The Mexican LLC: S de RL de CV

The Mexican LLC is called Sociedad de Responsabilidad Limitada. This is one of the best types of business entities for a foreigner to establish in Mexico. In this article we tell you everything you need to know.
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The Mexican LLC is called Sociedad de Responsabilidad Limitada de Capital Variable (S de RL de CV).  This is one of the types of business entities in Mexico that you can incorporate. The S de RL de CV is a nonnegotiable stock corporation. This means that owners cannot freely sell their ownership. Certainly, the Mexican LLC is the structure that best adapts to the needs of most foreigners looking to establish in Mexico.

Firstly, the owners have limited liability to their capital contributions, as the name implies. Therefore, the owners’ assets are fully separated from the company. So, they can’t be seized to pay the obligations of the company. Hence, they are not at risk. Basically, the losses of the company do not exceed the amount invested in it. Overall this is probably the biggest advantage of an LLC. 

Secondly, it has a fast incorporation process. After all, the structure of the S de RL de CV is for smaller groups of members. Therefore it is more agile than other types of legal entities in Mexico. And thirdly, it has simplified corporate management. Furthermore, the words de Capital Variable (CV) means that the company can increase or reduce its capital. So from now on will just call it S de RL for simplicity.

When foreigners seek to open a business in Mexico, they have to decide on the type of entity they will incorporate in. In essence, this article should help you understand if the Mexican LLC is the right type of company for your business. If you still have doubts regarding the best type of business entity you should incorporate in Mexico, get in touch with us. Our team will be happy to help you make the right choice.

General Information

It is important to notice that the S. de R.L. is not a partnership but rather a corporation. Hence the separation between the owners and the business. Also, the company has its own rights and liabilities. In short, it is a separate entity. Indeed, the General Mercantile Corporations Law, or Ley General de Sociedades Mercantiles in Spanish, regulates every company in Mexico. Including the S. de R.L. Specifically, the fourth Chapter, On Sociedad de Responsabilidad Limitada, details the regulations characteristics, and rules for this type of company. Therefore, what you read in this article is based on that law.

Sociedad de Responsabilidad Limitada Key Facts

  • Owners are called partners.
  • Partners have their liability limited to the amount invested in the company.
  • No minimum capital requirements.
  • Needs to have a minimum of two partners.
  • Can’t have more than 50 partners.
  • Capital is represented by social parts (not shares)
  • Each partner has ONE social part. Although social parts may be of different value.
  • Votes are correlated to the amounts invested
  • A Sole Administrator or Board of Managers manages the company.
  • No statutory auditor requirement.

Corporate Management in a Mexican LLC

Firstly, the partners of an S de RL are the highest authority in the company. They exercise this authority through the General Partners’ Assembly. Ultimately, the Assembly takes the decisions majority vote. Each partner has a number of votes related to the amount invested. Certainly, the higher the investment, the more votes a partner has. Generally, every MXN $1,000 represents a vote, i.e. if your invested capital was $7,000, you would get 7 votes. The Mexican LLC has no extraordinary assemblies. Therefore, all of the decisions are made in the General Assembly.

Secondly, the Sole Administrator or a Board of Managers gives direction to the company. They are in charge of management and have the legal representation of the company. An important point to notice is that the Sole Administrator usually is the one who bears the company’s signature or “eFirma”. This signature is given by the tax authorities. The manager of the company uses this signature in many administrative acts.

Thirdly, if the company chooses, there may be a vigilance committee. However, this structure is designed for smaller groups of people. Therefore, this is not mandatory.

General Partners Assembly

Here are some of the matters to be discussed at the assembly.

  • Discuss and accept the company’s Balance sheet.
  • Distribute the company’s profit.
  • Appoint or dismiss managers.
  • Ask the partners for further contributions.
  • Change the articles of incorporation
  • Dissolve the company

Differences Between an SA and an S de RL

In case you missed it, we wrote an article on what a Sociedad Anonima, the equivalent of the Corp., is. There are plenty of types of business entities in Mexico. However, in 98% of the cases, foreigners incorporate in one of these two types. The other ones are only used for very specific cases. So, in order to help you decide, I will make a comparison of these two business entities. Both types of companies are pretty similar. Besides, the articles of incorporation are very flexible. Ultimately, a good lawyer could draft them in a way that fit your business needs regardless of the type you choose. However, legislators created each of them for a specific purpose. So, it is best to choose the one that best resembles your type of operation. Here are some things you need to take into account.

Size Of The Group Of Owners

The Mexican LLC is for smaller groups of owners. Ultimately you can see this in the fact that it has a limit of 50 partners. Conversely, the SA or Corp. is for larger groups of owners. You can see this in the fact that it has an unlimited amount of members. The ultimate goal would be to have a public company. Although this should not necessarily influence your decision. Not every SA plans to go public. In conclusion, you should take into account the number of owners the company will have. For example, you may plan to raise equity from different investors. In this case, it is easier to do with a Sociedad Anonima than with a Sociedad de Responsabilidad Limitada. The SA has a structure for it.

However, this doesn’t mean that you cannot add another partner to the S de RL and raise capital. It is possible. But if you plan to do it often and as a part of the business, the SA would be the best choice.

Corporate Management

Another thing you should consider is the type of management that you will have. If for example, you own 99% of your company and you will be the Sole Administrator, it doesn’t make sense to have a SA. This type of company has a mandatory statutory auditor. This means you would need to pay someone to oversee yourself as a director, and report back to you as a shareholder. Indeed, if this is the case, the S de RL is the way to go.

On the other hand, you may hire a board of directors that you don’t know. Maybe they will be Mexicans that you hire through Linkedin. In this case, a Sociedad Anonima may be a good option. Although the S de RL has an optional vigilance committee too. Ultimately, the thing you have to keep in mind is that the statutory auditor is mandatory in the SA. Also, neither the shareholders nor employees can fill this position. Therefore, if you don’t need it, it will be an extra cost that doesn’t make sense.

Size Of The Operation

You shouldn’t let the size of your operation influence your decision. Both the SA and the S de RL (the Mexican LLC) can grow to be as big as your business needs. Many foreign companies, Walmart Mexico included, incorporate as an S de RL. The reason is that their foreign company probably owns 99% of the Mexican company. So a simplified structure is the best for them. There is no limit to the size of either of these business entities. So you should not take this into account.

SA vs S de RL


Sociedad Anonima

Sociedad de Responsabilidad Limitada

Stock

Negotiable

Nonnegotiable

Statutory Auditor

Mandatory

Optional

Maximum Shareholders (partners)

Unlimited

50

Liability

Limited

Limited

Conclusion

When you look to establish a business in Mexico, you will need to decide the type of business entity for your operations. The options usually boil down to the Mexican LLC (S de RL) or the Mexican Corp. (SA). The SA has a more complex corporate management structure. It requires a statutory auditor. Additionally, the SA is for larger groups of people. Therefore can have an unlimited amount of owners.

Conversely, the S de RL is for smaller groups of people. It can have up to 50 owners. Therefore, its management is simplified. An auditor or vigilance committee is optional.

I hope you enjoy this article and find value in it. I understand that this is a complex subject. Therefore, if you have any questions, please leave them in the comments below.

And please share it with someone that may be interested!

Roberto Cornejo

Roberto Cornejo

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