Achieve eSignature Lawfulness for Businesses in Mexico

How to eSign a document: eSignature lawfulness for businesses in Mexico

mexico is a very can be a very difficult country to do business in but it presents a lot of opportunities uh but also some very interesting challenges uh but i think you'll find out that the the challenges are far outweighed by the possibility in business now when we started our company i had to face a lot of the same challenges that my clients face so i kind of have you know experience from the very beginning to the end i think we started out as a very small operation but we now represent about four percent of all usd corporations in mexico uh per year uh some of our clients include qualcomm and vizio uh we have several projects that we do with amazon in conjunction so we try and make our clients dreams come true so to speak in mexico besides some of the more challenging aspects so we'll begin by reviewing some of the corporate forms in mexico uh so the essence of a this is going to be the equivalent of your corporation now uh this is for primarily if you have a large number of shareholders uh more complex operations and people or or participants in capital that are dealing with each other at arm's length there's more corporate formalities i think the the biggest challenge here is is sort of getting those corporate values complete on a monthly basis if you want to comply with whatever law for example there's a commissioner requirement and the commissioner acts on behalf of the shareholders and has to receive reports from the board of directors on a monthly basis so you can see how this can sort of get out of hand if you have just a subsidiary for administrative purposes what you'll find more commonly is the sociological response of the limitation i'll refer to most of the things in english so don't get scared so this is going to be the equivalent of the limited liability company or the us llc and so for example if you go and buy something at best buy right in mexico you'll see that on the receipt it'll say best buy srl de severe limited liability company why because it's the most common form especially for american investors to enter the mexican market the irs gives its favorable favorable tax treatment uh it's uh it's applied to what's called the hybrid entity rule which means it's treated as a check-to-box pass-through entity so of course if you're getting a lot of revenue from mexico that has tremendous number of benefits uh also uh we have this sapping you won't see this too much most of the time the set the sap is essentially the variation of the of the standard corporation and it's used for uh primarily for raising local capital it has a series of minority shareholders rights a bunch of boring little terms that i won't get into too much detail in right now but you might see that in a few instances but it won't be that common the second part is we're going to look at the fundamental considerations for formations there is the two shareholder requirement and that basically means that there's no such thing as a wholly owned company in mexico a lot of times clients will come and they'll say well i just want to own the whole thing well we have to be creative about it because it doesn't matter what the percentage is if you have one percent for one shareholder and then 99.9 for another shareholder you still have to comply with the two shareholder requirement and i guess for us in the united states that is somewhat of the most bizarre aspect formalities uh the notarization of the arkansas incorporation really it goes beyond the incorporation process it goes right on into the actual ongoing business of the company the notary plays a central role karen said that mexico is not unique in that aspect most civil war countries the notary plays a huge role here you can go to whatever bank your grocery store gets to be notarized no notaries are a very huge implication for any type of corporate endeavors in mexico now the other aspect that karen touched on was separate tax registrations so the the actual incorporation process is only the beginning there are a whole series of subsequent registrations and subsequent bureaucracy that you have to deal with to get those registrations so in mexico corporate law is inextricably linked to tax law and that's something that's very very very different here in the united states all we do is file for your company maybe once a year an annual filing for your uh your tax registration or you file with the irs whatever your earnings were and that's it in mexico that's done on a monthly basis so uh also mexico has a a pretty broad regime for foreign investment so that means any companies that have foreign investment or foreign shareholders they have to register with the uh the national registry of foreign investment which isn't all that difficult if you get into more sensitive industries then that can be an issue okay now we're going to talk about basically we started out we're going to take you through a walk through a standard article as an incorporation we decided that was a little bit too much so these are the basic points that you should be able to find if you have clients from mexico i think the biggest thing to know is of course we talked about the notary you want to make sure that you know where the document was notarized because in most cases that will be the registry where the document or the company has all its corporate its corporate registrations so in mexico you have for example every notarized document has a public deed number so don't be surprised that when you see at the very beginning there's going to be a number that says the no rename the notary number and then also document number 10535 because the entire course of a notary's career for every single document they've ever had including corporate documents they're going to have about starting from number one to number 100 032 after 40 years of the notaries practice their your documents can have a unique number so that's very very different uh also in the articles of incorporation you there's this is kind of a misnomer uh we're used to seeing maybe two or three different documents that are the formal documents in common law jurisdiction your certificate formation your bylaws and then your your resolutions most of those at least for the articles of incorporation and the bylaws it's all the same document so a lot of times companies ask me well what are what about my articles of incorporation and my my bylaws they're all they're all there they're all there um and so also in that you'll find the list of directors and the list of corporate powers which we're going to go to now this is going to be very divergent from what we find in common law countries why because corporate powers for one they're not called corporate powers they're called powers of attorney and that usually scares people whenever we hear that word power of attorney and in uh mexico like other civilized countries it's all defined by statute in fact there's only about six or seven types of corporate powers of attorney and this is a place where i recommend everybody pay very close attention to because when we have clients who come in and they're asking about what can their local signatory or the local representative do you kind of have to just look at the local what the what the local representative has um and then go from there so the first corporate power that you're gonna see is the the power for lawsuits and collections that just basically means that the local representative or the signatory can walk into court and sue on behalf of the corporation the labor powers which means they can represent labor disputes and the most important two powers are up next the first one being the general power for administrative acts this means that the person who wields this power of attorney can exercise basically sufficient authority to operate the business as a going concern on a daily basis sign contracts immaterial things uh represent the cut the company before the tax authorities get licensing and and things like that so if we'll talk about this more but that's something that to keep it keep in mind the general administrator's acts is going to be very very important the ownership acts uh power which is referred to in spanish as actos de dominio i'll speak to the english don't worry again and this is basically the full power of attorney that allows you to get rid of property open up any do any type of transaction that you need in other words you can significantly encumber the company with this type of power so this is going to be reserved to people who are trusted local directors or local representatives uh with a history of working with the company in my opinion and then you obviously have later on the the more minor uh powers which are the obligations and debt securities power the banking powers and the customs powers and you want to pay close attention to these because a combination of one or the other may be required by your bank in order to have your local representative open up the bank account so be aware it's just a matter of checking with the bank and what their internal policies are okay now restrictions on cut on on powers of attorney a lot of times clients will want to say well i want this person to be able to do this and not that only operate the bank account up to a certain amount and they try to put all that information within the articles of incorporation restrictions are not a very good thing to put in the articles incorporation what you want to do is put that at the level of execution so for example address shooting a banking document you want to put the restriction in the banking document that they can contract not the articles of the corporation one time we were opening up a bank account for a client at van norte which is one of the major banks and we put a restrictive covenant in the articles of the corporation in the person's corporate power what happened was it was throwing a curveball to the bank executives it took them weeks months about four months to review the documentation and they because they just didn't know if the person had the sufficient authority to do what they were saying they were going to do and it just ended up being a mess so my point is do not put restrictive covenants in the document itself and at the point of execution like i said before is where you really want to make sure that you have any type of restrictions on the use okay so we want to make sure that [Music] you you need to think about the specific tasks that the person is going to have to undertake and you'll have to match up those tasks to the specific powers of attorney and see uh and basically that'll permit the the person to act on behalf of the company in whatever way that they need to with the sufficient authority that they need to the most important thing uh is i guess a big difference compared to common law diff kamen law jurisdictions is the local agent requirement so as karen said the us is really the only place in the world we have a strict local agent requirement where they just receive services process in mexico for example you are really on the hook with the corporation as your as the local representative but it's a necessary evil for example if you want to get the company up and running as far as the tax registrations you as a foreigner will have to rely on your local agent to get those tax registrations uh you won't be able to sign all the documentation as a foreigner it is possible for you to you know fly down get mexican residency and handle everything yourself that will add months to your process it will it's just so impractical so in most cases for example with customs broker documentation we sign all our customs broker documentation for our clients we get all their tax id uh register their tax id registration is completed and anything else that they need the big difference between let's say a local agent versus a local director this is a big question and why because all companies are going to require a local agent in most cases you know even for you know fairly immaterial things but then they say well what about a local director okay well the difference between a local agent and a local director is really a matter of degree so a local agent would only need to have a power of attorney for administration which we talked about a little bit earlier and what that implies but a local director will have a whole series of powers of all the seven right powers that we had they might have all of them uh and so that also comes with some type of liability the liability of the local agent the local director is very high in mexico so that's why you'll see in some cases increase in cost in that area so for example when it comes to liability for property liens or you know let's say personal liability for filling out documentation where you have to swear under oath that different facts about the company are correct the local agent is going to have a lot of responsibility i can think of one of the common areas is when all companies in mexico have to make employment deductions and contributions by way of what's called the imss the mexican social security institute so if you do not uh if you're not current on your your employment deductions that can cause tremendous problems the they will possibly knock on your door and say here you owe this amount of money and you need to pay it in two business days and if you don't we will lean the property and guess what even if you're only renting the property your your company doesn't own the office where you're in they will still lean the property so limited liability and the idea of the corporate veil is something to take into consideration and don't be surprised if there's some increased cost compared to your home jurisdiction uh local banking considerations this is something that's very very important um for example you different signing authority is always difficult right some banks will allow foreigners to sign some people some banks won't some banks will require that the client come and fly down to mexico to sign the document in person similar level documents be signed by by fedex but the point is you want to make sure that the person who is executing the banking documents does not have to be a mexican national and two you want to see if they're going to require the physical presence of the client for the sickness for the corporate documents our company we have a relationship with our bank where we allow the client or the bank allows us to mail the client to corporate contracts so they don't have to come to mexico but most importantly they don't have to get mexican residency to have the document signed and that's very good for civil liability because if you have your local agent signing the corporate documentation for the bank account then of course there's other issues of you know funny business going on so say the least so those are very important considerations and they may change from bank region bank branch or even bank executive so be prepared for that okay so next we're going to move into the process for incorporation of legal entities which i guess is the actual purpose of this part of the conversation so all documents from the parent coverage and shareholders must be provided by apple steel basically uh i remember one client we were we were incorporating last week was in a really really really big rush to open up what's called immaculate door manufacturing operation and um you know he sent copies of his documents and pdf to me and he said i get back to him with an instructional memorandum exactly what he needs to do with those documents and i said you need to get them from the secretary of state and get them a notarized certified copy and have an apple steal well i thought that the pdf would be sufficient i said no we were clear from that from the very beginning so it would be nice if that were the case but the point is every time you have a document that's going to be a foreign document used in mexico it needs to be applesville they're very very big on this requirement so another thing is point number two is the the execution powers of journey this is only the case that you have uh incorporation from abroad that is to say that the actual incorporators will not be traveling to mexico a lot of people try to say that you have to come and fly to mexico to incorporate it's not true you can use a limited power of attorney and have somebody sign the documents on your behalf it's so much easier not to pay for hotels or flights or anything like that legal translations another thing uh any documents from abroad have to be translated by a translator in mexico so we have clients uh when one client from china came in and they had all their documents translated they say oh we did the favor of you getting the documents translated i said no we have to actually have it translated within mexico by somebody certified by the federal government so that's something to keep in mind lots of little formalities that can sort of cause hiccups anyway so the next uh the next point here is of course the execution of the rlc corporation one way or another someone has to be physically present and that is by the poa or the client flying down we talked about it a bit but really uh and karen when she she warned you guys we're going to talk about this in detail about the the massive number of registrations that have to take place post incorporation so once the documents are notarized you have articles of incorporation in your hand you say congratulations you can't do anything yet so you have to all these subsequent the subsequent documents the not the least of which is the rc tax id number for example if you're selling on amazon in mexico you have to have the tax id number if you want to onboard with the new client or supplier they're going to want you to have their tax id number the second part is the what's called the field and that is basically stands for the company's digital signature and this is required not necessarily at the beginning but towards the the latter part of the incorporation when you're really going to start billing okay and i guess the problem with this is recently there have been delays uh legal speech hold on for a second rule number 2.2.15 this has been the bane of my existence for the past year okay uh first in order to get the tax side the the digital tax signature at random and by at random we're talking maybe about 85 percent of the time especially the company as foreign capital you sit down at the tax office you go through the entire process of getting digital signature and at the very very end they tell you nope sorry you have to go through revision and do the whole process over again and by the way we have to visit your attack your office so they come by they're very nice people we usually can sit down have coffee with them and things like that but they want to confirm that the company is actually legitimate big problem with money laundering and things like that the problem is this process if it happens to you very sorry it can increase the incorporation time by uh between business days yeah so that's something definitely to keep in mind because a lot of times people come in and they say i have a million dollar shipment that's that need to get crossed through through customs well you can't do that if you don't have your electronic taxi material so start early that's all i say and finally we did talk about foreign investment registrations uh you really have to look at this or think too much about it unless you're in a restricted industry like oil or energy or if you're owning property along the coast but that's something to consider uh you have to make sure your foreign investment registrations and foreign capital are registered and before you can you can consider yourself completely incorporated and ready to do business