Shareholders' Rights & Shareholder Activism 2019

Last Updated July 23, 2019

Mexico

Law and Practice

Authors



Santamarina y Steta SC is a law firm that knows Mexico in depth, developing strategic solutions that produce successful results for clients, with whom the firm collaborates as business partners. With more than 70 years of experience, the firm has evolved at the pace required by its clients and international markets to enhance its presence in Mexico. The firm's sensitivity and its important network of contacts allows it to identify the philosophy and work styles of investors and professionals from all over the world, strategically combining efforts to customise solutions and achieve success. Santamarina + Steta makes its client’s challenges its own by understanding their environment, local situation, culture and Mexican laws. The firm stands out in the business community for its knowledge and understanding of local authorities, practices and laws, and because it offers the benefit of a one-stop shop, ensuring reliable, multi-disciplinary, integrated and comprehensive approaches. Santamarina + Steta aims to monitor constantly and understand market changes, business opportunities, threats and multi-dimensional challenges of growth in complex economies that require expert advice, to position better and enhance clients’ investments, interests, projects and dreams. The firm's expectations are simple: to provide quality and excellence and continue being the partner of choice for clients.

Companies or corporations are legal entities incorporated under different legal structures established within Mexican commercial legislation. Mexican legal entities are divided into two types: stock entities and people entities. Moreover, stock entities may be divided into privately held or publicly held companies. 

The legal entities that are subject to a social contract are the asociaciones civiles (associations), sociedades civiles (civil company or partnership), sociedades en nombre colectivo (general partnerships), sociedades en comandita simple (limited partnerships), and sociedades de responsabilidad limitada (limited liability companies), among others. Such legal entities do not issue stock and therefore their investment capacity is broadly limited, as well as their statutory composition, but they are legal persons recognised by the law that can perform commercial acts and carry out any business with third parties.

However, the legal entities that issue stock are the sociedad cooperativa (co-operative company), sociedades en comandita por acciones (limited joint-stock companies or limited stock partnerships), sociedades por acciones simplificadas (simplified joint-stock companies), and sociedades anónimas (stock corporation), the latter being the most frequent type of business organisation incorporated under Mexican commercial legislation. Stock corporations may also adopt different legal forms under Mexican law, such as sociedades anónimas promotoras de inversión (investment promoter), sociedades anónimas promotoras de inversión bursátil (stock market investment promoter) or sociedades anónimas bursátiles (publicly traded companies).

Every type of legal entity has its own distinctive characteristics that enable them to operate in different ways and to hold different legal treatments, notably in regard to tax incentives and shareholders' rights.

In order to allow foreigners, whether legal entities or natural persons, to invest in Mexican corporations, the latter must include in the articles of incorporation the possibility for foreign investors to participate in their corporate capital (foreigner participation clause or Cláusula Calvo). The Mexican Constitution provides the same rights and legal protection to foreigners. Foreigners may purchase land, obtain government concessions or permits, participate in partnerships or own companies’ shares or purchase any type of assets, as long as they consent before the Ministry of Foreign Affairs to be treated as nationals with regard to their assets and rights, as well as to abstain from claiming protection from their countries’ government, under the liability that if they do, foreign investors may forfeit their assets and rights before the Mexican government.

Moreover, foreign corporations or foreign investors that intend to commercialise and operate in Mexico may do so pursuant to certain procedures and requirements. As a general principle, foreign investors may participate in the equity share of Mexican corporations without limitations. However, every foreign investor that operates and commercialises in México must be registered under the National Foreign Investment Registry. In addition, under the Foreign Investments Law, there are specific economic activities that are exclusive for the Mexican government or for Mexican corporations, and other limitations and special conditions to the equity share that foreigners may obtain from Mexican legal entities that participate in certain economic activities.

Shares or stocks are certificates of value that serve as financial instruments that represent ownership or interest in a company. Shares are securities issued by stock corporations and they represent a portion of the corporate capital of the company and grant corporate and economic rights to their shareholders. Share certificates are the instruments by which shareholders evidence or prove their right and interest as partners or shareholders of a company.

As a general principle, shares certificates will hold the same value and grant equal rights to their shareholders. Nevertheless, stock corporations’ bylaws may include the possibility for the corporation to issue different series or classes of shares with special rights or limitations. Such special rights or limitations may include limitations and restrictions for voting, and the capacity to vote only for certain previously determined issues (limited voting stock), as well as economic rights' limitations, such as receiving dividends under certain conditions (preferred fixed dividend stock or preferred stock).

Bylaws also establish the possibility for a corporation to issue working shares in favour of the collaborators and employees of the company. Such working shares shall be issued under the terms and conditions of a compensation plan that shall include the general procedure for the issuance of shares, their value, inalienability, and other special conditions. Working shares do not necessarily represent a part of the corporate capital, and therefore, may not grant any voting rights nor any rights of representation in any shareholders’ meetings. Under Mexican law, working shares may not be considered as real corporate shares, and therefore may not contain minimum rights obliged by law.

Stock corporations may also issue founders' stocks, which grant its holders a special economic and temporary benefit. Founders' stocks may grant to its holders profit equal to a maximum of 10% of the annual revenue of the corporation, for a maximum period of ten years from the date of incorporation of the company.

General law theory sets forth the existence of three general sources of law: formal, material and historical. The formal source of law is generally considered as legislation, general practice, and jurisprudence. The main source of law and regulation applicable to shareholders’ rights is commercial legislation, which includes among others, the commercial code, the business corporations law, and the securities market law.

Commercial legislation considers pacta sunt servanda as a general law principle, whereas the will of the parties expressed in an agreement or pact is considered as mandatory between the parties, and implies that the non-fulfilment of their obligations may be considered as a breach that can be enforced by a local district judge's ruling.

Under commercial legislation, the bylaws of a corporation are considered to be an agreement between shareholders in which they determine the general governance of the corporation. Therefore, the rights and obligations established in the bylaws of the corporation are considered to be law between the shareholders.

The bylaws of the corporation shall be considered as the primary source of law of shareholders’ rights. However, bylaws shall not stipulate legal provisions contrary to those established in the law. The law determines the essential clauses and minimum requirements, depending on the type of legal entity, especially in regard to rights dependent upon a percentage of shares, calls upon shareholders’ meetings and approval of resolutions, and corporate governance, as well as to the board of directors.

Shareholders of a corporation shall have the right to receive profit (economic rights) and the right to vote in the shareholders’ meeting (corporate rights). The bylaws of the company may consider the possibility for the corporation to issue series or classes of shares with special rights or limitations. Therefore, shareholders will have the rights inherent in the shares’ series or class. However, under Mexican commercial law, there are certain rights that are applicable to all shareholders.

For example, all shareholders or partners are entitled to receive profits, as well as to receive the respective part of the remaining equity in the event of dissolution and liquidation of the legal entity (except for civil associations which are considered non-profit organisations).

Sociedades de Responsabilidad Limitada (limited liability partnerships) grant their partners the right to inherit their partnership interest without the consent of other partners. The incorporation of new partners to the partnership must be approved by the majority of the partners. Partners will also hold the right to receive compensation from the partnership’s annual revenue, as well as to participate and vote in the partners’ meetings of the partnership.

Stock corporations have more complex and broad shareholders’ rights. As described above, stock corporations may issue founders’ bonds and working shares with limited rights. However, stock corporations may issue any series or classes of shares they deem necessary with specific rights pursuant to its bylaws. Every issued share series or class held by a shareholder will contain certain rights and will represent a portion of the corporate capital of the corporation (excluding working shares or restricted voting shares).

Shareholders will have a preferred right to acquire newly issued shares of the corporation in proportion to their share capital. Moreover, shareholders have the right to request the disclosure of the company’s financial statements to the general public. Where the shareholders’ meeting resolves the amendment of the corporate purpose, nationality or transformation of the corporate modality set forth in the corporate bylaws, all shareholders have the right of separation from the corporation. Where there are different types of series or classes of shares, any resolution of the corporation to modify the rights of such shares must be previously approved by the majority of the shareholders of those shares in a shareholders’ special meeting.

Shareholders (in compliance with the minority rights) have:

  • the right to request the board of directors or the statutory auditor to call a shareholders’ meeting;
  • rights to exclude shareholders;
  • rights to split from the corporation;
  • the right to appoint a member of the board of directors of the company;
  • the right to appoint a comisario (statutory auditor);
  • the right to claim liabilities from the directors of the company in the event of irregularities from their actions;
  • the right to postpone the shareholders’ meeting if shareholders consider there is insufficient information to make a decision, as well as the right to oppose judicially any resolution taken by the shareholders’ meeting.

Shareholders’ rights of a Sociedad Anónima Promotora de Inversión, include rights similar to Sociedades Anónimas (stock corporation) but with different minimum percentages for minority shareholders' rights, provided this type of stock corporation seeks to promote investment and grant greater protection rights to its minority shareholders. In this type of corporation, shareholders lose their right of separation in the case of amendment of the bylaws, as well as the right to disclose to the general public financial statements.

Sociedades Anónimas Promotoras de inversión bursátil and Sociedades Anónimas Bursátiles (publicly traded companies) include minority shareholders’ rights exercised by the same percentage of shareholders as Sociedades Anónimas Promotoras de Inversión. However, these rights may also be exercised by shareholders with limited or restricted voting rights, without limitation.

Shareholders may also enter into agreements in order to set forth rights and obligations in regard to the purchase and sale of shares of the company. Shareholders' agreements may establish voting pacts in shareholders’ meetings, as well as covenants related to the transfer of shares to third parties, among other agreements allowed by law. These agreements are only mandatory for the signing shareholders and therefore cannot affect or hold liable the corporation.

Sociedades Anónimas Bursátiles may also enter into shareholders' agreements similar to stock corporations, in addition to executing non-compete agreements between shareholders. Mexican securities law requests that shareholders' agreements be disclosed to the corporation and to the general public.

Sociedades Anónimas Bursátiles must adhere strictly to corporate governance international standards, which must include at least the rules of operation of the governing bodies, independent directors, special committees, corporate policies, conflict-resolution procedures and channels of communication between the governing bodies and the company's administration, in order to facilitate the exercise of shareholders' rights, as well as the general governance of the corporation.

Mexican commercial law allows individuals and legal entities to enter into any agreements, as long as the purpose of the agreement is legally valid and the agreement does not violate any law. As further explained in 1.4 Main Shareholders' Rights, parties are obliged to comply with all rights and obligations they agree upon in their agreement (pacta sunt servanda).

Shareholders’ agreements are recognised and enforceable by law, as well as permitted by stock corporations, as the law grants stock corporations (but not all types of entities) the possibility for their shareholders to enter into agreements.

Joint-venture agreements are not regulated or recognised under Mexican commercial law. However, any such agreements are similar to the asociaciones en participación, which are regulated under Mexican business corporate law. The asociación en participación is a written agreement in which one party grants another goods or services, in exchange for either profits or losses from commercial activity or business. Under such agreements, the parties may form a newly incorporated corporation in order to carry out the commercial activity or business. Asociación en participación or joint-venture agreements are not considered legal entities under the business corporate law; however, they do have fiscal repercussions under Mexican tax law.

Mexican law sets forth shareholders’ rights that are dependent upon minimum percentages of shares. The minimum percentage may vary depending on the type of corporation. For example, shareholders of sociedades anónimas or shareholders of stock corporations that represent 33% of the corporate capital with voting rights shall have the right to request the board of directors or the statutory auditor to call a shareholders’ meeting and include in the meeting’s agenda any issue the shareholders deem necessary. For every 25% ownership of the corporate capital, shareholders shall have:

  • the right to appoint a member of the board of directors of the company;
  • the right to appoint a comisario (statutory auditor);
  • the right to claim liabilities from the directors of the company, in the event of irregularities in their actions;
  • the right to postpone the shareholders’ meeting if shareholders consider there is insufficient information to make a decision, as well as the right to oppose judicially any resolution taken by the shareholders’ meeting.

Shareholders’ rights in Sociedades Anónimas Promotoras de Inversión that represent at least 10% of the corporate capital with voting rights shall have the right to request that the board of directors or the statutory auditor call a shareholders’ meeting and include in the meeting’s agenda any issue the shareholders deem necessary. In addition, shareholders that represent at least 10% of the corporate capital shall have:

  • the right to appoint a member of the board of directors of the company;
  • the right to postpone the shareholders’ meeting for three days where shareholders consider there is insufficient information to make a decision;

and will require:

  • 15% to claim liabilities from the directors of the company, in the case of irregularities from their actions; and
  • 20% to oppose judicially any resolution taken by the shareholders’ meeting.

Shareholders’ rights in Sociedades Anónimas Promotoras de Inversión Bursátil and Sociedades Anónimas Bursátiles (publicly traded companies) that represent at least 10% of the corporate capital, with or without voting rights, have:

  • the right to request the board of directors or the committee to call a shareholders’ meeting and include in the meeting’s agenda any issue the shareholders deem necessary;
  • the right to postpone the shareholders’ meeting for three days if shareholders consider there is insufficient information to reach an agreement;

and will require:

  • 5% to claim civil liabilities from the directors of the company, in the case of irregularities from their actions; 3% to claim financial crimes; and
  • 20% to oppose judicially any resolution taken by the shareholders’ meeting. In this type of corporation, the rights described herein may also be exercised by shareholders with limited or restricted voting rights, without limitation.

Mexican business corporate law and the bylaws of the corporation grant shareholders the right to demand information and documentation from the corporation. The general manager or the board of directors of the company must deliver at the annual shareholders’ meeting a report regarding the general financial status and statements of the corporations; in addition, the comisario or auditing committee must provide a report in respect of the validity, sufficiency, and authenticity of the report provided by the company’s administration. If shareholders consider that, during that shareholders’ meeting, the information provided is not sufficient, shareholders have the right to postpone the shareholders’ meeting for three days so that the administration can provide sufficient information or documentation in order for the shareholders to decide and vote in the shareholders’ meeting.

The foregoing is in addition to the shareholders’ right to appoint a comisario (statutory auditor) or the formation of an auditing committee, which has an obligation to review the general management and corporate practice of the company, as well as the right to claim liabilities from the board of directors and managers of the company in the event of irregularities in their actions. 

In addition to the above, publicly traded companies have an obligation to provide to the general public their quarterly and annual financial statements, accounting information and administrative information, the updated corporate books, and the annual report, among other information. In addition to the periodicity and the information mentioned above, publicly traded companies have to provide to the general public an overview of the resolutions of the shareholders' meeting when the profits are paid, as well as the corresponding attendance list. If the latter information is not provided, shareholders have the right to request the missing information from the administration of the corporation.

In addition, publicly traded companies must deliver, at least 15 days prior to the shareholders’ meeting, all information and documentation required for every item included in the meeting’s agenda.

Shareholders exercise their rights and approve and consent the main issues of the corporation through the shareholders’ meetings. Shareholders may have ordinary, extraordinary or special shareholders’ meetings. The corporate bylaws of a corporation may set forth issues to be resolved by special shareholders’ meetings of a certain type of series or classes of shares. Extraordinary shareholders’ meetings resolve, among other issues determined by corporate law, amendments to the corporate purpose, nationality, modality and the minimum fixed capital of the corporation, as well as corporate mergers, dissolution, and liquidation of the corporation. Ordinary shareholders’ meetings must be held annually and shall appoint members of the board of directors and comisarios of the company, as well as approve the reports of the administration of the company and the reports of the comisarios or auditing committee.

There are several issues that have to be approved by a specific percentage of shareholders, as described previously. The specific issues that require the percentages described in 1.6 Rights Dependent Upon Percentage of Shares for its approval are, among others:

  • hold the board of directors accountable;
  • appoint a comisario and members of the board of directors;
  • call a shareholders’ meeting;
  • postpone a shareholders’ meeting when they do not have enough information about a specific matter or issue; and
  • oppose judicially a resolution taken in a shareholders’ meeting.

Shareholders can also name a proxy to vote on their behalf in any type of shareholders’ meeting, with the only limitation that the administrator and the comisario of the Company cannot be representatives of any shareholder. The shareholders that designate a representative by means of a power of attorney in a country different from Mexico must legalise (apostille) and notarise that power for it to be valid in Mexico.

The bylaws of the corporation may allow shareholders to approve and consent to any matter or issue deemed necessary through a unanimous shareholders' resolution, without the need of an actual shareholders’ meeting, since corporate law considers unanimous shareholders' resolutions to cause the same legal effects as resolutions taken by means of shareholders’ meetings.

Shareholders' meetings are ordinarily called by the administration of the company, whether it be a sole director or a board of directors, as well as by the comisario or statutory auditor. However, if the shareholders of the company wish to discuss an issue at a shareholders' meeting and they represent at least 33% of the share capital (10% for a Sociedad Anónima Promotora de Inversión or a publicly traded company) may request that the board of directors or the statutory auditor call a shareholders' meeting. The shareholders’ request to call a shareholders’ meeting must stipulate in writing the agenda to be addressed. In the event that the meeting is not called by the board of directors or the statutory auditor at the request of the shareholders, they may appeal to the judicial authority.

Likewise, the aforementioned request may be performed by a single shareholder if no meeting has been held for two consecutive fiscal years or when the meetings held during that time have not dealt with approval of the annual report of the board of directors, appointments to the board of directors or remuneration of the directors for the services rendered. Shareholders of publicly traded companies have the right to oppose and prevent in a shareholders’ meeting agenda any items being described as 'general' or 'various' issues or matters.

The shareholders’ notices for meetings are published in the electronic system provided by the Ministry of Economy and, in some cases, they must also be published in a newspaper commonly known by the general public and the Official Gazette of the Federation (publicly traded companies). Shareholders’ notices for meetings must contain the agenda to be discussed at the shareholders' meeting and must be signed by the chairman of the board of directors. In the event that the meeting is not called in accordance with the provisions of the bylaws or by the applicable law, any resolution held at the meeting will be null and void, and another shareholders' meeting must be called.

Shareholders exercise their rights through ordinary and extraordinary meetings, each one with their respective requirements with regard to quorum, voting and matters to be addressed. However, in order to exercise their rights in the shareholders’ meeting, they must evidence their voting rights and shareholding. In the event that the shareholders are not able to attend the meeting, they have the possibility to be represented by a mandate for the purpose of the meeting.

Ordinary shareholders’ meetings are considered legally convened with the presence of more than half of the share capital and the decisions are made with the favourable vote of more than half of those present. However, extraordinary shareholders’ meetings are considered legally convened with the presence of three quarters of the company's share capital and the decisions are made with the favourable vote of at least half of those present, as long as half of the share capital is in agreement. In both cases, if the quorum is not met, it may be possible to call for a second meeting without the necessity of gathering a specific quorum.

It is important to consider that in some cases the company’s shareholders may or may not have the right to vote on a particular issue, for instance, a shareholder who is also a member of the board of directors may not vote on whether or not to approve the annual report of the board of directors, or in the event of the exclusion of one of the shareholders, his or her vote will not be computed for the calculation of the necessary quorum to make resolutions.

The management of stock corporations may be granted to one or more temporary and revocable directors, who may be shareholders of the company or third persons unrelated to the company. Where there are two or more directors, they will constitute the board of directors of the company. Sociedades Anónimas Promotoras de inversión, Sociedades Anónimas Promotoras de inversión Bursátil, and Sociedades Anónimas Bursátiles, regulated under the Mexican securities law, are obliged to constitute a board of directors.

As described before, shareholders must appoint or ratify through ordinary shareholders’ meetings the members of the board of directors. Mexican business corporate law authorises shareholders to appoint themselves as members of the board without limitation. However, publicly traded companies are obliged to include in their board of directors at least 25% of independent directors, that is, directors who are free to exercise their position without any conflict of interest, whether personal or economic. Therefore, shareholders who sit on the board of directors are not considered independent.

A general shareholders’ meeting held by the initial shareholders upon incorporation of a corporation must appoint a sole director or the members of the board of directors. The administration of Sociedades Anónimas may include a sole director or a board of directors; however, publicly traded companies and Sociedades Anónimas Promotoras de Inversión are obliged to include a board of directors. Shareholders that represent at least 25% (10% for publicly traded companies) of the corporate capital of a company have the right to appoint at least one member of the board of directors. Publicly traded companies shall not have more than 21 members of the board of directors and must include at least 25% of independent directors, who shall be selected on the basis of their experience, capacity, prestige and ensuring that they can comply with their obligations without any conflict of interest. Members of the board of directors shall maintain their position until another ordinary shareholders’ meeting is held and shareholders resolve the revocation of their position. Likewise, shareholders may also appoint or remove one substitute or alternative director for every member of the board of directors, in case that member is not able to attend any meeting of the board of directors. Members of the board of directors may be appointed or removed from their position, at any shareholders’ meeting in which the majority of the shareholders are present.

In addition to the appointment of directors, shareholders also have the right to hold liable one or more members of the board of directors of the company in the case of irregularities in their actions. Directors may be held liable for breaching the applicable laws and the bylaws of the company, including violation of their confidentiality obligation. Shareholders shall claim any such liability through the shareholders’ meeting and, once the claim against a director has been approved, that director is subsequently removed from the board. Publicly traded companies may also hold their directors liable for lack of diligence and loyalty.

In addition to the management of the corporation, Mexican business corporate law also requires stock corporations to appoint an internal auditor responsible for the general surveillance of the corporation. That internal auditor is legally known under corporate law as a comisario (statutory auditor). A shareholders’ meeting shall appoint and remove the comisarios. Shareholders representing at least 25% (10% for Sociedades Anónimas Promotoras de Inversión) of the corporate capital of a company have the right to appoint at least one comisario, and that appointment must be approved by the shareholders’ meeting.

The comisario may be one or more temporary and revocable persons, who may be shareholders of the company or third persons unrelated to the company, and shall comply with certain requirements established by law. The comisario is responsible, among others, for requesting from the board of directors a monthly report which includes the financial statements of the company and for reviewing all necessary documentation, records, or other evidence necessary to determine the general compliance of the company with the applicable legislation. The comisario shall deliver an annual report to the shareholders’ meeting, stating the legality, sufficiency, and reasonability of the board of directors’ performance. In the case of irregularities in the actions and performance of the comisarios, shareholders have the right to request the management to hold the comisarios liable and claim any responsibility.

Publicly traded companies do not have a comisario, but rather have to include as part of their management a comité de auditoria (auditing committee) and corporate practice committee, which are subject to and shall support and respond before, the board of directors of the company. The shareholders’ meeting shall appoint or remove the chairman of the comité de auditoría, who cannot be the chairman of the board of directors. This committee is responsible, among others, for evaluating the performance of the external auditor, reviewing the financial statements of the company, and informing the board of directors in the event of any internal irregularities of the company. In addition to the auditing committee, publicly traded companies must hire the services of an external auditor, who must audit the financial statements of the company, as well as comply with the general dispositions applicable to external auditors of corporations supervised by the National Banking and Securities Commission. Such dispositions seek to reinforce the channels of communication between the governing bodies of the company and its external auditors, unify the applicable laws to the external auditors and update the legal grounds applicable to the audited financial statements.

Mexican business corporate law requires shareholders who have an interest that is contrary to the interests of the company in regard to certain matters or operations to abstain from any deliberation or vote in relation to those matters or operations. In the event that a shareholder does not comply with the norm, that shareholder will be liable for damages and losses caused to the company. However, as a general principle, shareholders of stock corporations are not obliged to disclose their interests in the company.

Mexican security laws include greater conditions for publicly traded companies’ shareholders to disclose and inform their interest to the general public through the Mexican Stock Exchange and the National Banking and Securities Commission, especially when shareholders intend to acquire or sell corporate shares. For example, shareholders who own 20% or more of the corporate capital, and intend to buy or sell 5% of the company shares, are required to inform any such operation to the general public; shareholders or any other person who intends to acquire between 10% and 29% of the corporate capital must also inform the general public of any such purchase, as well as for those who intend to acquire between 30% to 50% and, from 51% and greater, the latter under certain conditions established by the Mexican security law.

As described before, share certificates are the instruments by which shareholders evidence or prove their right and interest as shareholders of a company. Shareholders’ rights to grant security over shares and disposal mechanism of shares must be pursuant to the bylaws of the corporation, or as the case may be, according to the shareholders’ agreements executed between shareholders of a corporation.

As a general principle, shares may be transferred or granted as security over shares, by one person to another, by multiple means. Sociedades Anónimas Promotoras de Inversión and stock corporations’ bylaws may establish the restrictions, terms, and conditions under which shareholders may transfer their shares among shareholders or third parties unrelated to the company, as well as the general conditions in which shareholders may grant securities over shares. Such conditions may be applicable to all or some shares, depending on the series or class.

Mexican security law, however, prohibits publicly traded companies to limit in any way the transfer of shares, as well as impose on shareholders any type of restrictions when they grant securities over its shares. However, in certain scenarios, any such operations must be published to the general public.

Sociedades Anónimas Promotoras de Inversión and stock corporations, including publicly traded companies, allow their shareholders to enter into agreements and determine among shareholders the terms and conditions under which they will transfer or grant securities over shares. Such agreements shall only be obligatory among the signing parties and must not hold the corporation liable.

The most basic way to transfer the rights and ownership of the share certificates is by endorsement. Any other type of transfer, whether by a pledge agreement or barter over shares, among others, must be registered in the corresponding corporate books of the company. Mexican business corporate law prohibits stock corporations to grant their shares under loans or downpayments, as well as to repurchase their stocks (share buy-back). The latter provision is not applicable to Sociedades Anónimas Promotoras de Inversión and publicly traded companies.

Shareholders may resolve, in accordance with the corporate bylaws, the dissolution and subsequent liquidation of the corporation, in the event that the corporation becomes insolvent and cannot comply further with its payment obligations, whether by ruling of a judicial authority or for any reason the shareholders deem necessary. Under Mexican business corporate law, the dissolution of corporations must be resolved by an extraordinary shareholders’ meeting. Once the dissolution has been approved, the shareholders must proceed with the liquidation of the company.

Where there is no special liquidation procedure established in the corporate bylaws, shareholders must appoint one or more liquidators, in the same meeting in which shareholders approve the dissolution. Liquidators become the administrators of the company and are responsible, among others, for resolving all pending matters and issues of the company, including requesting payment of the accounts receivable, and paying all accounts due. Once all pending operations are concluded and all assets sold, liquidators shall pay the shareholders the remaining capital of the corporation.

In addition to the liquidation procedure set out by the corporate law and the bylaws of the corporation, Mexican bankruptcy law regulates the terms and conditions in which companies enter into bankruptcy procedures in the case of insolvency with its creditors. Companies may enter into bankruptcy procedures on their own initiative, by request of their creditors, or by request of a judicial prosecutor, where the company enters into specific circumstances determined by the bankruptcy law.

Shareholder activism should be understood, for purposes of this article, as a strategy that a certain shareholder or group of shareholders of a company implements in order to cause a change within that corporation. The way to implement such corporate changes within the company is through the exercise of his or her corporate rights as the owner of a part of a company.

Ordinarily, shareholder activism is used in order to influence the management of a company, for example, where the board of directors of a company does not perform its role correctly and, on other occasions, to gain control over a company.

Shareholder activism is usually implemented by minority shareholders, as such shareholders do not usually have a management role over the company. Nevertheless, those minority shareholders do have minority rights, as previously explained, and through different strategies, such as using the available media as well as legal claims and/or lawsuits, shareholders are able to bring pressure to bear on the company.

In Mexico, shareholder activism has been implemented in certain big corporations, but on a very few occasions and ordinarily, it is implemented for other objectives, rather than just to gain control or influence over the company. Since shareholder activism is not as common as it is in other jurisdictions, regulatory and/or legal provisions have not been required nor issued in Mexico.

Although in Mexico there is no regulation issued by any authority in connection with shareholder activism, there are certain regulations applicable for minority shareholders. For example, if a shareholder is able to acquire a certain percentage of stock participation in a company, that shareholder has the right to designate a member of the board of directors and through that position on the board of directors, to exert pressure on the controlling shareholders. Percentages of stock may vary depending on the financial entity, or whether that company is a publicly traded company or a privately held corporation.

Nevertheless, the Mexican securities market law that establishes limits or thresholds when acquiring certain percentages of stock in a public company. Such regulations may force the shareholder to reveal and publish to the general public his or her intention of acquiring additional shares in the company, as previously described. In addition, publicly traded companies may establish in their bylaws special mechanisms to prevent the acquisition of shares that grant control to other shareholders or third persons unrelated to the company, under certain conditions required by law.

Shareholder Activism is not a common practice in Mexico. Many Mexican corporations are owned through a holding company in the United States of America and in other countries. This causes Mexican companies to be affected by shareholder activism carried out in other jurisdictions. Such is the case with one of the prominent examples mentioned earlier.

Given that marketability of secondary stock instruments in the Mexican stock exchange is relatively low, it is difficult to have shareholder activism in Mexico. The stock of the public company does not have a high index of marketability and the stock exchange market in Mexico is small in comparison to other international markets, which creates a difficult environment for shareholder activism.

In Mexico, there are a little over 100 stock issuers in the Mexican Stock Market, many of which are family-owned. Family-owned companies are companies that are significantly controlled by one or several families.

According to different sources, in 2013 there were a little over 100 family-owned companies with their shares listed on the stock market from a total of approximately 140 listed companies. Therefore, approximately 73% of the listed companies in the Mexican Stock Exchange are family-owned.

Such family-owned corporations tend to keep control over their companies, using different mechanisms to prevent a takeover from other shareholders. Many of the companies only offer, through the market, small percentages of the total stock of the company, which allows such families to keep complete control over the companies, and makes it difficult for minority shareholders, or shareholders that acquired stock through the Mexican Stock Exchange, to be able to carry out shareholder activism.

Other family-owned companies tend to search for types of financing that are different from those of the stock market financing, due to the fact that listing their shares on the stock market may affect their control over the company.

There are other 'control' mechanisms that prevent shareholders from exercising activism, such as shareholders' agreements, issuance of preferential stock and stock with different voting rights, control trusts (known in Mexico as fideicomisos de control), all of which provide a difficult environment in Mexico to exercise shareholder activism.

This is not applicable in Mexico, as previously explained (see 2.1 Legal and Regulatory Provisions and 2.2 Level of Shareholder Activism).

This is not applicable in Mexico, as previously explained (see 2.1 Legal and Regulatory Provisions and 2.2Level of Shareholder Activism).

This is not applicable in Mexico, as previously explained (see 2.1Legal and Regulatory Provisions and 2.2Level of Shareholder Activism).

This is applicable in Mexico, as previously explained (see 2.1Legal and Regulatory Provisions and 2.2Level of Shareholder Activism).

In the event that a company is subjected to a shareholder activism practice, there are distinct mechanisms available to avoid the pressure such activism carries.

Depending on whether the activism is being carried out to acquire control or to modify the management policies through the board of directors, these mechanisms could vary.

In order to prevent legally the acquisition of control by shareholders, the current controlling shareholders could add provisions to their bylaws, and/or in a shareholders' agreement, if existent.

When a group of shareholders has control over a company, a basic way to avoid or prevent the pressure caused by such activism is by transmitting all the shares to a fideicomiso.

A fideicomiso is an agreement by virtue of which one or more persons named fideicomitente (settlor) transfers the property, amounts of money or rights, present or future, from their property to another person named fiduciario (trustee, which are ordinarily banks), for that person to manage or invest the property for the benefit of a fideicomisario (beneficiary).

The fideicomiso sets forth provisions in connection with the exercise of the voting and economic rights of the shares affected in the fideicomiso. This makes it impossible for the controlling group of shareholders to act or vote separately or as individuals and for that group to retain control. Consequently, any shareholder activism carried out in order to obtain control over a company would be extremely complex, since the controlling group of the shareholders is bound legally to comply with the previously established provisions of the fideicomiso. Such a strategy ensures the control over the company, as long as the fideicomiso remains untouched.

Another mechanism that could be implemented, in a case where a shareholder activism practice is implemented with the purpose of acquiring control over a company, is to issue stock with voting rights and stock without or with limited voting rights. As long as the current controlling shareholder or group of shareholders has the voting shares, this mechanism will prevent any other shareholder or potential shareholder from obtaining control.

Several different clauses could also be added to a company’s bylaws in order to avoid any pressure created by shareholder activism that has the purpose of acquiring control. For example, it is common under Mexican corporate practice to add clauses granting preferential rights to current shareholders.

Preferential rights grant a shareholder the possibility of acquiring any newly issued shares. It could also grant a current shareholder, by means of a company’s bylaws, a preferential right to acquire the shares that another shareholder intends to sell to a third party. If the acquiring shareholder chooses not to exercise that right, the selling shareholder would have to comply with the offer issued to the acquiring shareholder, meaning he or she could not offer those shares at a lower or preferred price.

Majority shareholders usually have control over the board of directors, since the greater the participation in the share capital of the company, the greater the number of the members of the board of directors that shareholder may appoint. Another mechanism used to prevent a change of control is to establish in the bylaws of the company the requirement of the board of directors to approve any sale-purchase of shares. In the event that the board does not approve the sale-purchase of shares, additional mechanisms should be detailed in order to guarantee any shareholders' property rights. This mechanism may help the controlling shareholders to monitor any takeover from a third party.

The latter mechanisms may be established in legal documents, such as the bylaws of the company or a shareholders' agreement. Shareholders would have to comply with those documents and consequently, shareholder activism should have a minor impact upon acquiring control over a company.

If shareholder activism is being carried out with the purpose of modifying the management policies, or the members of a board of directors, and where controlling shareholders do not have control over the board of directors, stock corporate shareholders must own at least 25% of the share capital of the company (10% for publicly traded companies) in order to hold the right to appoint at least one member of the board of directors.

Shareholders can exercise the voting rights that the legislation grants them and appoint the majority of the members of the board of directors. Through such a simple designation and voting, shareholders are able to retain control over the board of directors. This should make it much more difficult to carry out shareholder activism in order to modify the management policies.

In order to explain further the difference between the legal personality of a company and that of the shareholders, it is important to mention the differences between a legal person and a natural person from a Mexican legal doctrine perspective.

Mexican legislation recognises two types of persons, the legal person or entity (persona moral), in which definition a company is included, and an individual or the natural person (persona física). Legislation is also very clear on the differences between the legal person and the individual in many different respects. 

Mexican legal provisions, in addition to the legal doctrine, have a concept commonly incorporated into civil law systems, known as the personality attributes. These attributes are defined as the properties or characteristics of identity of the legal and natural persons as right-holders. Such personality attributes are determined differently for a legal person or entity than for a natural person, or shareholder.

These attributes are name, domicile, civil status/nationality, legal capacity and property.

The name is the personality attribute by means of which a person is individualised, whereas the name for a legal person is defined by the shareholders and is established in the bylaws of the company, prior to the authorisation by the Ministry of Economy.

For the natural person’s domicile, the legal doctrine recognises different types of domiciles, such as the actual residence, which is the place where people habitually reside, the legal domicile, which is the place for the exercise of their rights and the fulfilment of obligations, and the conventional domicile, which is determined by each person for the compliance with certain obligations such as the domicile determined in an agreement to receive notifications.

In the case of the legal person, the domicile is determined as the place where the administration of that legal person is established or the main place of business is held.

The legal or civil status of a natural person can be differentiated. The civil status is the position that a person has in relation to a family, and the political or civil status is the position of a person in relation to the government. Nevertheless, legal persons do not have a civil status. Legal persons only have nationality or political status. Mexican legislation only recognises a legal person as a Mexican if the company is incorporated in accordance with Mexican laws and if their domicile is located within the national territory.

The legal capacity of a natural person is the ability to have rights or obligations, better known as the ability of a person to enter into binding contracts or otherwise act within the applicable law. Mexican legislation and legal doctrine differentiate capacity into two different types; the natural capacity to have rights and obligations, which is acquired at birth and lost upon death, and the capacity to perform such rights by oneself, acquired at the age of 18 (as a general principle).

The legal capacity of a legal person is always limited to its corporate purpose and can only be performed through a natural person. A legal person can only act through a natural person, better known as a legal representative. 

Finally, the estate is considered to be the set of goods, rights, and obligations that can be valued in money, or the potential capacity to acquire them. It can be formed by a set of assets and liabilities. The estate is the only attribute whose meaning applies equally both for a legal person as well as for a natural person.

Moreover, the applicable law distinguishes between the shareholder and the company in terms of liability. A shareholder can only be liable for an amount equal to the economic contribution he or she has previously made to the company. The majority of Mexican corporations have limited liability for their shareholders. This protection that the law grants the shareholders is commonly known as the corporate veil.

With regard to criminal law, the enactment of the National Code of Criminal Procedures and the various amendments made to the Federal Criminal Code have brought with them a new reality for companies operating in Mexico.

The National Code of Criminal Procedure includes crimes committed by legal persons, distinguishing the possible criminal sanctions for an individual and for legal persons. The National Code of Criminal Procedures sets forth that legal persons may commit crimes, which shall be adapted to the criminal type when they are committed by any natural person, in the name of the company on its behalf (acting as a legal representative of the company), for its benefit or through the means provided by them, in addition to the criminal liability that may be directly attributable to the natural person who carried out the criminal activity.

The criminal action that may be brought by the competent authority against the legal person is not extinguished, even when the latter is transformed, merged, absorbed by another or is part of a corporate split.

The Federal Criminal Code establishes the corresponding penalties, which range from an economic sanction to the total dissolution and liquidation of the company. These sanctions can be applied to the entire company or limited to some of its facilities, subsidiaries, among other options.

Mexican corporate practice requires companies to implement internal controls and strengthen their corporate governance, in order to eradicate and prevent any conduct that could be classified as a crime. As a result, what is now known as 'criminal compliance' has had a strong growth within companies in Mexico. With criminal compliance, companies seek to have internal regulations that include the necessary procedures to prevent, identify and, if necessary, eradicate all conduct or acts that may constitute the aforementioned criminal type. Another incentive to implement criminal compliance in companies is that the National Code of Criminal Procedure establishes that any applicable penalty resulting from a crime committed by a legal person may be reduced by a quarter if the company that committed the crime had a permanent control body in charge of verifying compliance with the regulations applicable to Mexican corp.

In Mexico, any person with legal standing to sue a corporation will have legal remedies to file a lawsuit against that corporation, whatever that legal interest or standing may be. Mexican legislation does not contemplate a minority-shareholder remedy against the company, only for certain actions, as will be explained further.

Shareholders who own a minimum percentage of shares established under the applicable legislation and, depending on the type of corporation as previously described, have the right to claim civil liability or financial crimes against the directors of the corporation when the lawsuit includes the total amount of the liability, taking into account the shareholders and the corporation, and in the event that shareholders refused to vote in favour of the resolution of which the liability is demanded.

The shareholders of a company have several actions that they can exercise against other shareholders, but with certain restrictions and requirements established by the applicable regulations and the bylaws of the company in order for such claims to be carried out.

Shareholders who own a minimum percentage of shares established under the applicable legislation, depending on the type of corporation as previously described, have the right to oppose judicially the resolutions adopted at a shareholders’ meeting, when these do not relate to the responsibilities of the directors or statutory auditors, provided that:

  • the complaint is presented within 15 days following the meeting;
  • they have not attended the meeting or have voted against the resolution being challenged; and
  • the complaint indicates the clause of the bylaws or the legal precept that is being violated.

Legal remedies against the company’s auditors available to shareholders are the same as those legal remedies against the company’s directors, since committees (such as the auditors' committee) and advisers are considered as supporting bodies of the board of directors.

A derivative action should be considered, for purposes of this article, as a lawsuit brought by a shareholder of a corporation on its behalf to enforce or defend a legal right or claim which the corporation has failed to do.

Through a 'derivative suit', a shareholder may take legal action against any third party on behalf of the company, when the board of directors refuses to do so.

In Mexico, this figure does not exist as such, because the only person who can initiate legal proceedings in the name of the corporation is the legal representative or, if applicable, the attorney(s) who have such powers. As a result, a shareholder may not initiate legal proceedings in the name of the company unless he or she has sufficient powers to do so.

Shareholders should first consider the validity and the strength of their legal standing when exercising a remedy, in addition to the percentage of equity holding. Forming alliances with other shareholders in order to obtain the minimum percentage required to exercise certain legal actions may result in a reasonable strategy.

Another strategy for any shareholder seeking to litigate is the procurement of precautionary measures to ensure the survival and continuity of the company. Very often, litigations directly affect the numbers and the operation of the companies. Shareholders should bear in mind that they must always look out for their interests, which should also be aligned with the company’s interests.

The shareholders may oppose legally if the company is undergoing a spin-off, for the purpose of suspending such a proceeding until there is a resolution in that regard. Also, when a company is in liquidation and a judge is going to declare the cancellation of its registry before the Registro Público de Comercio, the shareholders may start a litigation in order to avoid that cancellation so that the company continues to exist.

Santamarina y Steta SC

Campos Elíseos 345, pisos 2 y 3
Chapultepec Polanco, 11560
Miguel Hidalgo
Ciudad de México
México

+52 55 5279 5400

gfinkel@s-s.mx www.s-s.mx
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Law and Practice

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Santamarina y Steta SC is a law firm that knows Mexico in depth, developing strategic solutions that produce successful results for clients, with whom the firm collaborates as business partners. With more than 70 years of experience, the firm has evolved at the pace required by its clients and international markets to enhance its presence in Mexico. The firm's sensitivity and its important network of contacts allows it to identify the philosophy and work styles of investors and professionals from all over the world, strategically combining efforts to customise solutions and achieve success. Santamarina + Steta makes its client’s challenges its own by understanding their environment, local situation, culture and Mexican laws. The firm stands out in the business community for its knowledge and understanding of local authorities, practices and laws, and because it offers the benefit of a one-stop shop, ensuring reliable, multi-disciplinary, integrated and comprehensive approaches. Santamarina + Steta aims to monitor constantly and understand market changes, business opportunities, threats and multi-dimensional challenges of growth in complex economies that require expert advice, to position better and enhance clients’ investments, interests, projects and dreams. The firm's expectations are simple: to provide quality and excellence and continue being the partner of choice for clients.

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