Introduction

This article will explain:

• The principle aims of creating a unipersonal company in Mexico.
• How the entity has already developed in other countries.
• The definition of a unipersonal company, and how it differs from a public corporation.
• What benefits it could bring for Mexicans and foreigners, and how these benefits will be fully realised.

Brief background

The creation of a unipersonal company in Mexico is currently in the proposal stage. It was approved by the Cámara de Diputados (Chamber of Representatives) in February 2008, and could potentially be set in law within a year.

The Ley General de Sociedades Mercantiles (General Law of Commercial Corporations) regulates business enterprises in Mexico. One of the law's requisites is that all companies comprise at least two partners or shareholders.

With the aim of boosting the economy, on 27th March 2008 the Cámara de Diputados approved the potential formation of the unipersonal company, which will have only one partner or shareholder. Its creation will represent a complete upheaval of Company Law in Mexico.

Origin of the unipersonal company, and its development in other countries

Several European countries have already adopted various legal stances with regard to the unipersonal company, and the creation of this entity in Mexico aims to bring our legislation into line with those of other countries.

In Europe; Germany, Portugal, Sweden, Holland, Denmark, Luxembourg, Belgium, Spain and Italy have adopted the unipersonal company within varying legislative guises. In Latin America; Argentina, Brazil, Chile, Paraguay and Columbia have also integrated unipersonal companies into their legal systems.

Reasons for creating a Unipersonal Company in Mexico

The principal reason for creating a unipersonal company in Mexico is to incentivise individual professional activities and to avoid single individuals forming commercial entities which they disguise as “companies”. (It is common that business people enlist the legal involvement of a relative or third party so as to accord with the current law. However, the third party often has no real involvement in the business.)

Over the years, changes in Mexican legislation have reduced the number of partners or shareholders required to create a commercial company. This has led to increased investment in small businesses, increased self-employment and greater economic development. It is expected that the creation of a unipersonal company will build on these past successes.

What are the essential differences between a Unipersonal Company and other types of companies?

A company will be deemed ‘unipersonal’ if it is either founded by one partner or shareholder, or if it was founded by two or more partners and all of the shares have since been passed to a single partner or shareholder.

Unipersonal companies will be required to include the mnemonic “E.U.R.L.” (companies with limited responsibility) or “E.A.U” (public limited companies) after their company name.

Certain corporate actions of a unipersonal company will need to be announced in writing, such as increases and decreases in social capital, changes of address or reforms of the social statues of the company.

In Mexico a ‘public corporation’ is defined as a contract or agreement which arises between two or more people who are mutually obliged to combine their resources or efforts to realise a common goal. Although the unipersonal company will not be a ‘corporation’ as per this definition, it will be regulated under the same law as public corporations in Mexico.

Unipersonal companies will face the same legal requisites as other companies in terms of minimum capital, and will be subject to the same rules regarding increases and decreases of social capital.

Benefits for Mexicans and for foreigners, and how these benefits will be realised

The creation of the unipersonal company will bring benefits for both Mexicans and foreigners, which will include:

• Increased security for individuals setting up businesses.
• New employment opportunities – the increase in small business start-ups will require more workers to contribute to their development.
• A more efficient fiscal system – it will be easier for the government to identify people who are carrying out business activities and who should be contributing to public spending.
• Growth of foreign investment into Mexico – through removing red tape and certain procedures which are currently required by the Ley General de Sociedades Mercantiles, foreign investors will find it easier to set up businesses in Mexico.
• Limited personal liability for business people – partners or shareholders of unipersonal companies will be able to acquire assets for their company without compromising the security of their personal assets.
• More efficient processes – partners or shareholders will be able to carry out AGMs and EGMs without needing the vote of other partners or shareholders.

Mexico’s legal system will be modernised, and the resulting legislation will better serve the new social and economic conditions faced by this country.

Conclusions

The creation of a unipersonal company in Mexico completely breaks with the existing system of regulating businesses. However, we strongly expect that the benefits mentioned above, to both Mexicans and foreigners, will be realised.

About the Author

Yazbek Taja collaborates in the areas of Corporate Law and Foreign Investments at Rivadeneyra, Treviño & de Campo, S.C. She holds a law degree from Universidad De Las Américas, as well as a Masters in Business and Fiscal Law from Universidad Iberoamericana de Puebla. Yazbek is a member of the International Bar Association. This article was written in collaboration with Jodie Paula Cohen, who is in charge of Client Relations for Rivadeneyra, Treviño & de Campo, S.C. You can contact Yazbek at: ytaja@rtydc.com or Jodie at: jcohen@rtydc.com, or visit us at: www.rtydc.com