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Tuesday, March 20, 2012

Advising Mexico Clients re: Entity Selection and Formation in the U.S.

Mexico's Corporation Code or Ley General de Sociedades Mercantiles acknowledges six forms of business entities. The two forms most commonly used are the Sociedad Anónima or S.A., which would be the equivalent of a U.S. corporation, and the Sociedad de Responsabilidad Limitada or S. de R.L., which, except for its tax treatment, would be the equivalent of a U.S. limited liability company.  This, in addition to the fact that the Code is federal, makes the selection of a Mexico entity relatively easy.

By contrast, choosing an appropriate legal structure for a business operation in the U.S. is far more complex. Each state has its own set of laws that apply to the various business forms and should be consulted before making the decision. U.S. business law incorporates aspects of statutory law, case law, procedural rules, and common law concepts. On top of all the corporate legal aspects, there are also many tax and other practical considerations to examine.  Issues to consider include: (a) management and control, (b) liability of owners and investors, (c) liability of officers and directors, (d) availability of capital, (e) transferability of interests, (f) continuity of existence, (g) cost of formation and operation, (h) anonymity of owners and investors, (i) formalities of business operations, (j) location of principal place of business, (k) payments and distributions, (l) federal, state and cross-border tax consequences and (m) cross-border implications. 

Accordingly, the popular myths about the advantages of incorporating in Delaware or Nevada warrant further analysis, and the final decision shall be made in a case by case basis in collaboration with Mexico and U.S. legal counsel.  For more information or for assistance in doing business in Mexico and California or elsewhere U.S., please contact Mauricio Leon de la Barra, Mexico and California attorney at law and partner at Martin-Sanchez & Leon de la Barra, LLP.  Mauricio can be reached at mlb@mexicocalifornialaw.com.

Mauricio Leon de la Barra is an international law attorney licensed to practice law in Mexico and California, and has more than 15 years of experience representing clients in business and real estate transactions and litigation involving international, U.S. and Mexican laws.