Corporate law

Amendment to the General Law of Mercantile Corporations for the Implementation of Electronic Means, to Hold Shareholders and Partners Meetings Outside the Domicile of the Company

In Mexico, limited liability companies (Sociedades de Responsabilidad Limitada, S. de R.L.) and corporations (Sociedades Anónimas, S.A.) are two of the most common types of commercial entities.
Article 80 of the General Law of Commercial Companies mandates that limited liability companies must convene their Partner or Shareholder meetings at the company's registered office at least once a year. Similarly, Article 179 of the same law stipulates that both ordinary and extraordinary general shareholders' meetings for corporations must take place at the corporate domicile of the company.

Failure to adhere to these requirements will lead to the nullification of the respective meetings, unless exceptional circumstances, such as a fortuitous event or force majeure, make it impossible to convene the meeting elsewhere.
However, on September 12 of the present year, the Mexican Senate approved an amendment to the General Law of Mercantile Corporations, to allow Mexican companies to use technological tools and means to hold virtual meetings.

This reform implies the inclusion of specific rules and essential requirements so that meetings of partners, shareholders and any administrative body can be held remotely. Companies wishing to hold virtual meetings must have the necessary tools to facilitate simultaneous and uninterrupted communication among participants, thus ensuring interaction as similar as possible to a face-to-face meeting. In addition, it establishes the need to implement a system that allows access, verification of participants' identity, registration and voting, in order to document the legality of the meetings.

The reform also gives the partners and shareholders the ability to discuss both the format and the venue of the meetings, which is especially beneficial for those who are abroad, since they will not be obliged to physically attend the registered office of the company, allowing decisions to be taken remotely.

It was also established that the notices must be published in the electronic system designated by the Ministry of Economy, and these notices must include the agenda and be signed by the person issuing them. In the case of Limited Liability Companies, it must be made eight days in advance or as established in the bylaws. In the case of Corporations, it must be made 15 days in advance, or otherwise, as established in the bylaws.

Corporations that have been incorporated prior to the entry into force of this reform have the option to amend their bylaws to incorporate these new provisions. In order to implement the reform approved in the General Law of Commercial Companies in Mexico, it is essential that commercial companies adapt to the new provisions that allow the
holding of virtual meetings. These modifications represent a significant advance in the flexibility and efficiency of corporate operations, especially in a constantly evolving business environment, and when it comes to foreign shareholders or partners of Mexican companies.

Tax

Legislative Initiative Proposes Higher Range of Free Representation for Taxpayers

On September 12th, 2023, the Upper House (Cámara de Senadores) granted the approval to a legislative initiative that has the aim to elevate the financial limit at which the Taxpayer's Defense Attorney’s Office can offer free representation to taxpayers in their dealings or trials with the fiscal authorities. However, this proposal still awaits the vote in the Lower House (Cámara de Diputados) before it can secure full approval and eventual publication.

This financial threshold, commonly referred to as the limit amount, represents the monetary value of cases for which a taxpayer seeks representation. In concrete terms, this amendment seeks to triple the limit amount, propelling it from the existing thirty Annualized Units of Measurement of Actualization (Unidades de Medida de Actualización - UMAS), which are the equivalent to USD $63,294 (sixty three thousand two hundred ninety four American dollars), to an elevated level of ninety UMAS, which are equivalent to $ 189,884 (one hundred eighty nine thousand eight hundred eighty four American dollars).

The consequences of approving this reform are multi-faceted for both taxpayers and the fiscal landscape. Most notably, it would cause the Taxpayer's Defense Attorney's Office to expand its services to a considerably larger range of taxpayers, which could significantly diminish the financial burden that they face when navigating complex tax matters. Additionally, it could be crucial for the increase of legal certainty for taxpayers, who can now benefit from expert representation when needed. Nevertheless, in case of approval, it will be vital to ensure that the Taxpayer's Defense
Attorney's Office receives the necessary additional resources to effectively provide its services, considering the increase of workload that this reform might represent for it.

Another substantial advantage of this reform is the prospect of simplifying the resolution of disputes involving the tax authority. When contrasted with cases involving private legal representation, these disputes would find resolution directly within the purview of public entities. This streamlined approach holds the potential to reduce the complexities that often accompany such matters, facilitating a more efficient and cost-effective process.

Should the reform secure approval, it could serve as the beginning of a comprehensive review of the entire tax law framework, in order to ensure that the tax law remains coherent and effectively aligned with the reform's objectives, safeguarding fiscal stability and preventing unintended complications, ultimately benefiting both the government and taxpayers alike.

Political, Economic, Social, and Technological factors

The PEST analysis, which addresses Political, Economic, Social and Technological factors, aims to assess the business situation in Mexico in search of opportunities and threats that may arise from these four areas.
Mexico currently has several advantages, largely due to its geographic location and demographically diverse population. However, the country faces persistent challenges related to systemic problems such as corruption and the presence of organized crime. In addition, in the technological and business sphere, Mexico shows significant potential for growth.

Politics

Political Aspects: Mexico is a presidential federal republic, and currently, the incumbent president is Andres Manuel Lopez Obrador (AMLO), leader of the Morena party.

Power Challenges: One of the main issues of concern is the centralization of power under AMLO's government and its impact on the separation of powers.

Security: is another major concern due to the presence of organized crime and cartels in certain regions. Despite efforts to combat it, corruption remains a significant problem.

International relations: are fundamental, particularly with the United States, due to geographic proximity and its implications for trade, migration, and security issues.

Human rights: especially regarding militarization and possible violations of these rights in the fight against crime.

Political Future: a change in political focus is anticipated under Sheinbaum's administration, although AMLO’s policies could persist.

National Agenda: Focuses on the energy sector, poverty reduction and economic development.

Economics

Growth: 2% increase in Gross Domestic Product (GDP) is expected, driven by domestic demand.

Currency and Inflation: Future appreciation of the Mexican peso and moderate inflation are expected.

Remittances: Remittances represent a significant source of income that supports consumer spending.

Economic Challenges: As the largest economy in Latin America, Mexico faces challenges such as inequality, corruption, and poor infrastructure.

Impact of COVID-19: The pandemic has had a severe impact on key sectors such as tourism and remittances.

International Trade: Mexico benefits from trade agreements such as the North American Free Trade Agreement (NAFTA) and the Mexico-United States-Canada Agreement (T-MEC).

Social

Demographics: With a population of 126 million, Mexico has the second largest population in Latin America, and youth dominates its demographics.

Social Challenges: The country faces problems such as poverty, inequality, violence, and lack of social mobility.
Crime: Organized crime has a profound impact on Mexican society.

Trust in Institutions: President AMLO enjoys high approval thanks to his focus on fighting corruption.

Mobility: There is a migration trend from rural to urban areas.

Technology and Society: Digitalization is on the rise, but there are challenges in financial inclusion for broad layers of the population.

Technological:

Technology Adoption: There is a significant increase in the adoption of technologies such as automation, artificial intelligence (AI) and the Internet of Things (IoT).

Startups and Venture Capital: Despite growth, Mexico still lags behind its regional competitors in startup development and venture capital investment.

Infrastructure Challenges: Mexico faces difficulties in implementing the 5G network and strengthening cybersecurity.

Innovation: Research and development (R&D) spending in Mexico is relatively low compared to other countries in the region.

Technology Policies: The government is looking to expand access to technology, focusing especially on the Fintech sector through government initiatives.

Takeaways

Political: To ensure a stable political environment, Mexico must address the centralization of power and corruption.

Economics: Opportunities are on the horizon, particularly in trade with North America.

Social: Effective action is needed to address poverty and inequality, and the advantage of a young demographic must be leveraged.

Technology: Mexico needs to invest more in R&D and overcome infrastructure challenges to unlock its full technological potential.

International Investment

Nearshoring in Mexico: Most Attractive Destination to Do Business in Latin America

Mexico has arguably emerged as the most attractive destination to do business in Latin America, surpassing Brazil, according to the KPMG 2023 M&A in Latin America Survey. Additionally, the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) reports that Mexico has now captured 17% of foreign direct investment (FDI) to the region in 2022.

One of the key drivers behind this trend is Asian investment, as companies seek to relocate their supply chains closer to the US market amid the ongoing trade war between China and the United States. The phenomenon known as nearshoring is gaining momentum, and experts predict that it will continue to deepen in 2023. In fact, data from the Mexican Association of Private Industrial Parks (AMPIP) reveals that 63% of projects aimed at bringing production closer to the US market originate from Asian economies. China is the leading investor (49%), followed by Italy, Germany, South Korea, and Taiwan. The northern border region, including cities such as Monterrey, Ciudad Juarez, Saltillo, and Tijuana, has emerged as the most attractive area for companies, particularly in the automotive sector. Other dynamic industrial markets in non-border states include the Bajío, Mexico City, and Guadalajara.

The services and manufacturing sectors have been the primary beneficiaries of FDI, with the automotive sector, including parts and components, accounting for a significant portion of new investment in 2022. For example, Tesla recently announced that it will build the largest Tesla Gigafactory in the world in Nuevo Leon, Mexico, with an investment reaching 5 billion dollars. Mexico’s favorable investment climate, skilled labor force, and geographical proximity to North America is expected continue to attract significant FDI. However, to maximize this opportunity,
certain areas need improvement, such as energy policy, water supply, and crime reduction, according to BBVA analysts.

Dispute Resolution

Introduction of the New National Code of Civil and Family Procedures

On June 7th, 2023, the new National Code of Civil and Family Procedures was published, with the objective of standardizing procedures across the country, replacing all existing civil procedure codes.
The adoption of the new National Code will take place gradually, encompassing both federal and local governments, and is expected to be fully implemented by April 1st, 2027. This comprehensive Code will have a significant impact on court procedures, due to this Code serving as supplementary law for many legislations, including the Amparo and administrative procedures.

It aims to reduce judicial overload, expand the protection of human rights and vulnerable individuals, ensure fair and efficient access to justice, promote oral proceedings, and combat corruption.
Key changes introduced by the new code include:

a. Introduction of Summary Oral Proceedings: This fast-track approach allows for the completion of the entire legal process within a month. Hearings are recorded instead of maintaining physical files, enabling easy access to information. Only the final judgment can be appealed in these proceedings.

b. Special trials: Special oral trials are established to expedite matters such as insolvency, mortgages, real estate leases, and judicial registration of real estate.

c. Prioritization of alternative justice: The use of alternative dispute resolution methods, such as mediation and conciliation, is strongly encouraged.

d. Recognition of social changes: For example, uncontested divorce is now permitted nationwide, enabling couples to dissolve their marriage without justification in court.

e. Increased participation of Notary Publics: Notary Publics are expected to play a more active role in numerous procedures, particularly those related to voluntary jurisdiction, divorce proceedings, and inheritance trials.

To implement these changes effectively, the new code places great emphasis on the use of information technology in judicial proceedings. While some states had already begun adopting new technologies, the new Code now enables the recording of hearings, issuance of summons via email, collection of testimonial evidence, use of technology as evidence, video recording of procedures, and obtaining testimonies from minors.

Natural Resources

Mining Reform

On May 8th, 2023, a comprehensive mining reform, modifying various laws such as the Mining Law, National Water Law, General Law of Ecological Balance and Environmental Protection, and General Law for the Prevention and Comprehensive Management of Waste was published.

Its primary objective is to address the unsustainable exploitation of resources and labor in the mining sector, while reestablishing state control and safeguarding human rights, the environment, and indigenous territories.
Key changes introduced by the reform include:

a. Elimination of Preferential Treatment: The reform abolishes preferential treatment for mining activities, ensuring a level playing field for all participants in the sector.

b. Prohibition of Underwater Mining and Mining in Protected Areas: Under the new legislation, underwater mining and mining activities in protected areas are strictly prohibited to preserve the integrity of these vital ecosystems.

c. Removal of the Concept of “Free Land”: The concept of “free land” has been eliminated. Mining concessions, now limited to 30 years, will now be granted through public tenders. Additionally, a 25-year extension may be possible under certain circumstances.

d. Alignment of Water Concessions: Water concessions are now aligned with mining concessions. Moreover, there is an obligation to prioritize water supply for human consumption, ensuring the protection of this invaluable resource.

e. Recycling Obligations: Concessionaires are now required to recycle a minimum of 60% of the water granted for their mining activities. This measure aims to promote responsible water management and conservation efforts.

f. Social Impact Assessments and Indigenous Consultations: The reform introduces social impact assessments and indigenous consultations as mandatory prerequisites before commencing mining operations. These assessments will help mitigate the potential negative consequences of mining activities and ensure the involvement and protection of local communities and indigenous territories.

g. Criminal Offenses: The reform establishes criminal offenses for mining companies, providing a robust legal framework to hold them accountable for any violations.

h. Mine Closure Mechanisms: Mechanisms for orderly mine closure are introduced to ensure proper rehabilitation of mining sites once operations conclude.

Labor and Employment

Labor Reform: Senior Citizen Affirmative Action

On March 14th, 2023, the Senate (upper house) passed a bill that, pending approval by the House of Deputies, would modify the Federal Labor Law. The proposed change would require companies with over 20 employees to take affirmative action by hiring at least 5 percent of adults over the age of 60.
The proposed reform specifically addresses the discrimination and challenges faced by older adults in the labor market. Historically, they encounter difficulties in finding decent work opportunities and pensions, which often leads many to accept informal and precarious jobs, exacerbating the vulnerability of this group.

From approximately 15 million senior citizens in Mexico, 40% are economically active, and 70% of which work in the informal sector or are self-employed, hindering their access to social protection systems. In addition, close to 85 thousand are believed to be in active search of employment. The proposed changes align with the Mexican Constitution’s recognition of dignified work and protection of the rights of this vulnerable group, as it aims to create better job opportunities for older adults.

At the earliest, the bill would be discussed by the lower chamber in September. However, it’s important to note that the proposed reform does not include a transitional period for implementing the changes, and as it stands, would depend on the interpretation of the Department of Labor.