1. Mexico >
2. Expanding a Business >
3. Routes to Market

Mexico Routes to Market

So you've decided to expand your business in Mexico and researched your market. Now it's time to decide how you will register and set up the business. What is the best, most viable option for your company, your products, and yourself? Which is the path of least resistance?

There are different structures that investors may use, as desired, expanding a business in Mexico. They range form setting up a commercial corporation or a branch to forming a joint venture or a trust.

Here are your typical options when expanding a business into Mexico:

Limited liability stock corporation or sociedad annima

The Sociedad Anónima is the most used and accepted business structure in Mexico. It operates under a company name and ownership is in the form of shares in the capital of the company.

Shareholders liability is limited to making capital contributions to the company for the purchase of shares. The creation of a sociedad annima requires a minimum of two stockholders and a minimum share capital of not less than Pesos 50,000 (2,250£). The authorized capital must be fully subscribed within one year of the establishment of the company. The management of the corporation is entrusted to a sole administrator or a board of directors.

Limited liability company or sociedad de responsabilidad limitada

The limited liability company is one formed by members whose obligations are limited to the payment of their contributions to the capital of the company, but in which ownership interests cannot be represented by negotiable certificates, either in registered or bearer form. Such contributions are transferable only in the specific case provided by the local law. After the limited liability stock corporation, the sociedad de responsabilidad limitada is the most commonly used way to start a business in Mexico. It may not have more than 50 members.

Any of these types of companies may be organized with variable capital which allows the business to alter its capital (the variable portion) with a minimum of formalities.

Branch of a Foreign Corporation

A foreign company is entitled to set up branches in Mexico when it is recorded in the Public Commercial Registry in the location where it intends to set up the branch. It must obtain the prior authorization of the Mexican Departments of Foreign Affairs and of the Economy. In order to obtain such authorizations, among other requirements, the foreign company expanding a business in Mexico must prove that it has been incorporated in accordance with the laws of its country and that its charter and by-laws contain no provisions that are contrary to Mexican law.

Trust or Fideicomiso

In accordance with Mexican law, a trust is a contract whereby a person, known as the settler, makes use of certain property for a specific lawful purpose, entrusting the achievement of the purpose to a trustee. The person benefiting from the trust is the beneficiary. Business may be carried out through a trust.

In Mexico, only banks and certain other financial institutions may act as trustees. Individuals or legal entities other than banks or the specified financial institutions are prohibited by law from acting as trustees with the exception of stockbrokers in connection with the investment of trust funds in securities.

Mergers

There are two different kinds of mergers in local law: a merger in which simultaneously a new company is created and one or more merging companies lose their separate legal existence, and a merger in which one or more companies are absorbed into the surviving company. Any merger of Mexican companies must be approved by the shareholders in an extraordinary shareholders meeting of each of the companies involved which must then be notarized and recorded with the Public Registry of Commerce in order to have legal effect.

Acquisitions

Under Mexican law, it is possible to acquire a business by: the purchase of or subscription for shares of stock in a company or by the purchase of the assets of the business.

Joint Ventures

The current regulatory framework relating to business combinations in Mexico consists of the following laws: The Federal Antitrust Law, The Foreign Investment Law, The General Corporation Law, NAFTA and other treaties to which Mexico is a party. Prior notice to the Federal Antitrust Commission of combinations, joint ventures, mergers and acquisitions may be required, depending upon the amount involved, in order to comply with the Federal Antitrust Law. Expanding a business in Mexico will probably require local legal advice.

Licensing

Licensing is the permission for someone else to use your intellectual property rights: either a patent, trademark, trade secret, or copyright. Different types of license include:

• Non-Exclusive License - A non-exclusive license implies that your intellectual property rights can be awarded to more than one licensee.

• Exclusive License - A little more complex because, although the license may not be exclusive to one licensee, it may be exclusive to a geographic location, a certain product, or limited area of use. For instance, you may grant a licensee exclusive use of the rights in France, yet grant another licensee its use in Germany.

• Patent License - The allowance of another party to use your patented product, design or process.

• Trademark License - Trademark licensing means permission is awarded to a licensee to sell a product or service. However, the licensor retains more control in order to ensure that quality is maintained. Quality control is in place to uphold the image of the brand / product / service / licensor, and therefore sustain customer confidence and satisfaction.

Franchising In Mexico

Franchising is the licensing out of a business name, product, technique, philosophy, trademark, etc, for a percentage of the income. Instead of setting up new outlets as part of your expansion, you license your existing business blueprint out to franchisees who then set up and manage it for you.

The benefits of expanding a business in Mexico in form of franchising include: more freedom, as the franchisee takes on major responsibilities; minimal expense; lower cost and higher profits; potential for fast growth; brand building.

Disadvantages of franchising a business in Mexico: although few, rely predominantly on your franchisees. They include: poor quality franchisees; franchisees not declaring all income; poor performance.

In the last five years the Mexican franchise sector has maintained constant growth of between 14 and 17 percent. In 2008, the World Franchise Council ranked Mexico as the 7th leading nation in franchise development due to market maturity, legal framework, support from the government, number of franchise concepts in the country, and certification programs. It can turn in a very rewarding way of expanding your business in Mexico.

The overall franchise industry in the country has proven to be one of the most important sectors for the countrys economic growth, generating over 600 thousand jobs and 55 thousand points of sale countrywide, and represents 6% of the total GDP.

Click here to Ask an Expert about Routes to Market in Mexico