Gonzalo Calvillo – Incorporation Procedure

The purpose of this document is to provide you with a brief general description, of the incorporation procedure and requirements, which will need to be followed and complied with, in order to incorporate a Mexican subsidiary in Mexico. Procedure that normally takes approximately two to three weeks, if all the solicited information is delivered on time and as requested.

In connection with the foregoing, below please find all the relevant information in connection with the incorporation procedure of a Mexican company (“NewCo”).

I. TYPE OF COMPANY.

After analyzing the activities that your group want to explore and perform in our country, we think that the best alternative is for the NewCo to be incorporated either as a corporation (Sociedad Anónima) (“SA”) or as a limited liability company (Sociedad de Responsabilidad Limitada) (“SRL”), which are the most common types of companies used in Mexico.

There are certain common characteristics and slight differences for both types of companies, same that are explained as follows:

(i) Both companies are considered limited liability companies, the liability of the company is autonomous from the liability of each Shareholder/Partner, which is limited up to the amount paid or contributed by such Shareholder/Partner, as the case may be.

(ii) Both companies have a fixed and a variable capital equity; the amounts of both types of capital can be determined by agreement of the Shareholders/Partners;

(iii) Both companies are governed by the General Law of Business Organizations (Ley General de Sociedades Mercantiles) (hereinafter the “Law”);

(iv) Both companies require a minimum of two individuals or entities as Shareholders/Partners; Mexican law does not contemplate or regulate single-owned entities.

(v) The by-laws of the incorporated entity will have to state that foreign investment is allowed and shall include the commitment of the Shareholders/Partners to waive the protection of their foreign governments;

(vi) S.A.’s have Shareholders and S.R.L.’s have Partners; an S.A. may have any amount of Shareholders, while a S.R.L. may only have up to 50 Partners;

(vii) The corporate capital of the S.A. is represented by shares (with or without par value). Shares are evidenced through the issuance of stock certificates. The corporate capital of the S.R.L. is represented by partnership interests or equity quotas, which do not need to (but may) be physically issued and represented with provisional certificates. In either case, shares or partnership interests are registered in a Stock/Partnership Interest Registry Book, which evidences the owners of the same. Shareholders may hold one or more shares issued by the company, while a Partner, in principle, may only hold 1 partnership interest (unless there are partnership interests which grant different rights to their holders, in which case a Partner may have more than one partnership interest);

(viii) The S.A. is governed by the Shareholders Meeting, which is considered the supreme body or authority of the S.A., while the S.R.L. is governed by the Partnership Meeting, whose authorities and powers are, in both cases, provided for in the corporate by-laws;

(ix) The administration body of an S.A. could be performed by a Sole Director or by a Board of Directors and the one of the S.R.L. is by a Sole Manager or by a Board of Managers.
In addition to the foregoing, it is our understanding that the S.R.L. as a partnership could represent, for its foreign owners, a special tax treatment in different foreign jurisdictions (as a pass through entity), however, this is something that should be verified with the corresponding foreign tax expert.

II. INCORPORATION PROCEDURE.

The entire incorporation procedure would take approximately 2 – 3 weeks and shall be performed through a Mexican Notary Public (which is more like a public attester, different from the Notaries in the U.S.). To carry out such procedure, we would require the following:

1. Name Permit. A permit for the corporate name of the NewCo must be obtained from the Ministry of Economy (Secretaría de Economía).

2. Corporate Capital. We would request that you inform us of the amount of the corporate capital with which NewCo would be initially incorporated, both fixed and variable capital; please note that the variable capital does not necessarily need to be set upon the incorporation. We would also request that you inform us how the corporate capital of NewCo would be distributed among the Shareholders or Partners (i.e., 99.9% and .1% or 50%-50%, etc.).

3. Management. As mentioned above, NewCo may be managed by (i) a Sole Administrator or Sole Manager, or (ii) by a Board of Directors or Board of Managers, as applicable. Therefore, we will require the name of either the Sole Administrator or Sole Manager, or if applicable, the names of the individuals that shall be named as members of the Board of Directors or Board of Managers of NewCo.

4. Officers. If NewCo is to have any officers, we would require the name of such individuals, as well as the position they shall occupy.

5. Examiner(s). The Examiner (or statutory auditor) is the person in charge of the surveillance of the financial and accounting situation of NewCo. Please note that Examiners are only required for the S.A., (one or more Examiners may be designated); therefore, if an S.A. is chosen, we would require the name of the individual(s) that would be discharging the position(s) of Examiner(s).

6. Attorneys-in-fact. We would require the name of the individual or individuals that shall be appointed as attorneys-in-fact of NewCo, and the authority with which they shall be vested.

Such authority may be for: (i) lawsuits and collections, (ii) acts of administration (Contracts), (iii) acts of administration with respect to labor matters, (iv) opening and handling of bank accounts1, (v) issuance of negotiable instruments and (vi) acts of ownership. In all cases, the powers of attorney may be broad and general, or may include specific limitations for their exercise.

7. Domicile. The NewCo will need to have a physical domicile in Mexico in order to obtain its tax id number or RFC and the electronic signature in order to be able to file within the corresponding authorities its tax declarations. If the NewCo will not require initially a physical location, normally the Mexican accountant could provide for a virtual address.

8. Power of Attorney for Tax Purposes. We recommend that a special power of attorney be granted in favor of the external accountant(s) of NewCo, to carry out any and all steps necessary to record NewCo before any applicable tax and administrative authorities, including but not limited to the Federal

Taxpayers Registry (RFC) and the Mexican Institute of Social Security if there are going to be employees.

9. Incorporation Proxies. Special powers of attorney will need to be granted in favor of persons located in Mexico, by each foreign Shareholder or Partner of NewCo, in order for them to attend before the Mexican Notary Public and represent the Shareholders/Partners at the incorporation procedure. Such powers of attorney will need to be granted abroad, and will need to be notarized and apostilled (or legalized) in the place where they are granted, in order for them to be legally valid in Mexico. Once we receive these formalized powers of attorney, we would formalize same before a Mexican Notary Public in order to proceed with the incorporation of NewCo.

In case that the foreign Shareholders/Partners are natural persons and would like to travel to Mexico in order to attend in person to execute the incorporation deed, they must obtain a valid business visa or permit to be able to do so.

III. REGISTRATIONS.

Once incorporated, NewCo must carry out the following registrations:

1. Taxpayers Registry or RFC. An application must be submitted before the Taxpayers Registry in order to obtain the tax identification number and card of NewCo for which a domicile for tax purposes will be required.

2. National Registry of Foreign Investments (“NRFI”). NewCo must be recorded before the NRFI within 40 days following the date of its incorporation.

3. Mexican Institute of Social Security. At the time any Mexican entity hires any employee, it shall be recorded before the Mexican Institute of Social Security as an employer. The registration has no cost, however, for each employee, NewCo must pay a certain percentage of their salary.

4. Mexican Business Information System (“SIEM”). NewCo must be recorded within the following two months of its registration before the Ministry of Finance. A commercial chamber affiliation will be required for business promotion purposes. Updated annually.

IV. CORPORATE AND GENERAL MATTERS.

1. Corporate Books. Once NewCo has been formed, the Stock/Partnership Interest Registry Book and Capital Variations Book of NewCo must be duly opened. Also, please bear in mind that NewCo shall also keep a Shareholders/Partners Meetings Minute Book and a Board of Directors/Managers Book, which shall be opened upon the holding of the first meeting, as applicable. It is important to mention that derived from a recent legal modification to the applicable law, since December 15, 2018 the partners or shareholders of a NewCo will have to file a notification before the business organizations electronic system of the Ministry of Economy in order to enforce any transfer of shares or equity quotas.

2. Foreign Employees. Should there be any foreign individuals working in Mexico in connection with the activities to be undertaken by NewCo, they will have to obtain the required visas in terms of applicable law.

V. MEXICAN ANTI-MONEY LAUNDERING LAW (LEY FEDERAL PARA LA PREVENCIÓN E IDENTIFICACIÓN DE OPERACIONES CON RECURSOS DE PROCEDENCIA ILÍCITA).

With the purpose of complying with the Mexican Anti-Money Laundering Law (hereinafter the “Anti-Money Laundering Law”), upon incorporation we need to provide the Notary Public with the following information and documents of the shareholders or partners of NewCo, as the case may be:

For individuals:

For shareholders or partners which are either Mexican citizens, foreign citizens, or non-resident individuals living in Mexico, each shareholder/partner must provide the following:
(i) General Information: date and place of birth, marital status, occupation and current address;
(ii) Copy of Official Immigration Documents: in the case where an individual is a non-resident legally living in Mexico; and
(iii) Copy of Domicile Evidence: this is a proof of address within Mexico where official notifications may be delivered (such as electricity bills, phone bills, etc.)2.

For Companies or Corporations:

For Shareholders or Partners which are either Mexican or foreign companies or corporations, each Shareholder/Partner must provide the following:
(i) Name, date of incorporation, country of origin, any type of tax information provided by country of origin (if applicable);
(ii) Current address as well as a copy of a document that provides evidence of domicile for this address (such as electricity bills, phone bills, etc.);
(iii) Phone number, along with its respective international dial-in code;
(iv) Copy of official documents evidencing the incorporation of the partner or shareholder;
(v) Confirmation as to the capital structure of the company; and
(vi) Copy of the company’s taxpayer ID number.

Should you have any comments or questions in regards to the foregoing, please do not hesitate to contact us.