Opening a bank account for a new company in Mexico is more time consuming and requires more documentation than in the U.S.  The following is a list of the actions generally required to open a bank account in Mexico for a new company.  The requirements of each bank are often different so readers should check with their banks before relying on this list.

1. Original or copy of document issuing the tax identification number (Registro Federal de Contribuyentes – RFC) to the company.
2. Original of the registered public deed and bylaws (escritura constitutiva y estatutos sociales) of the company.  If the public deed is pending registration with the Public Registry of Commerce in the state of organization (e.g., the Federal District), then a letter from the notary public explaining this fact is generally accepted in lieu thereof.
3. Original of the registered public deed showing the powers of attorney (poderes) granted to the person opening the bank account on behalf of the company (this person is called the company’s representante legal or legal representative).  This legal representative must appear at the bank in person to open the bank account.  To the extent possible, the attorneys for the company should plan ahead when forming the company to make sure the powers of attorney for bank account management are granted to the appropriate people in the bylaws of the company upon its formation to avoid having to prepare separate powers of attorney after formation, which will add expense and time to the process.  The powers of attorney for bank account management can be drafted creatively to limit the legal representative’s authority to act on behalf of the company (e.g., to open and close bank accounts and to grant, sign, and negotiate credit instruments on behalf of the company up to the value of MX$100,000 acting alone or in unlimited amount if acting with Juan Valdez).
4. Original of the proof of the company’s tax domicile (domicilio fiscal).  Often this is a lease agreement or a utility bill issued to the company showing the tax domicile.
5. Original official identification of the legal representative.  If the legal representative is a foreign national, then he/she must have a valid FM-3 visa that shows the name of the company on behalf of which the bank account will been opened and that the foreign national is authorized to act on behalf of such company. 
6. Document proving place of residence of the legal representative.
7. Initial deposit to open the account (generally MX$5,000-MX$10,000).
8. List of the individuals who will be authorized to perform transactions under the account (i.e., additional legal representatives).  Each such individual must provide an original official identification and must meet the FM-3 visa requirements set forth in #5 above if they are foreign nationals.
9. Once all of the information above (and any additional information required by a particular bank) has been supplied, the bank will generally take three-five business days to open the account.

The legal representative should make at least one copy of all of the documents referenced above in case they are requested by the bank.

The U.S. Commercial Service’s Mexico offices released the following new reports on Mexico in June and July, 2009.  Copies are available at the links below:

• IT Cluster Development in Monterrey;
• Mining Equipment Market;
• Airport Opportunities and Trends in the National Infrastructure Program;
• Business & Regulation Insights in the Pay-TV Market; and
• Mexico’s Retail Sector: “Selling Inside the Box”.

I continue the Mexican Real Estate 101 series with a list below of some of the essential due diligence actions that should be performed before entering into a Mexican real estate transaction.   

Investors in Mexican real estate should always consult with a licensed Mexican real estate attorney before buying any property in Mexico.

1. Title Review.  The buyer’s Mexican counsel must review the chain of title by analyzing certified copies of the title deeds obtained from Public Registry of Property located in jurisdiction of the real estate.  Any liens and encumbrances on the property will appear in the property records obtained from the Public Registry.  The property records are kept in different books, which are page numbered and organized in volumes.  If possible, a recognized title insurance company in Mexico (such as Stewart Title, First American Title Insurance, Chicago Title, etc.) should perform a supplemental title review in addition to the review performed by local counsel.  If the title review indicates that the chain of title is unclear or interrupted, further research should be performed to determine if there is a serious title defect.  If the title defect involves corrections to the metes and bounds property description, the problem is generally solved by requesting that corrections be made at the Public Registry, provided that the modifications have been agreed to in writing by the owner of the adjacent land.  If such agreement cannot be obtained, judicial action may be necessary, which could be costly and protracted and the buyer may instead decide to terminate the transaction.
2. Title Insurance.  If possible, the buyer should obtain a commitment for title insurance from a recognized title insurance company in Mexico.  Stewart Title and First American offer owner and mortgagee policies adapted from the American Land Title Association (ALTA) policy forms.  Policies can be issued in either U.S. Dollars or Pesos and can be written to insure any recognized land interest in Mexico, including direct ownership, leasehold, trust, or beneficial ownership.  Among the risks insured are mortgages, mechanic’s and tax liens, easements, contractual obligations restricting the use of the property, and adverse possession.  Approximate cost for title insurance is .0065% of the total transaction amount.
3. Availability of Utilities. Buyer’s counsel should review and analyze availability of water, sewer, gas, electric and telephone services to the property provided by the applicable local authorities.  Water utilities are particularly important if the target property is located in a dry region and the proposed development includes a golf course or other feature that requires irrigation or significant water use.  Local counsel should review the arrangement between the property and the local water utility provider, which should have a National Water Commission (Comisión Nacional del Agua) concession.  Water provided under a water supply agreement with the local water utility company must derive from a federal NWC concession.  Buyer’s lawyer should confirm that the water supply agreements are in full force and effect and that they provide certainty to the buyer, both in terms of amounts of water required and for the time periods required.  If water is unavailable, other options (e.g., a well or desalination plant) should be considered.
4. Zoning/Use Restrictions; Condominium Regulations. Buyer’s counsel should confirm that the current and intended uses of the property do not violate zoning, development, and land use (uso de suelo) laws and regulations.  Each Mexican municipality of regional importance will have an urban development plan.  Buyer’s counsel should determine whether there are any limitations on construction of the target property.  Most urban development plans contain density limitations.  If an existing condominium is to be purchased, local counsel must review the condominium regulations regarding design and architectural restrictions and any review process required.
5. Survey/Legal Description of Property. Although surveys are not obtained in all real estate transactions in Mexico, it is strongly recommended that buyer obtain a real estate survey prepared by a qualified Mexican surveyor showing the boundaries and measurements of the property.  Surveyors in Mexico are now making use of GPS to create detailed surveys.  
6. Certificate of Encumbrances. Buyer’s counsel should request a certificate of encumbrances (Certificado de Gravámenes) from the Public Registry of Property.  This certificate will enable the Mexican Notary Public to assess whether the property has any liens, encumbrances or claims attached.  At a minimum, this document must contain the following information: (i) the time period covered by the certificate; (ii) the surface area of the property; (iii) a metes and bounds description of the property; (iv) the name of the property owner; (v) the classification the property (urban or rural); (vi) a legal description of the ownership of the property (e.g., whether held in trust, owned by several individuals, etc.); and (vii) the name and signature of the Public Registrar and the official seal of the Public Registry of Property.
7. Tax Certificate. Obtain a tax certificate from the Municipal Treasury Office showing that all property taxes are paid in full.  At a minimum, this certificate should contain the following information: (i) the property tax identification number (clave catastral); (ii) the tax appraisal value; (iii) the name of the owner; and (iii) the signature of the department head and seal of the Municipal Treasury Office.  It is not uncommon in Mexico for property owners to fail to pay taxes for several consecutive years.  In order to register the public deed in the Public Registry of Property after the sale has closed, the taxes must be paid in full.  In the State of Baja California and certain other Mexican states, the tax certificate must also state that there are no pending debts with local authorities such as the State Water Services Board.
8. Environmental Laws. Buyer should confirm that the property is in compliance with all environmental laws, preferably using well-qualified Mexican environmental auditors (of which there are few; Buyer should check background and experience before hiring).  If the real estate is acquired to develop a tourist or industrial activity, an environmental impact authorization may be required from the applicable environmental authorities.  Other specific studies may be necessary depending on type of development (e.g., geological studies if buildings are to be constructed on a hillside).
9. Appraisal. Obtain an appraisal (Avalúo) of the property from a certified appraiser.  An appraisal of the property is required in connection with any sale by Mexican real estate law.  A Mexican Notary Public will generally obtain the appraisal on behalf of the parties.
10. Federal Maritime Zone.  Beachfront property is likely to be located in the Federal Maritime Zone, which is the area located along the full length of the Mexican coast and twenty meters inland from the mean high tide line.  Land in the Federal Maritime Zone is public property, but the Mexican Government often grants 15-year concessions to landowners for exclusive use of the property.  Buyers of coastal property should confirm (1) that the payment of dues on the concession, if any, is current, (2) if the concession is soon to expire, whether it may be renewed, and (3) whether third parties may seek or maintain rights to the concession.
11. Labor Issues.  If the buyer seeks to acquire an existing hotel/resort development, factory, etc. that has employees, buyer’s Mexican labor and employment counsel should review all existing collective bargaining and individual labor agreements with unionized and other employees to confirm that the transaction will not violate the terms of those agreements and determine any obligations of seller or buyer in connection with the transaction (severance obligations, etc.).  A purchase of the assets of a Mexican entity invokes the concept of “employer substitution” under Mexican labor law, which renders the buyer liable jointly with the seller for all of the labor compensation and other labor obligations of the seller for six months from the date the employees or union are notified of the substitution.  After six months, only the new employer (buyer) is liable.  The buyer and the seller may agree in writing to limit such liability.

According to NAFTA Works, a website published by Mexico’s Ministry of the Economy’s NAFTA office, Mexico will reduce the time to “open a new business” from 30 days to 2 hours under its new Fast Opening Business System (FOBS).  A June 22, 2009 NAFTA Works press release claims that the FOBS program will, in connection with such time reduction, reduce the number of new business regulatory requirements from 16 to 3.

Other than the limited information provided above, the press release did not discuss the specific ways in which FOBS would achieve its ambitious objectives; accordingly, I remain skeptical, but hopeful, that FOBS will function as advertised.

One of the most significant problems in finalizing the formation of a new business entity in Mexico is the lengthy time period required for the Public Registry of Commerce in the jurisdiction of formation to issue the registered copy of the formation deed, which can take up to 2 months or longer.  Although a certification from a Mexican Notary Public that the deed is in the process of registration in the Public Registry is generally sufficient evidence for third parties and other governmental agencies that the entity has been formed, upgrade of the information management systems at the Public Registries that would expedite the formation deed registration process is a much-needed reform.

Antonio “Tony” Garza, U.S. Ambassador to Mexico from November 18, 2002-January 20, 2009, has joined ViaNovo, a Austin, Texas-, Washington, DC, and Monterrey-based management and communications consulting firm.  ViaNovo’s press release on the matter is available here.

Ambassador Garza also announced he would also join the law firm of White & Case, LLP, as Counsel in its Mexico City offices.

Both appointments are effective June 23, 2009.

On April 23, 2005, Ambassador Garza married Maria Asuncion Aramburuzabala, heiress to a significant portion of the Grupo Modelo brewing company.

In a July 24, 2008 post, Mexico Law Blog questioned the viability of the ambitious 6,000-unit Loreto Bay tourist development project called Loreto Bay, located on around 8,000 acres adjacent to the hamlet of Loreto on the east coast of the Baja peninsula.  Although the project, particularly its goal of self-sustainability, is impressive, its timing is unfortunate.

The San Diego Times has reported that the project developer, TSD Loreto Partners, S. En C. por A. (”TSD“), has sold fewer than 800 units and suspended construction and operations.  The report also said that Fonatur, Mexico’s tourism development agency, was asking for “custody” of the project so that it could reopen a golf course and a hotel while TSD searches for a buyer.  The principal lender for the project is Citigroup Property Investors.  Whether TSD has breached its loan covenants is unknown, but highly probable. 

StarkSilverCreek.com reports that TSD is subject to a lawsuit in Arizona, in which Baja Developments, LLC, a New York limited liability company, alleges breach by TSD of a services agreement and seeks damages in excess of $7,000,000.  According to a detailed article about the Loreto Bay project in the Phoenix Business Journal, Baja Developments, LLC was a company formed by The Trust For Sustainable Development (note the “TSD” initials), a Canadian non-profit, federally chartered land and community development corporation, that arranged financing for the Loreto Bay project.

The U.S. Commercial Service in Guadalajara, Mexico has issued a report discussing opportunities for foreign companies in Mexico’s agribusiness industry.  A copy of the report is available here.

The report says that there are opportunities for foreign companies seeking to sell products and services in the following areas of Mexico’s agriculture sector:

• harvesting sysems, used and OEM machinery
• consultancy on integration of agriculture with agribusiness
• sustainable production models to reduce pollution sources in soil, air and water
• biotechnology
• transformation and distribution systems
• packaging technologies
• infrastructure for slaughterhouses (waste water plants, cold chain, cut)
• irrigation systems
• organic fertilizers
• agrochemicals
• dairy processing equipment (dryers, pasteurizers, cold chain)

Volume 17, Number 2 of The California International Law Journal (available here) contains three articles on Mexico as follows:

1. “The Legal Implications of Nearshore Outsourcing to Mexico”, by Renee Dopplick;
2. “Going Verde – Renewable Energy in Mexico”, by J. Anthony Griolami; and
3. “Importance of Understanding Mexican Culture When Doing Business in Mexico”, by Lizbeth H. Flores.

I recently wrote a very short article for a newsletter published by the Greater Hispanic Chamber of Commerce of Austin, Texas discussing a few of the key issues businesses should consider when contracting with sales representatives and distributors in foreign markets.  An excerpt from the article is below:

Many businesses successfully expand their international sales of goods and services by contracting with sales representatives or distributors in foreign markets. These arrangements involve special considerations.

Know Your Partner.  Before drafting any contract, research and investigate prospective foreign business partners’ expertise and financial capability to perform the duties under the contract. Is the prospective business partner a good citizen? A thorough inquiry enables many companies to avoid disastrous international business relationships.

Be Specific.  The contract should clearly specify the duties to be performed by the sales representative or distributor as well as the rights and obligations of both parties. For example, it should include comprehensive provisions regarding protection of intellectual property, confidentiality, purchase orders, manner and method of payment for goods or services (e.g., letters of credit), shipping and risk of loss of goods, compliance with local laws, warranties and disclaimers of warranties, management of customer warranty claims, breach of contract and remedies for breach, termination, dispute resolution, governing law, and other provisions.

Understand Your Remedies.  If a business partner is located in a foreign jurisdiction, enforcement of contractual rights and guaranties may be limited by law, expense, time, or other factors. The only practical remedy in certain situations may be to terminate the contract. 

 

The U.S. Commercial Service in Mexico City has released a market research report on the Mexican apparel industry, a copy of which is available here. 

The report discusses market size and demand drivers, Mexican apparel manufacturing companies, market prospects, barriers to entry, trade events, and provides other useful apparel industry information.