Legal Entities in Mexico

Legal entities in Mexico are structured to suit various business and organizational needs, ranging from individual entrepreneurship to large corporations and non-profit organizations. These entities are characterized by different levels of liability, taxation policies, and governance structures. They can be broadly categorized into business entities, which focus on profit-making activities, and non-profit entities, which aim to achieve social, cultural, or charitable objectives. The choice of a legal entity is pivotal as it dictates the operational dynamics, financial responsibilities, and legal obligations of an organization or business in Mexico.

Here is a description of each:

Sole Proprietorship (Empresario Individual): A single individual owns and operates this business type, bearing all the financial risks and responsibilities personally

Description: A business owned and operated by a single individual.
► Liability: The owner has unlimited personal liability.
► Taxation: The owner is personally responsible for all taxes.
► Formation: Easy to set up with minimal paperwork.

Limited Liability Company (Sociedad de Responsabilidad Limitada - SRL): A flexible business structure offering limited liability to its members and the option to be taxed as either a corporation or a partnership

Description: A business structure that combines the limited liability of a corporation with the simplicity and flexibility of a partnership.
► Liability: Members have limited liability up to the amount of their investment.
► Taxation: Can choose to be taxed as a corporation or a partnership.
► Formation: Requires the drafting of articles of organization and an operating agreement.

Corporation (Sociedad Anónima - SA): A separate legal entity with shares that can be traded, offering limited liability to its shareholders and governed by a board of directors.

 Description: A business entity that is separate from its owners, with shares that can be bought and sold.
 ►  Liability: Shareholders have limited liability up to the amount of their investment.
 ► Taxation: Subject to corporate income tax.
 ► Formation: Requires a more complex process including the drafting of articles of incorporation and bylaws.

Stock Corporation with Variable Capital (Sociedad Anónima de Capital Variable - S.A. de C.V.): A corporation with a variable capital structure, allowing for the adjustment of capital through the sale or redemption of shares, offering limited liability to its shareholders.

Description: A corporation that allows for variable capital, meaning the capital can increase or decrease through the sale or redemption of shares.
► Liability: Similar to a corporation.
► Taxation: Similar to a corporation.
► Formation: Similar to a corporation but with additional provisions for variable capital.

Civil Association (Asociación Civil - AC): A non-profit organization formed by individuals to pursue common goals, typically in the cultural, educational, or charitable sectors, with limited liability for its members.

Description: A non-profit organization formed by individuals to pursue a common goal, usually cultural, educational, or charitable in nature.
► Liability: Members have limited liability.
► Taxation: Generally exempt from income tax, but subject to specific rules for non-profits.
► Formation: Requires the drafting of a constitution and registration with the government.

General Partnership (Sociedad en Nombre Colectivo - SNC): A business structure where two or more people share ownership and management responsibilities, with personal liability for business debts.

► Description: A business organization where two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Deed.
► Liability: Partners have unlimited personal liability.
► Taxation: Partnership income is taxed as the personal income of the partners.
► Formation: Requires a partnership agreement.

Limited Partnership (Sociedad en Comandita Simple - SCS): A business with both general partners, who manage the business and have unlimited liability, and limited partners, who are investors with liability only up to their investment amount.

Description: A partnership with two types of partners: general partners who manage the business and are personally liable for partnership debts, and limited partners who are only liable up to the amount of their investment.
► Liability: Mixed; general partners have unlimited liability, while limited partners have limited liability.
► Taxation: Similar to a general partnership.
► Formation: Requires a partnership agreement specifying the roles of general and limited partners.

Non-Profit Foundation (Fundación): A non-profit entity established to manage a specific endowment and pursue public interest goals, typically enjoying tax exemptions and limited liability for its members.

Description: A non-profit organization established to manage a specific endowment and pursue charitable, educational, or other public interest goals.
► Liability: Limited liability.
► Taxation: Generally exempt from income tax.
► Formation: Requires a complex process including the creation of a charter and approval from the government.