A Q&A guide to corporate governance law in Mexico.
The Q&A gives a high-level overview of corporate governance trends; the main forms of corporate entity used; the corporate governance legal framework; corporate social responsibility and reporting; board composition and restrictions; directors' remuneration; management rules and authority; directors' duties and liabilities; transactions with directors and conflicts; disclosure of information; shareholders' rights, company meetings, and minority shareholder action; and internal controls, accounts and audits.
Corporate Governance Trends
1. What are the main recent corporate governance trends and reform proposals in your jurisdiction?
Mexico has passed significant corporate governance related reforms in recent years, in particular:
Creating the Anti-Corruption System. This is a coordinated system within authorities at all levels of government for the prevention, detection and punishment of administrative offences and acts of corruption.
Adding new obligations on the private sector.
Adding the concept of criminal liability of corporations into the National Code of Criminal Proceedings and the Federal Criminal Code.
Reforms of other federal laws to combat corruption, tax evasion and money laundering.
Reforms to the Federal Fiscal Code with regard to reporting obligations.
Reforms to the labour laws to eliminate the figures of outsourcing and insourcing.
Amendments to the obligation to keep accounting records for changes in equity.
Reforms to the Federal Tax Code to include the obligation to identify the Ultimate Controlling Beneficiaries of all Mexican entities.
There is a strong effort from the federal government to enforce sanctions against criminal organisations that permeate the Mexican economy using different structures.
The General Law of Administrative Responsibilities (Ley General de Responsabilidades Administrativas) entered into force in 2017 and included, for the first time in an administrative statute in Mexico, a list of offences that are considered acts of corruption, such as bribery, influence peddling, and collusion in public tenders (see Question 19).
On 14 June 2018, the General Law of Commercial Companies was reformed after an evaluation by the Financial Action Task Force, an inter-governmental entity developing and promoting policies to protect the global financial system against money laundering and terrorism financing. In its 2018 report it stated that Mexico lacks an adequate system to obtain accurate and up-to-date information on the legal ownership of companies and the ultimate beneficial owners of legal entities.
Companies must now submit a notice on a public website managed by the Ministry of Economy of a registration or transfer of:
Equity quotas in a limited company (see Question 2). A person who proves a legitimate interest can consult the partners' registry book, kept by the administrators, who are personally and jointly liable for its accuracy.
Shares in a stock corporation. The Ministry of Economy must ensure the confidentiality of the name, nationality and address of the shareholder in each notice, except when this information is required by judicial or administrative authorities (Article 129(3), General Law of Commercial Companies).
A new edition of a key corporate governance code was issued in 2018 (see Question 4).
In recent months, several laws have been reformed which change the way of functioning of many corporations in Mexico:
On 9 December 2019, several tax laws were reformed by a Decree amending, adding and repealing several provisions of the Income Tax Law, the Value Added Tax Law, the Law of the Special Tax on Production and Services and the Federal Fiscal Code (Decree), by which the disclosure of reportable structures obligation was added to the Federal Tax Code.
This reform, among other issues, stated that any plan, project, proposal, advice, instruction or recommendation expressly or tacitly expressed with the purpose of obtaining a tax benefit higher than MXN100 million will be considered as a reporting structure. This meant that tax advisors and taxpayers acquired new reporting obligations to the Tax Authority when they are involved with a structure that will or could result in a tax benefit higher than MXN100 million.
In AML matters, the Financial Intelligence Unit (UIF) (on 18 January 2021), introduced a non-binding criterion through the Money Laundering Prevention Portal of the Ministry of Finance and Public Credit (PLD site), regarding centralised treasury operations and/or loans granted between companies of the same Business Group.
Previously, operations related to the habitual or professional offering of mutual operations or granting of credits or loans, as well as guarantees between companies of the same business group did not fall within "vulnerable activities". However, such operations are now considered as vulnerable activities and must comply with all the obligations set out in the Federal Law for the Prevention and Identification of Operations with Resources of Illicit Origin (Anti-Money Laundering Law) and its respective rules.
Amendments to the Federal Fiscal Tax Code, which entered into force on 1 January 2021, clarify that the information and documentation evidencing the economic substance of capital increases and reductions, mergers and spin-offs and the distribution of profits or dividends of Mexican entities are part of the accounting records that must be kept, along with shareholders' or partners' meeting agreements in which such acts took place, along with the corresponding accounting records.
On 23 April 2021, an amendment regulating the subcontracting regime in Mexico was published in the Mexican Official Gazette, reforming various provisions of the:
Federal Labour Law (FLL);
Social Security Law (SSL);
Federal Fiscal Code (FFC);
Income Tax Law (ITL) and the Value Added Tax Law (VATL);
Federal Law of Workers at the Service of the State;
Regulatory of Section B) of Constitutional Article 123;
Regulatory Law of Section XIII Bis of Section B; and
Article 123 of the Constitution.
The amendment primarily:
prohibits the subcontracting of personnel, whether external (outsourcing) or internal within a business group (insourcing); and
limits the provision of specialised services or execution of specialised works that are not part of the corporate purpose or the predominant economic activity of the beneficiary.
In this regard, companies are advised to regulate their operations to the new regulatory framework with respect to the identification of personnel subcontracting structures, provision of specialised services and payment of profit shares.
On January 1, 2022, a new amendment to the Federal Tax Code entered into force which now requires all Mexican corporations, settlors, trustees and beneficiaries to identify, gather and maintain, as part of their accounting records, information about their ultimate controlling beneficiaries.
This amendment was made in response to the observations and recommendations received from international organisations, such as the Financial Action Task Force (FATF) and OECD on its last evaluation to the Mexican legal framework, which highlighted the lack of transparency and traceability on the real ownership behind Mexican entities and other vehicles.
2. What are the main forms of corporate entity used in your jurisdiction?
The General Law of Commercial Companies (Ley General de Sociedades Mercantiles) regulates seven forms of business organisations. Some have become obsolete and are no longer used. In practice, the most commonly used are the following.
Limited liability company (sociedad de responsabilidad limitada) (S de RL)
This is a private company and must have at least two partners up to a maximum of 50. Partners are only responsible for the company's liabilities up to the amount of their equity participation. The capital is divided into equity quotas, which can be of a different value and category, but must be at least MXN1. Quotas cannot be represented by negotiable instruments.
To assign equity quotas and admit new partners, the prior consent of a majority of the partners is required, unless the company's bye-laws state otherwise.
Stock Corporation (sociedad anónima) (SA)
This is the most common corporate entity used in Mexico. It must have at least two shareholders and has no limit on the number of shareholders.
Shareholders are responsible for the company's liabilities up to the amount of their participation. The capital is divided into shares. The shares are represented by share certificates that are freely negotiable, unless otherwise stated in the company's bye-laws.
Shares are of equal value and grant the same rights, unless otherwise stated in the company's bye-laws. Each share grants a right to one vote, unless the bye-laws state otherwise.
The Securities Market Law (Ley del Mercado de Valores) regulates three forms of stock corporations, the following being the most common.
Investment Promotion Stock Corporation (sociedad anónima promotora de inversión) (SAPI). This can, with the prior consent of the board of directors, buy back their own shares. The threshold for the exercise of minority shareholder rights is generally, a shareholding of at least 10%.
Public Traded Company (sociedad anónimas bursátiles) (SAB). Its shares are both:
Registered with the National Securities Registry managed by the National Banking and Securities Commission (CNBV).
Listed to trade on the Mexican Stock Exchange (Bolsa Mexicana de Valores, SAB de CV) (BMV) or the Institutional Stock Exchange (Bolsa Institucional de Valores SA de CV) (BIVA).
3. Outline the main corporate governance legislation and authorities that enforce it. How influential are institutional investors and other shareholder groups in monitoring and enforcing good corporate governance? List any such groups with significant influence in this area.
Corporate governance matters are generally regulated by the General Law of Commercial Companies. Certain stock corporations are also regulated by the Securities Market Law (see Question 2).
Certain other federal laws impose corporate governance obligations. For example, the Income Tax Law requires the board of directors to present a tax compliance report to the shareholders' meeting. Companies that commonly participate in public tenders with the federal government must file a manifesto with the Ministry of Public Function (Secretaría de la Función Pública) to declare that the company, shareholders, officers, and other related parties do not have a conflict of interest with public officials in the contracting authority.
A new edition of a key corporate governance code was issued in 2018 (see Question 4).
Compliance with the corporate governance framework is also monitored closely by shareholders, external auditors, credit rating agencies and lenders. Institutional investors can have a particularly influential position. A group of institutional investors that has proven to be particularly influential in these matters are Pension Fund Managers (Administradoras de Fondos para el Retiro).
4. Has your jurisdiction adopted a corporate governance code?
The Business Co-ordinating Council (Consejo Coordinador Empresarial) (CCE), made up of the seven most representative chambers of commerce in Mexico, issued in 2018 the third edition of the Code of Principles and Best Practices of Corporate Governance (Código de Principios y Mejores Prácticas de Gobierno Corporativo) (Corporate Governance Code). This document, among other topics, covers best practices and principles recommended to improve the corporate governance framework of companies. It established principles and best practices that improve the company's integration and operation, for example regarding board composition, committees, audit, shareholders' meetings, among others Although it is not mandatory, it is the best reference guide for all types of companies (whether commercial or civil entities). It is structured by principles and best practices in the following areas:
Board of directors.
Compensation and evaluation.
Planning and finance.
Risk assessment and compliance.
Public traded companies must annually disclose their degree of compliance with the Corporate Governance Code to the market. This information must be included in their annual report.
Companies see this as an opportunity to grow and promote sustainability in their business. There are no plans to reform the Corporate Governance Code, since it was last updated in 2018.
Corporate Social Responsibility and Reporting
5. Is it common for companies to report on social, environmental, and ethical issues? Highlight, where relevant, any legal requirements or non-binding guidance/best practice on corporate social responsibility.
Corporate social responsibility (CSR) is not mandatory but it is common for companies to launch CSR projects and engage outside interests voluntarily. Such companies take into consideration the economic, social and environmental impact of their operations, decisions and actions, and their relationship with the community.
The Mexican Philanthropy Centre (Centro Mexicano para la Filantropía) (CEMEFI) usually grants Socially Responsible Enterprise status (Empresa Socialmente Responsable) to a company that complies with a number of requirements, including the following, which is highly regarded by investors and other interested groups:
Promoting a culture of responsible competitiveness that enables the business to succeed while contributing to the welfare of its community.
Rejecting corruption and being governed by a code of ethics.
Contributing to the conservation of the environment.
Identifying and working towards the social needs of its community.
CSR is based on four strategic principles:
Quality of life in the company.
Involvement with the community.
Care and preservation of the environment.
As part of CSR policies, companies report on their internal and external social, economic and environmental aspects, including climate change impact.
With regard to the climate change impact, Mexico has issued several laws on the past years. Such changes include the General Law on Climate Change, issued on 6 June 2012, which aims to guarantee a sound environment through the development of public policies to address the adverse effects of climate change and mitigate greenhouse gas emissions.
The Energy Transition Law also covers climate change impact in Mexico. This law was issued on 24 December 2015, and aims to regulate the sustainable use of energy, as well as the obligations in terms of clean energy and the reduction of contaminating pollutant emissions from the electricity industry.
Mexican Official Standards (NOMs) were also introduced to reduce emissions. In December 2013, several constitutional reforms in energy matters were enacted with the purpose of modernising the country's energy sector. This new framework lays the foundations for a market for the generation of renewable energy sources and cleaner technologies, in addition to promoting energy efficiency in the generation, distribution and transmission of electricity, among other issues.
Mexican standards and laws have require companies to report to the Ministry of Environment and Natural Resources about the issuance of contaminating pollutant emissions, as well as greenhouse emissions, to have a record and implement the corresponding measures to mitigate their adverse effects.
Regarding sustainability and ESG reporting obligations in Mexico, to date this is still voluntary as there are no applicable laws or regulations that require companies to present annual reports to the market or filings to Mexican authorities. However, listed companies on the Mexican Stock Exchange are required to include in their annual report whether they have environmental policies, environmental certificates or recognitions, and a general description of the effects that climate change may have on the company’s business, among other relevant sustainability-related information.
However, large Mexican corporations and multi-national companies with operations in Mexico are currently following international ESG-voluntary-disclosure frameworks, such as the:
Global Reporting Initiative (GRI).
Sustainable Accounting Standards Board (SASB).
Task-Force on Climate-Related Financial Disclosures (TCFD).
Principles for Responsible Investment (PRI).
ESG disclosure guidelines issued by the US Securities Exchange Commission.
Board Composition and Restrictions
6. What is the management/board structure of a company?
Mexican companies can either have a unitary or collegiate board structure.
Under the General Law of Commercial Companies:
A limited company is managed by a sole manager or a board of managers.
A stock corporation is managed by a sole director or a board of directors.
A public traded company must be managed by a board of directors and a chief executive officer (CEO). Its board is assisted by special committees of directors carrying out audit and corporate functions.
The board consists of the chairperson and other board members appointed by the shareholders' meeting. Although there are no specific positions given to the other members, in practice companies usually appoint a chairperson, a secretary and a treasurer.
Employees do not have a right to board representation.
Number of Directors or Members
The board of directors of a stock corporation and an investment promotion stock corporation must have at least two directors. There is no limit on the number of directors.
In public traded companies, the board of directors must not exceed 21 directors.
A company's bye-laws can include specific rules on the number of managers or directors that form the board, term in office, alternate members, and other requirements.
The Corporate Governance Code recommends companies to appoint at least three directors and a maximum of 15, with an uneven number to avoid deadlock.
7. Are there any general restrictions or requirements on the identity of directors?
Individuals who have been suspended by judicial order from carrying out commercial activities cannot be appointed as members of a board of directors.
In public traded companies, a former external auditor of the company, including of companies in the same corporate group, must observe a 12-month waiting period before becoming a member of the board of directors.
A director must be at least of legal age, that is, 18 years old.
There are no nationality restrictions on directors. Foreign directors must comply with the applicable immigration rules and permits when attending board meetings in Mexico.
Corporate directors are not permitted under Mexican Law.
There are no mandatory requirements relating to the gender of directors or director quotas. The Corporate Governance Code recommends involving women in the board of directors, to contribute different points of view, experience and abilities. However, it does not refer to any quotas or specific requirements.
8. Are non-executive, supervisory, or independent directors recognised or required?
Independent directors are recognised.
Private stock corporations and limited companies are not required to appoint independent directors but can do so in their bye-laws.
Public traded companies and investment promotion stock corporations must have independent directors on their boards.
Under the Securities Market Law, at least 25% of the board members of a public traded company must be independent.
The Corporate Governance Code and the Securities Market Law in relation to public traded companies and investment promotion stock corporations state that the following persons are not an independent director:
Active employees or directors of the company, including statutory examiners.
Former employees or directors, if a 12-month waiting period has not passed before their appointment.
If not an employee or director, a person with significant influence or decision-making power over the board of directors.
An external adviser, partner or employee of consultants that advise the company or its affiliates, and their total income significantly depends on this contractual relationship.
Clients, suppliers, creditors or debtors of the company, or an employee of an important client, supplier, creditor or debtor.
Employees of non-income organisations, universities and NGOs that receives important donations or sponsorship from the company.
A general manager, director or high-level executive of a company whose board of directors is formed by directors of the company.
Persons with a family relationship with any of the above persons, whereby their independence can be undermined.
For public traded companies and investment promotion stock corporations, the Securities Market Law also provides that a shareholder forming part of a controlling group of shareholders is not an independent director.
9. Are the roles of individual board members restricted?
There are no restrictions on appointing directors or managers as officers of the company. However, officers do not qualify as independent directors.
In private companies it is not mandatory to appoint officers.
Public traded companies must be managed by a board of directors and a CEO. The Chairman of the Board may also be the CEO of the Company.
10. How are directors appointed and removed? Is shareholder approval required?
Appointment of Directors
The shareholders' meeting appoints the members of the board of directors (see Question 33). A shareholder or a group of shareholders representing at least 25% of the share capital of stock corporations, or at least 10% of public traded companies and investment promotion stock corporations can appoint one member of the board.
Removal of Directors
The shareholders' meeting removes members of the board of directors (see Question 33).
There are special cases in the General Law of Commercial Companies:
If there are several directors, and only some of them are removed, the rest can continue to perform their duties if they meet the statutory quorum to manage the company.
If the shareholders' meeting removes one or more directors, and the remaining directors do not meet the statutory quorum, a statutory examiner (comisario) will provisionally appoint the statutory number of directors if the shareholders' meeting does not do so. The same rules apply if the lack of directors is caused by death, disability or other cause.
11. Are there any restrictions on a director's term of appointment?
There is no mandatory term of appointment. A company's bye-laws can set a term of appointment.
The annual shareholders' meeting must resolve to ratify, remove, or appoint the members of the board of directors (see Question 32).
Directors or managers continue to perform their duties, even if the term of their appointment has elapsed, if the company does not appoint a replacement.
In public traded companies, directors must continue in their positions for 30 days from completion of their term of appointment or from the date they resign (Securities Market Law).
12. Do directors have to be employees of the company? Can shareholders inspect directors' service contracts?
Directors Employed by the Company
Directors do not have to be employees of the company.
The relationship between a director and the company is not a labour relationship. Directors are part of the administration body of the company and while their relationship is not clearly defined in the law, it is closer to a professional services relationship than a labour relationship.
However, there is no prohibition on an employee of the company being appointed as a non-independent board member.
In private companies (stock corporations, limited companies and investment promotion stock corporations), the shareholders can appoint one or more statutory examiners to oversee the performance of the board of directors. Statutory examiners must present a report to the annual shareholders' meeting, including their opinion on whether the management's performance is acceptable, and if the financial information presented by the management accurately reflects the company's financial situation.
Statutory examiners must be appointed in private stock corporations but this is not mandatory for limited liability companies.
In public traded companies, this function is performed through the audit and corporate practices committees and the external auditors.
However, investment promotion stock corporations can either have a statutory examiner or committees and external auditors to oversee the performance of the board of directors. This depends on if they resolve to be managed as a private or public traded company.
13. Are directors allowed or required to own shares in the company?
Directors can own shares in the company but this is not mandatory. In many private companies, particularly family-owned companies, it is common for most shareholders to be on the board of directors.
14. How is directors' remuneration determined? Is its disclosure necessary? Is shareholder approval required?
Determination of Directors' Remuneration
The shareholders' meeting determines the directors' remuneration.
Public traded companies must disclose in their annual reports the total benefits (including a description of their nature) and remuneration paid to board members and high-level officers and related persons, although disclosure is usually made on an aggregate basis.
The shareholders' meeting determines the remuneration paid to the members of the board of directors. Shareholders' approval in this regard is binding to determine directors' remuneration.
General Issues and Trends
The Corporate Governance Code recommends internal policies to define the directors' responsibilities, key performance indicators, selection process, appraisal and remuneration. It is also recommended to disclose the appraisal and remuneration policy in the annual report.
Management Rules and Authority
15. How is a company's internal management regulated? For example, what is the length of notice and quorum required to convene board meetings, what are the quorum requirements at those meetings, and what voting requirements must be met to pass resolutions?
Notice for board meetings must be given to all board members within a period stated in the bye-laws.
Unless otherwise provided in the bye-laws, the quorum is a majority of the board of directors, and its resolutions are passed by a majority of the attending directors.
16. Can directors exercise all the powers of the company or are some powers reserved to the supervisory board (if any) or a general meeting? Can the powers of directors be restricted and are such restrictions enforceable against third parties?
In stock corporations and limited companies with a sole administrator, the sole administrator has legal authority to carry out the company's business, unless otherwise restricted by the bye-laws.
For companies managed by a board of directors, this authority is granted to the board.
Certain matters must be approved by the shareholders' meeting (see Question 32.
The powers of the directors can be restricted in the company's bye-laws.
Such restrictions are enforceable against third parties. However, it is presumed that directors have power to bind the company. For this purpose, it is important to verify the identity and authorities of each involved party.
In public traded companies, a transaction representing 20% or more of the company's consolidated assets must be approved by the shareholders' meeting.
17. Can the board delegate responsibility for specific issues to individual directors or a committee of directors? Is the board required to delegate some responsibilities, for example for audit, appointment or directors' remuneration?
The board of directors can appoint a board member as a special delegate to carry out specific tasks. In the absence of such an appointment, the chairperson can execute board resolutions.
The company can grant powers of attorney to directors to act individually, as an attorney-in-fact and not as a director. The types of powers and authority under Mexican law can be summarised as follows:
Acts of administration or management.
Lawsuits and collections.
Executing negotiable instruments.
Powers of attorney granted to a director can be limited, for example exercising the power jointly with another attorney-in-fact, a limit on the value of the act or transaction and on the time in which it can be carried out.
The relationship between the company and an attorney-in-fact is governed by civil law, so it is important to review the relevant state civil codes to see if special rules or regulations apply. For example, certain states limit the term of powers of attorney to five years.
The board of directors of a public traded company is assisted by one or more special committees responsible for audit and corporate practice matters. Under the Securities Market Law, these committees must consist of independent board members and have at least three members. The chairperson in these committees is appointed by the shareholders' meeting and cannot also be chairperson of the board of directors.
The Corporate Governance Code recommends companies to set up committees for audit, evaluation and compensation, finance and strategic planning, and risk assessment and compliance. It also recommends that these committees are formed mostly of independent directors, with a minimum of three and a maximum of seven directors.
Director's Duties and Liabilities
18. What is the scope of a director's general duties and liability to the company, shareholders and third parties?
Directors must act in the interests of the company, without favouring a specific shareholder or group of shareholders. Directors must act diligently, by adopting informed decisions and observing the duties imposed on them by the General Law of Commercial Companies and the company's bye-laws.
The General Law of Commercial Companies provides that directors are jointly and severally responsible for:
Maintaining the capital contributions made by the shareholders.
Any non-compliance with the General Law of Commercial Companies and the bye-laws relating to declaring and paying dividends (including liability for dividends paid exceeding those legally available).
The existence and maintenance of the company's accounts and other books and records.
Due compliance with shareholder resolutions.
Any failure to create or replenish the legal reserve fund of share capital reserved for the company.
Any transactions they enter into on the company's behalf after:
the term for the duration of the company has expired;
the company has been dissolved; or
the dissolution of the company has been approved.
Directors must also keep confidential any information or matters they have access to while in office if it is not publicly available. This obligation continues to apply for one year following the date of their removal or resignation.
A director is not liable for a particular act if the director expressed disagreement with the deliberation and resolution of the act, provided that the director did not act negligently.
A director with a conflict of interest with the company must disclose it to the other directors and refrain from voting and adopting any resolution relating to the conflict. Otherwise, the director can be liable for damages or losses caused to the company (see Question 28).
Directors of public listed companies have a duty of care and a duty of loyalty to the company, under the Securities Market Law.
Any director who breaches any of the above is liable for any damages caused by the breach and may also be subject to fines imposed by the Securities Market Law.
19. Briefly outline the regulatory framework for theft, fraud, and bribery that can apply to directors.
Criminal offences are regulated by the Federal Criminal Code (Código Penal Federal) and state criminal laws. Penalties vary depending on the seriousness and circumstances of the case and include fines, imprisonment or both.
Although the National Code of Criminal Proceedings (Código Nacional de Procedimientos Penales) sets out criminal liability for corporations, the legal concepts of theft, fraud and bribery relate to criminal offences committed by individuals, regardless of the position they hold in a company.
Under federal law, an individual commits theft when they take the personal property of another person without a right to do so or consent from the person authorised by law to give consent (Article 367, Federal Criminal Code). Penalties depend on the value of the personal property stolen.
An individual commits fraud when he or she misleads a person, or takes advantage of the misunderstanding of another person, and obtains an unlawful benefit. Penalties depend on the value of the benefit unlawfully obtained (Article 386, Federal Criminal Code).
The penalties for fraud (Article 388, Federal Criminal Code) also apply to a person administering another person's property (such as a director) who, with intent to obtain a benefit, causes a loss to that person by altering accounts or contracts, through:
Showing non-existent transactions or expenses.
Hiding or misusing goods under his or her care.
Realising transactions prejudicial to the managed property.
Under the Federal Criminal Code, bribery is committed by public officials who solicit or receive a bribe, and by private individuals who offer or pay to corrupt a public official (Article 222, Federal Criminal Code).
A person is also guilty of bribery under the Federal Criminal Code if they promise or give a benefit to a public official, to cause the public official to do or refrain from doing an act relating to the official's function, employment, charge or commission. Penalties include monetary fines and imprisonment.
The General Law of Administrative Responsibilities prohibits a list of offences considered acts of corruption, such as bribery, influence peddling, and collusion in public tenders. Bribery is defined as either:
Promising, offering or giving an undue benefit to a public official, where the benefit can be viewed as part of a quid pro quo arrangement to cause him or her to do or refrain from doing a just or unjust act relating to the public official's function, employment, position, or charge.
Exerting a real or apparent influence on the decision-making of a public official to obtain an undue benefit or advantage, regardless of acceptance or receipt of the benefit or the outcome.
Penalties for companies committing acts of corruption under the General Law of Administrative Responsibilities (Article 81), include the following, depending on the seriousness of the conduct and if it was approved by the board of directors, audit committee or shareholders:
Double disgorgement of the benefit gained. If there is no proven tangible benefit, penalties can include fines between the equivalent of USD600,000 and USD6 million.
Up to ten years' debarment from participating in public procurement processes.
Suspension of the company's activities and dissolution of the company.
The General Law of Administrative Responsibilities also recommends companies to create a compliance programme, setting minimum requirements to receive credit if penalties are imposed by a law enforcement authority.
20. Briefly outline the potential liability for directors under securities laws.
A director of a public traded company who breaches their duty of care under the Securities Market Law (see Question 18) must indemnify the company for all damages or losses it incurs arising from the breach. This indemnification can be limited by the bye-laws or a shareholders' resolution, if the breach did not involve fraud, bad faith or illegal activity.
A director who breaches their duty of loyalty under the Securities Market Law (see Question 18) is liable to pay damages and losses. The company cannot agree otherwise or limit the director's liability. The company cannot obtain insurance or bonds in favour of the director to cover the indemnity the director must pay due to a breach of the duty of loyalty.
Directors in public traded companies who commit market abuse through dealings with prospectuses and other documents may be liable to pay for damages and losses (see Question 30).
21. What is the scope of a director's duties and liability under insolvency laws?
Under the Commercial Bankruptcy Law (Ley de Concursos Mercantiles) Directors and officers are liable to the company for losses incurred due to corporate transactions carried out during the company's insolvency and are subject to claims for damages.
Directors and officers owe fiduciary duties to exercise their business judgement in the best interest of the insolvent company for the benefit of its shareholder owners, while continuing to bear the task of attempting to maximise the economic value of the business for any potential residual benefit to the shareholders.
Under the Commercial Bankruptcy Law (Article 270 bis), directors and officers are liable in an insolvency context for the following:
Transactions for personal benefit or in favour of third parties, including a specific shareholder or group of shareholders.
Destruction or modification of the company's books.
Material omissions from public statements relating to a company's affairs.
Altering or modifying accounts or the terms and conditions of contracts, registering false transactions and expenses or increasing the amounts of those already registered, and carrying out an illegal activity creating a debt or loss to the company for personal benefit, including registering claims in favour of insiders.
Voting on matters discussed at board meetings or making decisions relating to the company's assets despite having a conflict of interest.
Producing or disclosing information knowing that it is false.
Unreasonable director-related transactions.
Wrongful acts while working for the company.
The Commercial Bankruptcy Law includes the business judgement rule to protect directors and officers from liability due to decisions made on an informed, statutory, good-faith basis with reasonable skill and prudence, with an honest belief that the decisions are in the company's best interest.
22. Briefly outline the potential liability for directors under environment and health and safety laws.
Administrative environmental laws, such as the Federal Law of Environmental Liability 2013 (Ley Federal de Responsabilidad Ambiental) (Environmental Law), impose liability on persons or legal entities committing an unauthorised or illegal activity that generates a risk or damage to human health or the environment, or on an owner or possessor of polluted land or a hazardous substance or asset.
Legal entities are liable for environmental damage caused by its directors if they represent the company or order or consent to the performance of an unauthorised activity (Article 24, Environmental Law). If a company violates an administrative environmental law, administrative proceedings are usually brought against the company and not its directors or managers.
Environmental criminal liability (including imprisonment) usually attaches to directors who have ordered or failed to prevent conduct that leads to illegal environmental risk or damage, or who are responsible for the criminal conduct. There are several judicial precedents (at federal and state level) imposing criminal liability on directors for environmental crimes.
In relation to health and safety law, directors are considered to be representatives of the employer company, and their actions relating to workers (including health and safety matters) incur liability that attaches to the company (Article 11, Federal Labour Law). The Federal Labour Law (Ley Federal del Trabajo) imposes penalties on employers or workers who do not comply with a health and safety provision.
23. Briefly outline the potential liability for directors under anti-trust laws.
Under the Federal Anti-Trust Law (Ley Federal de Competencia Económica), directors or managers of a company who have made or adopted decisions, as well as instructed or exercised decisive influence on decision-making, are jointly liable for damages incurred due to prohibited actions.
The Competition Commission can impose administrative fines and other penalties on directors, members or officers of the company who act on behalf of the company or who enter into illegal mergers.
Economic agents (companies or individuals) that decided, ordered, influenced or directly executed an illegal activity under the Federal Anti-Trust Law are jointly liable (Article 4). This provision is relevant where a company is sued in the civil courts by persons claiming damages and loss of profit derived from a violation of the Federal Anti-Trust Law.
Under the Federal Criminal Code (Código Penal Federal), individuals participating in cartels to fix prices, allocate markets or limit the offer in bid-rigging, or who share information to facilitate such cartels, can be criminally prosecuted on a criminal complaint filed by the Competition Commission. Individuals found guilty can be sentenced to five to ten year's imprisonment, and subject to criminal fines (Article 254 bis, Federal Criminal Code).
24. Briefly outline any other liability that directors can incur under other specific laws.
Before the tax reform that entered into force on 1 January 2020, partners, shareholders, directors, managers and administrators were only jointly and severally liable for the company's unpaid tax if:
They did not request the company's registration in the Taxpayers' Registry.
They did not file a notice of change of tax domicile.
They did not keep accounting records or these were hidden or destroyed.
The company had left the tax domicile without filing a notice.
Since the tax reform that entered into force on 1 January 2020, partners, shareholders, directors, managers and administrators are now jointly and severally liable when the company does any of the following:
Fails to pay withheld or collected taxes.
Is definitively listed for failing to rebut the legal presumption of issuing official tax receipts (CFDIs) supporting non-existent operations, as stated in Article 69-B of the Federal Tax Code (Código Fiscal Federal).
Fails to show the effective acquisition of goods or receipt of services, or does not correct its tax position when, in a specific financial year, it receives CFDIs from one or more taxpayers listed as issuing invoices covering non-existent operations for amounts greater than MXN7,804,230.
Is definitively listed for failing to rebut the legal presumption of improperly transmitting tax losses, as stated in Article 69-B Bis of the Federal Tax Code.
Reduces, by over 50%, its material capacity to carry out its main activity, in financial years following that in which a tax loss was declared due to the transfer of all or part of its assets through a restructuring, spin-off or merger of companies, or a sale of these assets to related parties. The partners or shareholders of the entity that acquired the tax losses are also jointly and severally liable if, after a restructuring, spin-off or merger of companies or a change in partners or shareholders, the company no longer forms part of the group.
As of 2021, any type of act that involves prohibited labour outsourcing schemes or simulated specialised services would be treated as a crime of tax fraud.
As of 2022, a presumption of smuggling will be made when:
the description or tariff classification of the imported goods is declared inaccurately, and the payment of taxes is omitted; or
goods are transferred by any means of transport within Mexico without the appropriate electronic invoice or the Bill of Lading Complement (Complemento Carta Porte).
Data Privacy Law
Under the Personal Data Protection Law, directors can be liable if they are a data controller. Data controllers access, manage, handle, transfer or dispose of personal data and take decisions on this.
Directors, officers and employees can be individually responsible for fraud (see Question 19, Fraud) or money laundering, and can be punished with a penalty under Article 24 of the Federal Criminal Code, which includes:
A ban on attending certain places (as determined by the facts of the case).
Fines and fees.
Suspension or deprivation of rights.
Disqualification, dismissal or suspension of functions.
A requirement to wear a tracking or surveillance device.
25. Can a director's liability be restricted or limited? Is it possible for the company to indemnify a director against liabilities?
A director's liability can be limited to a specific amount of compensation of incurred damages, if provided by the company's bye-laws or approved by the shareholders' meeting.
The shareholders' meeting can pardon or indemnify a director against liability due to malpractice and not exercising due diligence if the director acted in good faith and the incurred damages have been covered or recovered by the director. The company or its shareholders cannot indemnify a director against liability for any action taken in bad faith or wilfully.
26. Can a director obtain insurance against personal liability? If so, can the company pay the insurance premium?
Some companies take out directors and officers (D&O) insurance to cover actions and liability incurred by directors and officers against the company. In practice, this is commonly taken out by big companies.
D&O insurance can cover the costs of indemnities, bail, a legal defence and other expenses.
It can be upgraded to cover other issues such as protecting family property, decisions of affiliated or subsidiary companies, employment law claims such as dismissal, discrimination and harassment, and civil bonds.
The company can and usually does pay the insurance premiums.
27. Can a third party (such as a parent company or controlling shareholder) be liable as a de facto director (even though such person has not been formally appointed as a director)?
A third party (such as a parent company or controlling shareholder) who has not been formally appointed as a director cannot be liable as a de facto director.
Transactions with Directors and Conflicts
28. Are there general rules relating to conflicts of interest between a director and the company?
If a director has a conflict of interest with an operation or decision the board is going to take, they must notify the board and must not vote or resolve on the conflicted matter. This will not affect the quorum for the board meeting. A director who does not do so is liable for incurred damages that affect the company (General Law of Commercial Companies).
The Securities Market Law has similar provisions. Further, a director will also breach their duty of loyalty to the company (see Question 18 if, after noticing a conflict of interest, they still assist and vote in board meetings on the matter.
29. Are there restrictions on particular transactions between a company and its directors?
Public traded companies have guidelines on several topics including the use of company property and related party transactions. Relevant related party transactions (including those entered into by the company with a director) are subject to approval by the committee in charge of analysing related party transactions (usually, the corporate practices committee).
Additionally, the Securities Market Law provides a comprehensive set of rules on the acquisition and disposal of shares and the disclosure of these transactions by directors (see Question 30). However, restrictions on particular transactions between a company and its directors depend on the company's bye-laws.
The Corporate Governance Code recommends that decision-making relating to managing the company treasury, contracting derivative financial products, investing in assets and contracting liabilities should be subject to board approval. This is to ensure that decisions align with the company's strategic plan.
30. Are there restrictions on the purchase or sale by a director of the shares and other securities of the company he/she is a director of?
People with privileged information about the company, such as directors, cannot acquire directly or indirectly securities or negotiable instruments issued by the company in the three-month period after the last sale or operation of the company's securities or negotiable instruments that they were involved in (Article 365, Securities Market Law).
Article 364 of the Securities Market Law also prohibits such persons from doing the following:
Performing or instructing others to perform transactions, directly or indirectly, in securities issued by the company (or negotiable instruments representing them) if the price of the securities may be influenced by the privileged information. This also applies to options or financial derivative instruments with the securities or instruments as underlying assets.
Providing or conveying the privileged information to others, except when a person's occupation, position or commission requires knowledge of such information.
Issuing recommendations on securities or negotiable instruments representing them, if the price of the securities or instruments may be influenced by the privileged information. This also applies to options or financial derivative instruments that have the securities or instruments as underlying assets.
Disclosure of Information
31. Do directors have to disclose information about the company to shareholders, the public or regulatory bodies?
Directors must not disclose confidential information of the company to third parties, unless it must be disclosed to judicial or administrative authorities.
However, under the Securities Market Law, directors of public traded companies must not hide or omit disclosure of information to the public, shareholders or stockholders if they deem it necessary or relevant to the share price of a share allocation or other relevant subject (Article 383, Securities Market Law).
Directors who hide privileged information when disclosure is necessary can be punished with imprisonment from five to ten years.
32. Does a company have to hold an annual shareholders' meeting? If so, when? What issues must be discussed and approved?
Companies must hold an annual meeting within the four months after the end of the financial year, that is, from January to April, where they must, among other issues on the agenda, cover the following:
Discussion, approval or modification of financial information, including the company's balance sheets and financial statements for the financial year.
Discussion, approval or modification of the directors' report, taking into consideration the statutory examiner's report (if applicable).
Discussion and approval, if applicable, of the statutory examiner's report on actions and decisions made by the board during the financial year.
The appointment or ratification of the board members, officers and examiner of the company, as applicable.
The remuneration paid to the board members, officers and examiners, if applicable.
(Article 181, General Law of Commercial Companies.)
If the annual meeting does not take place and the company's financial statements are not approved, some actions may not take effect. For example, to determine dividend payments it is required by law to approve financial statements for the last financial year, or if a company is to undergo a transformation like a merger or liquidation, the company must first comply with its corporate obligations such as approving its financial statements.
Mexican legislation does not contemplate holding virtual meetings electronically.
33. What are the notice, quorum and voting requirements for holding meetings and passing resolutions?
An extraordinary shareholders' meeting usually resolves on issues that will modify the company's structure, for example, a change of nationality, corporate domicile, corporate purpose, and type of regime. The issues listed in Article 182 of the General Law of Commercial Companies (see Question 34) must be resolved by an extraordinary meeting, as well as those listed in the company's bye-laws as requiring an extraordinary resolution.
Unless otherwise stated in the bye-laws, the quorum for an extraordinary meeting is shareholders or partners representing at least 75% of the company's share capital. Extraordinary resolutions are approved by shareholders or partners representing at least 50% of the company's share capital (Article 190, General Law of Commercial Companies).
Other issues are resolved through ordinary shareholders' meetings. The quorum for an ordinary meeting is shareholders representing at least 50% of the company's share capital and ordinary resolutions are approved by a majority of those present.
Meetings must be held at the company's corporate domicile to be valid. Prior notice must be sent to all shareholders of the agenda, time and date of the meeting. Notice must be given by the sole manager/board of directors or examiner, at least 15 days before the meeting for stock corporations and eight days for limited companies, unless otherwise stated in the bye-laws. Notice is given using the electronic system managed by the Ministry of Economy.
Prior notice is not required if 100% of the company's share capital is represented at the meeting, although public traded entities must always give at least 15 days' notice using the electronic system.
Companies can hold meetings to pass unanimous resolutions outside the company's corporate domicile. However, these resolutions must be approved by a unanimous vote of all the shareholders, and this option must be included in the bye-laws.
34. Are specific voting majorities required by statute for certain corporate actions?
The following must be approved by an extraordinary shareholders' meeting (see Question 33):
Extending the period of time of the company, if applicable.
Dissolving the company.
Increasing or reducing the minimum fixed part of the share capital.
Changing the company's corporate purpose.
Changing the company's nationality.
Transforming the company's regime.
Merging with another company.
Issuing preferred shares.
The company redeeming its own shares and issuing preference shares.
Issuing corporate bonds.
Any modification to the company's articles of incorporation.
A change of the company's corporate purpose and a change in the shareholders' obligations must be approved by all the shareholders representing 100% of the company's share capital.
Other corporate actions, such as appointing and removing a director and approving the company's accounts and the directors' remuneration (see Question 32), are resolved through ordinary resolutions (see Question 33).
35. Can shareholders call a meeting or propose a specific resolution for a meeting? If so, what level of shareholding is required to do this?
A shareholder(s) representing at least 33% of the company's share capital can, at any time, request the sole manager/director, board of directors or the statutory examiner to call a shareholders' meeting, to discuss matters stated in the request. If the meeting is not called within 15 days of receipt of the request, the meeting can be called by a court resolution at the shareholder's request (Article 184, General Law on Commercial Companies).
This request can also be made by any shareholder in the following cases:
The annual meeting has not been held for two consecutive financial years.
The annual meeting has not discussed matters in Article 181 of the General Law of Commercial Companies (see Question 32).
(Article 185, General Law on Commercial Companies.)
In public traded companies, shareholders owning at least 10% of the voting shares can, at any time, request the chairperson of the board of directors, the statutory examiner, the company's auditors or a board committee to call a meeting to discuss relevant issues.
Minority Shareholder Action
36. What action, if any, can a minority shareholder take if it believes the company is being mismanaged and what level of shareholding is required to do this?
Any shareholder who considers that the company is being mismanaged can report this in writing to the statutory examiner(s) (if any), giving reasons and details of the alleged mismanagement. The statutory examiner will verify the report and present it to the shareholders' meeting for analysis and action.
The statutory examiner's main function is the supervision of the company's administration and operations, to protect the partners'/shareholders' interests. If a partner/shareholder suspects that the company is being mismanaged, they can propose the appointment of a statutory examiner to the partners/shareholders meeting.
If actions led by or taken by the directors affect or impact the company's value, shareholders representing at least 25% of the share capital of stock companies, or 5% in public traded companies, can bring a civil action against the director(s) involved.
Internal Controls, Accounts and Audit
37. Are there any formal requirements or guidelines relating to the internal control of business risks?
In stock corporations and limited companies, Mexican law does not provide specific guidelines or requirements relating to internal control of business risks for directors. However, it is common for managers and boards to provide guidelines and protocols on these matters.
In public traded entities, the board of directors must follow up on risks based on information provided by the board committees, general manager, officers and external auditors (Article 28(V), Securities Market Law).
38. What are the responsibilities and potential liabilities of directors in relation to the company's accounts?
At the annual shareholders' meeting, directors must present the annual report with the company's financial statements, balance sheet and other financial documentation for the previous financial year. If this is not presented at least 15 days before the annual shareholders' meeting, the shareholders can remove the directors from their position and bring a civil liability action against them for not complying with their duties.
Under the Securities Market Law, a director who alters or modifies the company's accounts, or the destination of economic resources, is liable to penalties including imprisonment and fines, and can be subject to administrative actions.
39. Do a company's accounts have to be audited?
A company's accounts must be audited by a certified accountant or an independent auditor if:
The company is a public traded company regulated by the Securities Market Law.
The bye-laws require the financial statements to be audited.
The shareholders or the management resolve to audit the accounts.
In addition, if tax regulations consider the company to be a special taxpayer and require its financial information to be audited, this will be required by law.
A special taxpayer is any person, natural or legal, qualified as such by the Tax Administration (SAT) through a substantiated resolution. This designation is based on, in particular, the volume of economic activities reflected in the taxpayer's turnover.
Special taxpayers, taking into account this status and the volume of their trade, are subject to specific rules for performance of their formal duties and payment of their taxes, including to audit their financial statements.
In practice, stock corporations and limited companies often do not audit their accounts and financial information presented to the shareholders' meeting.
40. How are the company's auditors appointed? Is there a limit on the length of their appointment?
The board of directors appoints the company's auditors.
Although there is no formal legal limit on the length of their appointment, the Corporate Governance Code recommends changing the auditors every five years, to maintain their independence from the company.
41. Are there restrictions on who can be the company's auditors?
Auditors of public traded companies must:
Have good reputation.
Be members of an entity that provides external auditing services.
Comply with the personal and professional requirements in the National Banking and Securities Commission's general regulations.
Article 343 of the Securities Market Law provides that auditors should be independent from the company, with no other relationship or economic links.
Auditors must comply with the same test of independence as applied to independent directors (see Independence).
The Corporate Governance Code recommends that the fees paid to the auditors should not exceed 10% of the total income they receive in the auditors' firm, to maintain their independence.
The CNBV has issued general provisions applicable to entities and issuers (including public traded companies) supervised by the CNBV that hire external audit services for basic financial statements (CNBV General Provisions). Among other things, they extend the above requirements to the hiring of auditors' services.
42. Are there restrictions on non-audit work that auditors can do for the company that they audit accounts for?
Auditors hired in public traded entities cannot perform other work for the company they audit accounts for (Corporate Governance Code and the CNBV General Provisions).
43. What is the potential liability of auditors to the company, its shareholders, and third parties if the audited accounts are inaccurate? Can their liability be limited or excluded?
Under Article 347 of the Securities Market Law, the auditors of public traded companies are liable for damage caused to the company if:
Their opinion contains omissions or latent defects (inexcusable negligence) that, due to their profession, should have been part of their analysis.
In their report they intentionally:
omit to mention relevant information;
incorporate false or misleading information, including simulation;
advise to execute operations that harm the assets of the shareholders or the company; or
suggest or advise to record transactions against accounting principles.
This liability can be excluded if they act in good faith and without intent, and they give their opinion either (Article 348, Securities Market Law):
Based on information provided by the person to whom they provide their services.
In accordance with the procedures and, when applicable, methodologies for carrying out the analysis, evaluation or study corresponding to their profession.
44. What is the role of the company secretary (or equivalent) in corporate governance?
The secretary of the board of directors is usually the secretary of the shareholders' meeting. This involves several duties such as attending all shareholders' meetings, counting the number of shares present, recording resolutions and noting decisions taken in the meeting. The secretary also keeps the company's corporate ledgers and must register all resolutions in them.
Professional Qualifications. LL.M., University of Illinois at Urbana Champaign, Champaign, Illinois, EUA, 1995; authorised to practise law since 1992
Areas of Practice. Corporate governance and regulatory compliance; anti-corruption and internal investigations; corporate; mergers and acquisitions.
Advising multinational corporations in the design and implementation of their corporate strategy for entering Mexico.
Advising on the design and implementation of corporate governance legal infrastructure for domestic and multinational corporations.
Advising clients on their strategic and tactical corporate matters, such as Latin American corporate and compliance strategies, and drafting and negotiating all types of commercial agreements and corporate documents relating to public bids.
Representing a multinational company listed on the New York Stock Exchange and ranked in the first 200 companies of the Fortune 500, designing strategy and leading an internal investigation of one of its Mexican subsidiaries, identifying fraudulent schemes committed by local offices, a corruptive network in the company, co-ordinating the dismissal of all executives involved while avoiding business disruption, and taking control of operations.
Representing a multinational company listed on the Stockholm Stock Exchange, designing strategy and leading an internal investigation in multiple jurisdictions of allegations of corruption involving former executives and government officials relating to an infrastructure project. Interviews were conducted with several local officers of the Mexican entity, as well as strategic partners based in several Latin American countries.
Languages. Spanish (native), English (fluent).
Member of the American Chamber of Commerce, Monterrey Chapter.
Member of legal fraternity Phi Delta Phi, since 1990.
Member of the National Association of Business Lawyers.
Received the Award of Legal Merit for General Electric in 2002.
Ranked in Latin American Corporate Counsel Association as Attorney Approved for his extensive experience in Corporate and M&A matters.
Professional Qualifications. LL.M. Georgetown University Law Center 2016; authorised to practise law since 2009
Areas of Practice. Corporate governance and regulatory compliance; anti-corruption and internal investigations; corporate; mergers and acquisitions.
Representing a multinational company in the healthcare industry, in acquiring a renowned Mexican company that commercialises medical equipment and provides specialised services to different agencies of the Mexican healthcare system and private customers.
Representing a renowned Mexican company in the chemical industry on its sale to a multinational company.
Advising a multinational company in the healthcare industry in an internal investigation of corruption allegations involving action in Germany, Mexico and the Dominican Republic.
Advising a multinational company in the automotive industry, in an internal investigation of fraud and corruption allegations in Mexico.
Advising a multinational pharmaceutical laboratory on an audit of its Mexican subsidiary's compliance with Mexican regulations, its compliance programme, and implementing and designing a corrective plan.
Languages. Spanish (native), English (fluent).
Professional Associations/Memberships. National Association of Corporate Lawyers (ANADE); Mexican Bar Association.
Professional Qualifications. Authorised to practice law since 2022.
Areas of Practice. Corporate; mergers and acquisitions; corporate governance and regulatory compliance.
Recent Transactions. Advising on:
Applying the Anti-Money Laundering Provisions and actions to be taken.
Advising in the drafting and review of compliance programs for national and international companies and has participated in anti-corruption and anti-money laundering compliance investigations and remediation plans.
Advising a multinational company on compliance of their internal compliance programmes, code of ethics and internal regulations to Mexican regulations and best practices.
Languages. Spanish, English.
Professional Associations/Memberships. National Association of Corporate Lawyers (ANADE).