How to form a corporation in Mexico

The Steps

The first step is a permit from The Department of Exterior Relations (departamento de relaciones exteriores) in which you register the name of your Mexican corporation. Three names for the company are submitted and a computer search of those names is completed to avoid duplicating an existing name. Approval of the company name, and a permit authorizing same, is done within 24-48 hours.

The next step is developing the articles of incorporation and this task requires the inclusion of a "Notario". These are not notaries as we know them in the States. The name is similar, however, the Notario in Mexico has incredibly vaster powers. The notario is a keeper of the public record: A licensed attorney, willing to forsake litigation, who passes the notario exam and is appointed by the state. The number of notarios in a county is based on population. This restricts the number of notarios and thus guarantees their millionaire status. For example, Ensenada with a population of 457,387 has only five notarios.

Notarios must put their approval on all property transfers, publicly recorded contracts, wills and public registry of all corporations. As you can imagine, they are very busy people. Notarios, like all professionals, vary in terms of: competency, accessibility and promptness of completed work.

Via a process of elimination, over a ten to fifteen year period, I have identified notarios from Ensenada to Chiapas (on the border with Guatamala) who work efficiently and posses a comprehensive understanding of foreign investment law. A good notario is absolutely essential to accomplish the maximum benefits for our foreign clients. If a real estate purchase in Mexico is the objective; the sale can be managed as an escrow. The notario can be instructed to then act as the escrow agent.

Notaries tend to differ in the legal criteria they use in permitting certain transactions. Often an individual notario will not agree with what I and my client want to accomplish. If I know it is legally appropriate, I simply go to a notario who understands the appropriateness of the transaction.

Once the articles of incorporation are recorded in the public record, we begin to obtain the necessary permits: Hacienda (tax boys) , Department of Commerce, State Registry, a mandatory Chamber of Commerce (by industry), SIC code data base, Import/Export permit and the Department of Immigration. Additional permits are required specific to certain industries. All of the above permit fees, including the Notario's five hundred dollars, is around $1,500. Consulting fees for processing the paper work and completing registries is additional.

Upon hiring employees they and your corporation must be registered in "Seguro Social". The agency provides medical benefits, subsidized housing and retirement. You can expect approximately 22% of payroll earnings as payment to Seguro Social. Employees also receive annual vacation pay of six days for the first year of employment, eight for the second anniversary, ten for the third and twelve days for the fourth year. Succeeding years are incremented by two days every five years.
Additional employee benefits are a X-Mas bonus totaling fifteen days of salary.

Severance benefits include 90 days for completing the first year of employment plus 20 days for each year of employment beyond the first year. Included in the severance package is an antiquity bonus: Twelve days for each year, after the first anniversary of employment, multiplied by twice the minimum wage. The minimum wage is $4.50 per day.

If an employee is consistently late, absent, disrespectful, irresponsible, dishonest or incapable of completing required tasks you can terminate that employee (with sufficient documentation) for considerably less than the formula outlined above. The employer pays the annual Christmas, vacation and antiquity bonus but is relieved of paying the annual severance pay of ninety days (first year) and twenty days for each year thereafter.

Employees also receive a profitability bonus that amounts to ten percent of company profits. Most employers do not pay that amount. The company and employees can agree, in writing, to a bonus system that substitutes for the ten percent of profitability. Another corporate responsibility is to pay Hacienda (IRS) 34% of profitability.

Employee contracts are a must to safeguard the employer. The contract outlines: hours, responsibilities, salary and bonus incentives if they differ from the 10% stipulated by law. If the contract is for seasonal work, the season length is specified and termination stipulated. Severance for seasonal workers only includes Christmas and antiquity bonus in proportion to the number of days worked.

For decades there has been a recognition that the Mexican labor code needs a dramatic overhaul. The present system tends to create an adversarial relationship between employer and employee. Because of severance considerations, Seguro Social and profitability bonus, employers tend to pay the lowest wages possible. Employees who feel underpaid tend to give less than a 100% effort and look for opportunities to be fired, without legal justification, if severance pay is significant.

Employees can walk off the job as a group, in a general strike, if labor law has been violated by the employer. A typical rational for a general strike is failure to pay employees in a timely fashion or a change in work days and hours without sufficient notice. A change in job responsibilities, without employee agreement in writing, is also sufficient grounds for a labor demand. These general strikes can be costly if the number of employees and years of employment are significant. All labor demands are settled by arbitration in a proscribed labor court called "conciliacion" (conciliation).

The expense and complexity of creating a corporation in Mexico is far greater than in the states. The time it takes to complete all of the governmental hurdles is approximately six weeks. President Vicente Fox has vowed to streamline the process but to date it just gets more complicated.