We have talked about what it takes to set up a company in Mexico. However, sometimes, our clients want to take the fast lane and purchase an already existing company.
Since this has become a popular way to grow into Mexico, in this post, we will discuss some important aspects of acquiring a Mexican business entity.
Quick disclaimers. First, this is NOT legal advice. If you would like to retain our services, please contact us here. Second, we are intentionally leaving out tax implications, which is the subject of another post.
One more thing. Typically, the most common business entities in Mexico (in Spanish, Sociedades Mercantiles) are conformed by either shares (acciones) or membership interests (partes sociales). There might be some specific rules to each, but for simplicity, in this post we will try to give you a general overview.
With that being said, let’s go!
Initial Due Diligence.
It is critical to make sure the target company is clean. This will help you avoid pesky surprises and unintended legal liability. Generally, you would want to retain the services of an experienced corporate attorney to look at documents. Important documents might include the incorporation deed (acta constitutiva), amendment deeds (actas de reforma) if any, registrations, corporate books and ledgers, tax compliance reports (opinión de cumplimiento), etc.
If the company has employees, intellectual property or customers, your corporate attorney should direct you with other specialists lawyers that will help you review all these additional details.
Stock transfer agreement
Either shares in a SA or SAPI, and membership interests in an S de RL, may be transferred by a contract between all parties involved. Shares may also be transferred by the endorsement of the share certificate in favor of the acquirer. In both cases, the offer of such stock must be in compliance with Mexican Stock market Law, which determines the requirements for public offerings and the private offerings exceptions.
However, in either case, it is always advisable to sign on a stock transfer agreement, to cover all the details of the transaction, for example, payment terms, representations, warranties, indemnities, etc. At closing, you will need to ask your attorney to validate that all the legal requirements are met for the transfer to be finalized.
Generally, membership interests in an S de RL might only be transferred with the consent of the majority of the partners. Shares on SA or SAPI are freely transferable by Law, however, in most cases, bylaws of the target company will contain requirements to cure. Some of these requirements may be in the form of shareholders’ or board’s authorizations, right of first refusals or poison pills, among many others.
To cure these requirements, it is common to ask the target company to organize either a shareholder’s meeting and/or a board meeting with 100% of attendance, for the key parties to authorize the transaction, and waive, if possible, any special right.
When 100% of attendance is not possible, your corporate attorney must carefully determine what limitations will make the transaction impossible, which ones can be accepted (within reason) and provide a clear view of the potential risks of the acquisition.
Post acquisition documents.
Once the transaction is complete, you will want to cover the following:
Certification by Notary Public.
Although generally not required by Law , it is advisable to send all the transaction documents to be certified by a Mexican Notary Public. This certification will prove useful when filling documents with authorities (specially the tax one). Also, having this document certified will result in public deeds, which are strong evidence in case of future litigation.
Update of corporate ledger and re issuance of share certificates.
Since the transaction will implicate a change in the partner’s or shareholder’s structure, such changes must be reported in the target company’s corporate ledgers and the company’s board must re issue new share certificates to the new shareholders.
Post acquisition filings.
Once the transaction is complete, the target company must file notices with, at least, the following authorities:
Tax Authority (SAT).
Foreign Investment National Registry (RNIE).
Ministry of Economy (Secretaría de Economía).
State’s public registry (Registro público).
Times, thresholds, and process of filing may vary depending on the filling, we recommend consulting with your local advisor.
At Novus, we help our clients to complete acquisitions of Mexican companies, if you would like to retain our services, please contact us here.