By Benjamin Glick
As companies in the U.S. and Mexico establish deeper ties within multi-national companies and growing commercial interaction, familiarity with the legal landscape of Mexico is essential for doing business in the country.
Besides having different laws, Mexico’s legal system differs in other fundamental ways. Probably the most significant difference is the basis of its legal system.
Rather than basing its legal system on common law– as it is in the U.S. – Mexico instead follows the civil law tradition.
This is important for any movement into the market because the penalty for most offenses are ostensibly pre-determined.
Civil law codes are notoriously difficult for foreigners from common law countries, so finding qualified professionals to help without offending the law is understandably important.
To make sure entry into the Mexican market is done smoothly, it is advised that companies seek the assistance of an in-country attorney.
Only in-country attorneys can be consulted in Mexico because NAFTA does not include bylaws allowing U.S. attorneys to practice law in Mexico, and so will not be recognized before courts if their defense is needed. So, U.S. businesses will need to hire a local attorney to help navigate the process of establishing in Mexico.
However, U.S. attorneys can register as legal consultants to a legal team in Mexico if businesses have an established legal partner in the U.S.
Often, large companies in the U.S. establish relationships with individual attorneys or entire law firms and enter into partnerships to help ease the movement of goods, and services across borders.
Once these movements of goods and assets have been permitted by legal counsel, protecting those assets is another matter altogether.
As it is in the U.S., insurance is compulsory for all companies that operate in Mexico. However, determining how much a company needs can be half the battle.
Often, companies will operate with minimal coverage and thus minimal protection, while others will overpay for protection they don’t need.
Foreign business is responsible for any damage caused by accidents regardless of familiarity with the laws or not.
So, it is crucial to find an insurance broker who can assess a company and determine what kind of plan it needs. Meeting with an attorney in Mexico can also help keep liabilities covered.
If driving or renting a car in Mexico, be sure to have all necessary papers, because the penalty for not having proper documentation can be especially severe. Drivers that do not have the necessary papers can be jailed and their car impounded until all claims have been settled. Considering the dense bureaucracy in the court system, it can take a long time before they are settled.
Legal Corporate Enterprises
The next step is to decide which legal entity a company will have to gain recognition from the local and federal governments and other authorities in Mexico.
According to the international law and consultation firm Peyton and Associates, there are two major corporate personalities that currently operate in Mexico:
- Limited Liability Stock Corporation or a Sociedad Anónima (SA) which is a negotiable stock corporation of two or more people whose liabilities are limited to their capital contribution.
- Limited Liability Partnership and it has two forms. The one is a Sociedad de Responsabilidad Limitada (SRL) and the other is a Sociedad De Responsabilidad Limitada De Capital Variable (SRL De CV, DCV, or CV).
CV indicates that the corporation may increase or decrease its capital stock without having to amend its corporate charter. Most corporations will organize as a CV because of this flexibility. Both corporate personalities must reach some requirements before they can be legally recognized and protected.
In order to operate a Mexican Branch, it must be approved by the National Commission of Foreign Investments and the Ministry of Foreign Relations.
Mexico’s history of labor rights precedes even those similarly established in the U.S. years later. After the Mexican Revolution of 1910-1920, Mexico’s current constitution provides workers’ protection for unionization, an eight-hour day, and a living wage.
Given this history, there are a number of statutory regulations on employee benefits that exist in Mexico. But these protections do not necessarily make doing business in Mexico more difficult.
For instance, employers do not pay for certain benefits that are common in the U.S., such as unemployment, paid sick leave, or short and long-term disability. These are instead covered by Mexico’s equivalent of Social Security.
In 2013, the Federal Labor Law (FLL) – essentially the outline of acceptable labor practices in Mexico – was updated with amendments and additions to increase worker protection.
The constitution of Mexico guarantees worker and employees have the right to associate, and may form a union (sindicato).
There are several types of unions depending on location and industry, but “general terms” like paid holidays and overtime are rarely tampered with, but subject to review every two years. Salaries are negotiated annually.
However, for negotiations to be effective and binding, collective agreements between employees and employers should be filed with the Federal or State Conciliation and Arbitration Board.
Doing Business in Mexico
If Mexico sounds like the next market you or your company have an interest in entering, consider attending the “Doing Business in Mexico” hosted by the Van Andel Global Trade Center on Aug. 30th at Grand Valley State University’s L. William Seidman Center.
Disclaimer: The materials prepared in this article include general information on legal and tax issues and are not intended for the purpose of providing legal advice. You should contact a licensed legal professional to obtain advice with respect to any of these particular topics or issues.
About the Contributor
Benjamin Glick is a student assistant at the Van Andel Global Trade Center. He has written for the Grand Valley State University student newspaper, The Lanthorn, and is double-majoring in English literature and journalism.