In Mexico, the two most commonly used types of commercial companies are the limited liability company and the stock corporation. In both types, partners are liable for company debts only up to the amount of their contributions or shares, respectively.
This limited liability is one of the main reasons why partners and investors choose these business structures, even though Mexican law provides additional forms. These other forms either make partners liable for company debts with all of their personal assets, or use a mixed scheme where some partners have unlimited liability while others are only liable up to their contribution amounts.
Limited liability companies require at least two members and cannot have more than fifty. Similarly, stock corporations require at least two shareholders but have no maximum limit.
While there is no minimum initial capital required for either entity type, limited liability companies must have at least 50% of their capital contributed at formation. For stock corporations, at least 20% of cash-paid shares must be paid upon incorporation. Additionally, 100% of the value of shares paid with non-cash assets must be fully paid at formation.
Ownership interests in limited liability companies are not represented by negotiable instruments. In contrast, corporate shares of stock corporations are represented by registered certificates, making them more easily transferable.
Consequently, the law establishes stricter requirements for transferring membership interests and admitting new members to limited liability companies, requiring a formal meeting to approve such changes. In stock corporations, no shareholders’ meeting is necessary to authorize share transfers, though articles may include clauses requiring board approval for any share transfers.
Both entity types may be managed by partners or by non-partners. When there are multiple administrators, they form a board.
In limited liability companies, administrators are called managers, while in corporations, they’re called directors. These positions are personal and cannot be performed through representatives—individuals (natural persons) must be appointed as directors.
Stock corporations must appoint a statutory auditor who oversees the directors’ actions and reports findings to shareholders’ meetings. This appointment remains optional for limited liability companies.
Both entity types can adopt a variable capital structure, allowing them to increase or decrease their capital without amending their articles of incorporation.
While additional similarities and differences exist, these fundamental distinctions should help interested parties decide which entity type best suits their needs. Companies can also transform from one type to another later if the original structure no longer meets the partners’ requirements.
