SDL Consulting Blog

Incorporation Options in Mexico & the US

While incorporation options in Mexico are somewhat similar to those in the US, there are some important differences. In the US, the most common types of corporations, in order of limited liability status, are:

1. C Corporation (taxed as a Corporation)
2. LLC (Limited Liability Corporation)
3. S Corporation (taxed as a Partnership)
4. LLP (Limited Liability Partnership)
5. Partnership

In Mexico, the three most common types of incorporation, also in order of their limited liability status, are the following:

1. SA
2. S de RL
3. SC

Let me explain some of the similarities and differences of these models and try to match up Mexico incorporation options with their rough counterparts in the US. However, I want to clarify that I am not a US attorney and therefore some of the statements I make concerning the US incorporation models are made not for legal purposes but only for comparative purposes.

Mexican Corporate Models

An SA corporation, known as a Sociedad Anonima, has been the traditional incorporation model during the past 50 plus years in Mexico. It has limited liability and is taxed as a corporation. The S de RL model, known as Sociedad de Responsabilidad Limitada, has been a new, simpler model that has come into vogue in Mexico during the last 15-20 years. Many large companies, such as Wal Mart use the S de RL model, which has its name suggests, is also a limited liability corporation. The S de RL model does offer some partner-like benefits that companies can take advantage of but is taxed in an identical way to the SA model, as a corporation. Today, the only companies that reach for the SA model without considering the S de RL model are those that are public corporations or have aspirations to become public since the SA model is better structured for the formalities of a public corporation. Finally, the SC partnership, known as Sociedad Collectiva, is an unlimited liability partnership that is used principally by service providers like law and accounting firms and consulting firms. Finally, while branches do exist in Mexico, the Mexican government frowns on their use except when a foreign company will be temporarily in the country and is looking for an incorporation option. Law and regulations about branches in Mexico is not extensive and left open to many interpretations that foreign companies generally do not feel comfortable with, and therefore they tend to consider one of the other corporate models.

Comparison of US corporate models to Mexican corporate models

The Mexican SA model appears to be the equivalent of the US C Corporation or the US LLC. And, the Mexican SC partnership appear to be the equivalent of a US partnership. However, the Mexican S de RL does not really have an equivalent in the US system. Both the S Corporation and the LLP are limited liability like the S de RL, but they are both taxed as a partnership in the US while the S de RL is not. Therefore, you could conclude that Mexico does not have a form of a limited liability partnership that a US LLP or S Corporation might look to use when incorporating in Mexico. And, as mentioned above, while the US uses branch incorporation with some regularity, US companies with branches should not seriously consider incorporating with a branch in Mexico.

Later in June or in July, we will expand upon incorporation themes such as incorporation requirements, time frames, costs, administration options, the importance of powers, and some suggestions about when/why a foreign company should consider incorporation in Mexico over continuing to do business in the market from a foreign base.