Business entities are regulated by Federal Law, namely the Ley General de Sociedades Mercantiles (LGSM, the General Law of Commercial Companies), which is the most relevant regulation in this regard. There are also civil companies, which are ruled by the 32 different states codes; however, they are not included in this guide as they are not intended for commercial speculation.

The most common and relevant commercial companies are the “Stock Corporation” (Sociedad Anónima, S.A.) and the “Limited Liability Company” (Sociedad de Responsabilidad Limitada, S. de R.L.). However, the LGSM recognises other types of companies:

• General Partnership (Sociedad en Nombre Colectivo – S.N.C.);
• Limited Partnership (Sociedad en Comandita Simple – S. en C.);
• Partnership Limited by Shares (Sociedad en Comandita por Acciones – S. en C. por A.);
• Co-operative Society (Sociedad Cooperativa – S. Coop.); and
• Simplified Stock Corporation (Sociedad por Acciones Simplificada – S.A.S.).

The LGSM also refers to a special type of contract, similar to a society but without legal personality, known as an Asociación en Participación (A en P), which is similar to a joint venture. However, Tax Law treats an A en P as a corporation for fiscal matters only.

The key features of the S.N.C. are:

• all its members are jointly and unlimitedly liable for the company's obligations;
• the name of the society (called its razón social) includes the names of its associates; and
• it is a closed society that requires the unanimous consent of its members for the acceptance of a new member.

The S en C is similar to the S.N.C. because it has one class of associates who are jointly and unlimitedly liable for the company’s obligations, and another class of associates who are only responsible for paying their contributions. The name of the S en C is also called its razón social and includes the names of its partners with unlimited liability.

Very similar to the S en C is the S en C por A; it also has two types of associates, those who are jointly and unlimitedly liable for the company’s obligations; and those who only have to pay for their shares. This company is also subject to a hybrid framework because some provisions from the S.N.C. and S en C apply to the associates with unlimited liability; while for the other type of members, the provisions applicable to the SA apply.

The S. Coop, as noted above, is no longer regulated by the LGSM; instead, it is governed by the Ley General de Sociedades Cooperativas (LGSCoop, General Law for Cooperative Societies). These types of entities seek to combine the personal efforts of their members in order to improve their individual and collective conditions, and may be organised for the production, distribution or consumption of goods or services. This type of society is still considered commercial, but has elements of social justice, such as giving each member one vote, regardless of the amount of their contribution.

The SAS, which is a type of company that has some requirements for its incorporation but can only be formed by natural persons and is subject to a limit on its annual income (MXN5 million, approximately USD250,000).

The S de RL may have a maximum of 50 members, whose liability is limited to paying their contribution to the capital. It is an entity founded on a personal basis, which means that there are some limitations on the transfer of each member’s participation in the capital. By contrast, the SA has no limit on the members whose liability is limited to paying for their shares. By nature, this type of company is suitable to the trading of the shares that make up its capital.

Both SA and S de RL may adopt either a fixed-capital regime or a variable-capital regime. For the incorporation of the company, a minimum capital contribution is required, the amount of which is not prescribed by law. In the incorporation agreement, the members must choose its capital regime, which may be further modified.

Finally, it should be noted that there are important variations of the SA, such as the Investment Promotion Corporation (Sociedad Anónima Promotora de Inversión – SAPI), the Publicly Traded Corporation (Sociedad Anónima Bursátil – SAB), and the Multiple Purpose Financial Company (Sociedad Financiera de Objeto Múltiple – SOFOM). These entities are also regulated by the Ley del Mercado de Valores (Stock Market Law) and the Ley General de Organizaciones y Actividades Auxiliares del Crédito (General Law of Organizations and Auxiliary Credit Activities).

Publicly traded companies are most commonly organised as SABs (although this is not the only available vehicle); SAPIs are typically used to attract investors and raise funds for specific projects, while SOFOMs are primarily engaged, on a regular and professional basis, in one or more of the following activities: lending, financial leasing or financial factoring.

The SA is the preferred company option for both Mexicans and foreign investors because of:

• its flexibility for conducting various business activities in Mexico;
• the limited liability of its members (who are generally only required to pay for their shares); and
• the facility for the transfer of its shares.

Also, it is common to use the SAPI (a type of SA, as noted in 1.1 Types of Company) because of its special protections for minority partners and better conditions for conducting due diligence.

It should be noted that the S de RL is also used for foreign investors because of its similarities to the American LLC.

The SA’s capital is divided into registered shares, whose main classes are common and preferred shares.

Common shares give their holders all economic and corporate rights; preferred shares usually have limited corporate rights in exchange for higher economic benefits. This means that holders of preferred shares will receive dividends before holders of common shares, and, in the case of dissolution of the company, preferred shareholders will have priority with respect to the repayment of their investment.

The usual limitations on the corporate rights attached to preferred shares are that the holders can only vote at extraordinary assemblies. However, they have the right to challenge assembly resolutions and to audit the economic activity of the entity.

The rights attached to common shares (recognised by the law and usually reproduced in the by-laws) are:

• to participate and vote at company assemblies;
• to receive company profits;
• to receive financial and economic information about the society;
• to have a preemptive right to obtain additional shares in the event of a capital increase;
• to receive a proportional share of the company’s assets in the event of its dissolution;
• to transfer shares; and
• to be treated equally with other shareholders of the same class.

SAPIs can issue other types of shares with specific characteristics. For example, they can restrict the transfer of property or rights; grant different corporate rights (such as veto rights or the right to approve a special series of shares), or increase or decrease economic rights.

The governing documents of each SA can vary certain shareholders’ rights, which means that some rights cannot be eliminated.

The possible (and common) variations of shareholders’ rights are:

• establishing different classes of shares with different rights, for example, there can be some shares that permit voting on a particular matter or others that only permit participating and voting in extraordinary assemblies;
• giving other shareholders the right of first refusal to acquire shares offered for sale by one shareholder, preventing the shares from being sold to a third party until the other shareholders have declined the offer (derecho del tanto); and
• establishing a procedure to exercise their right of right of first refusal, or cancelling this right.

Please refer to 1.3. Types or Classes of Shares and General Shareholders' Rights for common SAPI variations of shareholders rights.

The SA and the S de RL do not have a minimum capital requirement.

The SA and the S de RL require a minimum of two partners, and only the S de RL has a maximum of 50 partners. As a general rule, shareholders and partners are not required to be Mexicans, but, depending on the main activity of each company, it is possible that some activities may be subject to restrictions on foreign investment, meaning that foreign persons may not be able to participate in a company dedicated to that specific activity, such as ground transportation for people or tourism (more details can be found in the Ley de Inversión Extranjera, the Foreign Investment Law).

Mexican law recognises that shareholders may enter into agreements among themselves; however, such agreements are generally not enforceable against the company.

The regulated shareholders’ agreements recognised by the LGSM concern:

• rights and/or obligations regarding options to sell or acquire shares;
• rules for selling their shares to another shareholder or a non-shareholder, including provisions for the right of first refusal and/or public offers;
• agreements regarding exercising their right to vote in assemblies, such as establishing voting arrangements; and
• others of an analogous nature, for example, the rules governing dispute resolution.

In addition, SAPIshareholders can enter into an agreement to establish non-compete obligations (subject to some limitations, for further information please refer to Article 16, Section VI, of the Ley del Mercado de Valores (Stock Market Law).

The shareholders’ meeting is the highest decision-making body of the SA and the S de RL.

Under Mexican corporate law, there are three types of shareholders’ meetings for the SA:

• Ordinary General Assemblies;
• Extraordinary General Assemblies; and
• Special Assemblies.

The Ordinary General Assembly must be held at least once a year within the four months following the closing of the fiscal year to review the management report, appoint the members of the management body and determine their remuneration. In addition, these assemblies may consider all the matters listed on the agenda to the meeting, unless they fall within the scope of an extraordinary or special assembly.

The Extraordinary General Assembly has jurisdiction over specific matters essentially those involving changes to founding documents and modifications to capital stock.

Finally, special assemblies are required for the approval of certain matters that affect the right of a special series of shares.

The LGSM does not establish a specific frequency or deadline for Extraordinary or Special Assemblies, so they are held whenever necessary.

The general rule regarding notice for an General Assembly (of any kind) is that it must be published within the advance notice period established in the by-laws, and, if no such period is established, the LGSM provides that it must be published 15 days prior to the assembly. Finally, it is important to mention that the notice for an assembly must include the agenda for the meeting.

In case of the S de RL, there is only one type of assembly, called the Associates Assembly, which must be held at least once a year on the date established in the by-laws. This assembly has to be called within the notice period established in the by-laws. If no such period is established, the notice must be issued at least eight days before the meeting date.

The calls for all kinds of assemblies at the SA have to be made by the management body or by the supervisory body.

In the Assembly is not called as indicated above, the shareholders representing at least the 33% of the company’s capital stock can submit a written request to those bodies that the call be published, and, if this does not occur within the following 15 days, they can ask the judge to make the call.

Regarding SAPIs, shareholders with voting rights representing at least the 10% of the capital stock have the right to ask to the President of the board or the Statutory Auditor (comisario) to call an assembly

Also, the LGSM recognises the possibility that only one shareholder can request the call of an assembly in certain cases (eg, if no assembly has been called for two consecutive years).

For the S de RL, the call for the Associates Assembly has to be made by the General Manager.

Finally, it is important to mention that the call for assemblies in both types of companies has to be published on the electronic platform of the Secretaría de Economía (Federal Ministry of Economics) and this requirement cannot be waived in the by-laws. It is also important to underline that the call for the assemblies is not required when all members of a company are present or represented at the assembly.

For the SA, in the period between the publication of the notice for an Ordinary General Assembly and the date it is held, all shareholders can access to the report of the management body and the report of the supervisory body (comisario). They also have the right to receive a copy of those reports.

The report of the management body, in general, has to present the financial situation of the business, describing the policies applied, the current projects, the financial and patrimonial position of the company, among others. In addition, the supervisory body reviews and verifies the management body’s report.

The shareholders do not have the right to directly access company documents, but they can supervisory body to do so.

In the case of the S de RL, there is no specific regulations governing this matter.

Shareholders of an SA and members of an S de RL may hold their general meetings either in person or remotely, provided that their by-laws permit remote meetings.

For the SA, the quorum requirements vary depending on the kind of assembly and whether it is the first or second call for the same meeting.

• The ordinary general assembly requires 50% of the capital stock to be represented at first call. On the second call, the assembly can be held, regardless of the amount of the capital stock represented.
• The extraordinary and the special assemblies require at least 75% of the capital stock to be represented at the first call. On the second call, LGSM does not specify a percentage but the resolutions adopted must be approved by at least 50% of the capital stock in order to be valid. The by-laws can increase these voting requirements.

On the S de RL, on the first call, the assemblies can be held without a specific percentage of the capital represented, but for the validity of their agreements, they require the approval of the associates representing at least half of the capital stock. In case of a second call for the same meeting, the agreements are valid with the approval of the majority of the present associates, regardless of the amount of the capital stock they represent.

In the case of an SA, as explained in 2.1 Types of Meeting, Notice and Calling a Meeting, whether a shareholders’ meeting is ordinary or extraordinary depends on the matters to be addressed. An ordinary shareholders’ meeting may consider any matter that is not expressly reserved for an extraordinary shareholders’ meeting under Article 182 of the LGSM or the company’s by-laws.

In addition, if the proposed resolution may adversely affect the rights of a particular class or category of shareholders, a special shareholders’ meeting of the affected class must first be held, and the proposed resolution must be approved by that class before it is submitted to the applicable general shareholders’ meeting.

It is important to distinguish between the quorum required to validly hold a meeting and the voting threshold required to adopt a resolution.

On first call, an ordinary shareholders’ meeting is validly convened when at least 50% of the capital stock is represented. Resolutions are adopted by a majority of the votes present. On second call, the meeting may validly resolve upon the matters included in the agenda regardless of the percentage of capital stock represented, and resolutions are adopted by a majority of the votes present, unless the by-laws establish a higher threshold.

On first call, an extraordinary shareholders’ meeting is validly convened when at least 75% of the capital stock is represented, unless the by-laws establish a higher threshold. Resolutions must be approved by shares representing at least 50% of the company’s entire capital stock. On second call, the meeting may be held regardless of the percentage of capital stock represented; however, resolutions must still be approved by shares representing at least 50% of the entire capital stock.

At a special shareholder’s meeting, the applicable quorum and voting thresholds are calculated by reference to all the shares of the affected class, rather than by reference to the company’s entire capital stock. On first call, at least 75% of the shares comprising the affected class must be represented, and the resolution must be approved by shares representing at least 50% of all the shares of that class, unless the by-laws establish higher thresholds.

The by-laws may establish higher quorum or approval thresholds for ordinary, extraordinary and special shareholders’ meetings.

In a variable-capital company, the treatment of an increase or reduction affecting only the variable portion of the capital must also be considered in light of the company’s by-laws. Depending on their provisions, such a movement may be approved under a different procedure from that applicable to an amendment of the company’s minimum fixed capital.

The LGSM does not classify meetings of members of an S. de R.L. as ordinary, extraordinary or special.

In the case of an S. de R.L., resolutions must generally be approved, on first call, by members representing at least 50% of the capital. If this threshold is not obtained at the first meeting, the members may be called to a second meeting, at which resolutions may be adopted by a majority of the votes cast regardless of the portion of the capital represented, unless the company’s by-laws provide otherwise.

Certain resolutions of an S. de R.L. require higher approval thresholds. Unless otherwise provided in the by-laws, amendments to the company’s organisational documents must be approved by members representing at least 75% of the capital. A change to the company’s corporate purpose or an amendment to the provisions that increases the obligations of the members requires unanimous approval.

The applicable type of meeting and the corresponding quorum and voting requirements are determined primarily by the LGSM and the company’s organisational documents. Accordingly, the by-laws must be reviewed in each case because they may establish higher thresholds, class rights, veto rights or additional reserved matters.

The most important or common issues that have to be approved by shareholders in an SA, are:

• appointing the administrator or the members of the board of directors and determining their remuneration;
• the management report about the company;
• any changes to by-laws; and
• any increase or decrease in capital stock.

In the case of an S de RL, shareholder approval is needed for:

• transferring an equity interest;
• admitting a new shareholder, except in the case of the death of the original holder;
• appointing or removing managers and members of the board of vigilance;
• any increase or decrease in capital stock; and
• modifying the by-laws.

For both kinds of companies, although it is not always necessary, some banks require the approval of the assembly to take out loans.

For the required approval thresholds, please refer to 2.6 Types of Resolutions and Thresholds.

Both the SA and the S de RL allow their members to be represented at shareholders’ meetings and, consequently, to exercise their voting rights through a representative.

The LGSM does not establish special provisions regarding voting at assemblies but this can be regulated in the by-laws. At assemblies, is common to define how the vote will be conducted, ie, whether it will be by written ballot, by hand, or by public or secret vote.

Regarding electronic voting, there are no special regulations, so the associates may decide how the vote will be conducted.

Finally, it is important to mention that, in the SA, the shareholder that has a conflict of interest in a certain matter of the assembly should abstain from voting on that matter.

Mexican law does not expressly regulate the right of shareholders to propose matters for discussion at an assembly. However, as explained in 2.3 Information and Documents Relating to the Meeting, shareholders that represent a minimum percentage or even a single shareholder (in specific cases) may compel the convening of a meeting, provided that the notice includes the proposed agenda.

The LGSM expressly establishes the right to challenge an assembly resolution for the shareholders that represent at least 25%of the capital stock (this is reduced to 20% for SAPIs and 5% for publicly traded companies), which, in addition, requires that:

• those shareholders have not attended the assembly, or, if they have attended, have voted against the resolution; and
• the lawsuit has to be filed in the 15 days following the closing of the assembly, indicating the provision of the law or the by-laws that was violated.

This procedure consists of a full judicial proceeding before the competent court with jurisdiction over commercial matters, which may suspend the effects of the challenged resolution.

Also, every shareholder of the SA has the right to withdraw from the company if they voted against a resolution of the assembly in cases involving a modification of the corporate purpose or nationality, or if the transformation into a different type of company or a corporate split was approved.

In Mexico, institutional investor and shareholder groups can influence and monitor the actions of commercial companies by mechanisms such as the following.

• Participating in shareholders’ meetings: the groups can decide to attend and/or vote as a block, either alone or in coordination with other shareholders, to approve or block strategic decisions, such as, mergers, capital modifications or changes to by-laws.

• Nominating members of the management body: for example, in companies managed by a board of directors composed of at least three persons, the shareholders representing 25% of the capital stock can nominate a director. In some cases, that percentage goes down to 10%for SAPIs.

• Oversight by the supervisory body of the company (comisarios): every shareholder of a society has the right to report in writing to the comisario any matters or facts that they consider to be irregular, and the supervisory body must address them and include a response or analysis in the annual report.

In addition, the percentage of shareholders mentioned on the second point has the right to appoint a comisario if there are three or more persons or in the case of SAPIs.

Mexican law does not directly regulate the concept of nominee shareholders, and it is not common specially in private companies, because the social rights will be given to the person registered as the shareholder. However, this does not prevent the shareholder from authorising a nominee to attend and represent the shareholder at the assemblies and to exercise voting rights in accordance with the shareholder’s instructions.

Shareholders of an SA and the members of an S de RL may adopt written resolutions without holding a meeting, providing that the by-laws permit this form of resolution and the resolution is approved by all the shareholders.

When a company decides (by a shareholders’ meeting) to raise the amount of the capital stock, as a general rule, the shareholders have a preemptive right to subscribe for the newly issued shares in proportion to their shareholding. This right can be renounced by the shareholders and also can be removed from the by-laws or in the shareholders’ resolution that approved the capital increase.

The S de RL is distinguished by its restrictions on the transfer of equity interests and the acceptance of new members. In those cases, the transfer of equity interests and the admission of new members are subject to the approval of the shareholders representing the majority of the capital stock. Also, the current shareholders of an S de RL have the right of first refusal to acquire the equity interest being transferred, and they have a term of 15 days to exercise it. If this notice is not given to the shareholders or if the term is not respected, the transfer would not be valid.

For the SA, the general rule is that the shares may be freely transferred, but also it is common for the by-laws to establish certain restrictions on this, such as requiring the approval of the company’s management body.

Shareholders may generally grant a security interest over their shares without any special restrictions, unless otherwise provided in the by-laws.

As a general rule, the shareholders are not required to disclose their participation in other companies.

The S de RL may amortise its shares only if the by-laws expressly authorise such amortisation at the time the shares were issued. The amortised shares must be paid for out of the company’s profits, and the affected members may receive special certificates granting specific rights or benefits, provided that the by-laws so stipulate.

The SA may also amortise its shares payable using the company’s profits, provided that (i) the by-laws authorised it, and (ii) the shareholders’ meeting decides to do so. This amortisation will only apply to fully paid-up shares, which may be acquired on the public market or at a fixed price. In this case, special shares with specific rights for their holders can also be issued.

For the S de RL, the buyback of its capital shares is not regulated, and for the SA it is completely prohibited.

SAPI companies may buy back their own shares under the specific terms authorised by the Stock Market Law.

In order to declare the payment of dividends, a general assembly has to review and approve the company’s financial statements, which reflect a loss or profit. If there is a profit, the dividend could be authorised, but before doing so, the company must cover the legal reserve (20% of the capital stock).

If the society generates a net profit for one year, and after covering the legal reserve, the assembly can approve the payment of dividends and determine the payment method.

Typically, all shareholders receive the same amount of dividends; however, if the company has different classes of shares, different dividend amounts may be given.

The faculty to appoint and remove (freely) the Managers for the S de RL corresponds to the general assembly of shareholders, and the decisions can be made by the majority of the members representing at least 50% of the capital stock.

For the SA, the management body (which can be a Sole Administrator or a Board of Directors) is appointed and removed (freely) by the Ordinary General Assembly. Also, there can be managers that are appointed and removed by the management body or the General Assembly.

In case of the removal of the Sole Administrator or one or more members of the board:

• the statutory auditor will point a provisional administrator or director for the board; and
• if the remaining members of the Board of Directors are sufficient to act in accordance with the by-laws, they will continue the company’s activities by themselves until a new member is appointed.

For the SA, the general assembly decides to bring an action to enforce the civil liability of the management body, or where the shareholders representing at least the 25% of the capital stock bring such action (when the measure was not approved at the shareholders’ meeting), they can file the lawsuit to seek compensation for damages caused to the company (not to the shareholders individually).

For the S de RL, the right to bring an action to enforce civil liability for the managers corresponds to the General Assembly and to the shareholders; however, the shareholders cannot file a lawsuit if the General Assembly, by a qualified majority, has released the manager from liability.

For the SA, the auditors are called comisarios, and they can be appointed and removed (freely) by the Ordinary General Assembly.

The faculty to appoint and remove (freely) the members of the Board of Vigilance of an S de RL corresponds to the general assembly of shareholders, and the decisions can be made by the majority of the members representing at least the 50% of the capital stock.

On publicly traded companies, the law establishes or recognises certain governance arrangements, as well as the obligation to report them.

For private companies, there is no legal obligation to establish specific governance arrangements, but these can be regulated in the by-laws, which may include a duty to report on them to the shareholders.

Under the general regime applicable to privately held Mexican companies, a controlling company does not, solely by virtue of exercising control, owe a general fiduciary duty directly to the other shareholders of the controlled company.

The controlling company and the controlled company retain separate legal personalities and separate estates. Accordingly, the controlling company is not ordinarily liable for the obligations of the controlled company merely because it owns a majority of its shares, appoints a majority of its directors or otherwise exercises control over it.

However, a controlling company may be subject to duties or liability in particular circumstances, including the following:

• Conflict of interest: under Mexican Law, a shareholder that has, directly or indirectly, an interest contrary to that of the company in a specific transaction must abstain from the relevant deliberation. If it fails to abstain, it may be liable for damages when the resolution could not have been adopted without its vote.
• Breach of the by-laws or a shareholders’ agreement: a controlling company may be contractually liable if it breaches obligations contained in the company’s by-laws, a shareholders’ agreement or another binding arrangement, including reserved-matter provisions, veto rights, transfer restrictions or minority protection provisions. The enforceability of the relevant provision against the company or other shareholders must be assessed in accordance with its terms and applicable Mexican law.
• Unlawful shareholder resolutions: minority shareholders may challenge resolutions adopted in violation of the LGSM or the company’s by-laws, provided that they satisfy the applicable ownership, timing and procedural requirements. In an ordinary S.A., shareholders representing at least 25% of the capital stock may generally bring a judicial opposition action.
• Fraud, sham transactions or abuse of legal personality: in exceptional circumstances, Mexican courts may disregard the separate legal personality of companies within a corporate group and impose liability on a controlling company when the corporate structure has been used to defraud third parties or the law, evade existing obligations, engage in sham transactions or otherwise abuse the corporate form. The existence of control or a corporate group, by itself, is not sufficient to disregard separate legal personality.
• Direct participation in wrongful conduct: controlling company may be liable for its own unlawful acts or omissions, or where it acts as a de facto manager and directly participates in conduct that causes damage. Such liability does not arise merely from its status as controlling shareholder and must be established on the basis of the particular conduct and the applicable legal or contractual rules.

Directors appointed by the controlling company owe their applicable duties to the controlled company in their capacity as directors. They should not be regarded solely as representatives of the controlling shareholder when exercising their corporate office. Their appointment by the controlling company does not, by itself, make the controlling company liable for their acts.

A different and more extensive regime may apply to SAPIs, publicly traded companies, financial institutions and other regulated entities. In particular, the Mexican Securities Market Law contains additional rules concerning controlling shareholders, related-party transactions, conflicts of interest, duties of loyalty, abuse of control and minority shareholder remedies.

Accordingly, whether a controlling company owes a duty or incurs liability must be determined by considering the type of controlled company, the specific conduct involved, the company’s by-laws, any shareholders’ agreement and any special legislation applicable to the relevant corporate group.

If the company is definitely unable to comply with its obligations, the shareholders have the right to the limit their liability to the payment of their shares, provided they acted in good faith and without intending to defraud others or circumvent the law. In addition, under the Bankruptcy Law and the by-laws, they have the right to vote on the commencement of bankruptcy proceedings and to bring an action against the management body to seek compensation for damages caused to the shareholders of the society.

The LGSM provides the following remedies for the shareholders against the company:

• to require the founding document to be formalised as a deed and/or to register the company in the public registry.
• to withdraw from the company when the general assembly decides to change the purpose, nationality or type of company, and also when it decides to split the company into two or more entities; and
• shareholders representing a minimum percentage established by law (please see 2.12 Holding Through a Nominee) can challenge assembly resolutions.

Please see 6.2 Challenging a Decision Taken by Directors for details of legal remedies against the society directors.

The are no express provisions under the law that authorise shareholders to exercise a right on behalf of the company.

Shareholder activism refers to the involvement of shareholders, especially minority shareholders and institutional investors, in companies’ governance, seeking to influence strategic, financial or management decisions.

In general terms, the Mexican legal framework governing shareholder activism is relatively limited and fragmented. The relevant provisions are found primarily in the LGSM and Stock Market Law. 

As discussed in this guide, there are different scenarios that Mexican law recognises in this matter but it is important to realise that, in many cases, these rights may be exercised only by shareholders meeting relatively high ownership thresholds.

Moreover, the practical enforcement of shareholder rights through judicial proceedings may involve significant time and expense, which can reduce the effectiveness or attractiveness of litigation as a remedy, particularly for minority shareholders.

In Mexico, even if typical shareholder activism cannot be identified, its aims may include:

• influencing corporate strategy by having the power to participate in and influence decisions of the management body;
• appointing or removing members of the board of directors and/or the comisario; and
• protecting minority rights and interests.

Activist shareholder strategies in Mexico are generally less frequent and aggressive than in other jurisdictions, like the USA, but they have begun to emerge, particularly in public traded companies, by:

• gradually increasing the amount of shares;
• forming alliances with other shareholders;
• exercising shareholders’ rights at shareholder meetings;
• initiating judicial procedures; and
• identifying and taking advantage of governance gaps.

As mentioned in 11.3 Shareholder Activist Strategies, shareholder activism has more presence in publicly traded companies.

At present, in Mexico, no particular type of shareholder group can be identified as being more active than others.

Given the incipient nature of shareholder activism, as well as the length of legal proceedings and the lack of publicly available information on this issue, no reliable proportion of public activist demands in the last year can be identified.

Although shareholder activism is less common and less publicly visible in Mexico than in certain other jurisdictions, Mexican companies may nevertheless face co-ordinated action by minority shareholders, particularly in connection with access to information, dividend policies, related-party transactions, dilution, management appointments, corporate strategy and exit rights.

The appropriate response will depend on the type of company, the activist shareholder’s ownership percentage, the rights granted under the applicable law and the company’s by-laws, and the nature and merits of the shareholder’s concerns.

When responding to an activist shareholder, a company may consider the following strategies:

• engaging with the shareholder at an early stage to understand its concerns, objectives and proposed solutions;
• reviewing the shareholder’s requests and ownership position to determine the statutory, contractual and by-law rights available to it;
• evaluating objectively whether the shareholder’s proposals may benefit the company or identify genuine governance, operational or financial deficiencies;
• ensuring that the board of directors, managers, statutory examiners and relevant committees are informed and receive appropriate legal, financial and strategic advice;
• preparing a clear and factually supported explanation of the company’s strategy, financial performance and reasons for the decisions being questioned;
• providing the information required by applicable law and the company’s by-laws, while protecting confidential information, personal data, privileged communications and trade secrets;
• correcting identified governance or compliance deficiencies before they develop into a formal dispute;
• exploring a negotiated resolution, which may include governance undertakings, enhanced reporting, changes to corporate policies, board representation or, where appropriate, an agreed liquidity or exit mechanism;
• verifying that shareholders’ meetings, notices, voting procedures, corporate records and resolutions comply strictly with applicable law and the company’s by-laws; and
• preparing for possible judicial challenges, minority rights proceedings or liability claims when a negotiated resolution is not feasible.

To reduce the risk of shareholder activism or disputes, a company may take the following practical measures:

• maintain clear, complete and updated by-laws, corporate books, share registries, minutes and ownership records;
• establish clearly defined decision-making procedures, reserved matters, voting thresholds and rules governing conflicts of interest;
• adopt appropriate policies and approval procedures for related-party transactions;
• maintain regular and transparent communication with shareholders, particularly concerning financial performance, material transactions, dividend policies and significant changes in strategy;
• apply dividend and capital allocation policies consistently and explain material departures from those policies;
• treat shareholders equitably and avoid actions that could be perceived as improperly dilutive, discriminatory or designed solely to entrench the controlling shareholder or management;
• identify and address conflicts between controlling and minority shareholders at an early stage;
• periodically review the company’s governance structure and compliance with the Mexican General Law of Business Organizations, the company’s by-laws and any shareholders’ agreement;
• establish internal procedures for receiving, escalating and responding to shareholder complaints and information requests;
• develop a response protocol identifying the directors, officers and external advisers who should participate if activist activity or a material shareholder dispute arises; and
• where appropriate, include orderly transfer, valuation, buy-sell, deadlock and exit mechanisms in the by-laws or shareholders’ agreement.

Any response must respect the shareholder rights established by applicable Mexican law and the company’s organisational documents. A company should not withhold legally required information, obstruct the valid exercise of minority rights, retaliate against a shareholder or adopt measures whose sole purpose is to improperly entrench management or the controlling shareholder.

For publicly traded companies, the response must also comply with the Mexican Securities Market Law, applicable disclosure requirements, rules governing material and related-party transactions and the principle of equal treatment of investors. The company must also avoid selectively disclosing material non-public information during its discussions with an activist shareholder.