priority and outside capital is not anticipated or is intentionally restricted.
The ordinary SA is the most widely used structure because it is flexible, has no limit on the number of shareholders, and allows diverse capital structures. It is sufficient for most ordinary corporate transactions.
The SAPI makes sense when the company is in a growth stage and seeking outside capital, when the shareholder base includes or will include investors with different levels of participation, or when partners want more sophisticated rules to protect their relative positions before a conflict arises.
The decision on corporate structure is not permanent. The law allows transforming a company from one type to another. But that transformation has costs—notarial, registry, and negotiation among partners—that are more manageable when addressed before the investor arrives than when negotiated with him already at the table.
At CEG Legal we advise companies on corporate structuring and transformation, including adopting the structure that best fits their interests and circumstances and negotiating shareholder agreements. If your company is evaluating the entry of a new partner or investor, we can help you identify the right structure before you reach the negotiating table.
You can contact me at info@ceglegal.com