Amendments to Mexico’s General Law of Business Associations Applicable to Corporate Dissolutions and Liquidations

A decree published in Mexico’s Official Journal of the Federation on January 24, 2018 amended and supplemented numerous provisions of the Mexican General Law of Business Associations. Such changes are designed to simplify the process of dissolving and liquidating Mexican business entities and will enter into force on July 25, 2018.Consistent with the Mexican government’s efforts in recent years to facilitate legal procedures, reduce costs and eliminate complications in the formation of new companies in Mexico, the new amendments add a simplified process through which eligible entities may close down their operations in an easy, fast and cost-free manner, and thus provide legal certainty and closure for their shareholders or partners and third parties alike. Note, however, that the current procedure required to dissolve and liquidate a Mexican entity will continue to apply, in general, to companies that are not eligible for the new procedure.The new simplified procedure will be available only to those companies that can demonstrate compliance with the following requirements: i) all of the company’s shareholders or partners are individuals; ii) the entity does not have an illicit corporate purpose and does not carry out illicit acts; iii) has published its shareholder or ownership structure in the electronic system referred to as the Publication of Business Entities (“PSM” by its initials in Spanish) before dissolving; iv) the entity has not been commercially active or issued electronic invoices within the last two years; v) is current in its tax, labor and social security obligations; vi) does not have any pending financial obligations to third parties; vii) its legal representatives are not subject to criminal tax or asset-related crimes; viii) the entity is not subject to bankruptcy or insolvency; and ix) the entity is not a participant in the financial sector.The new simplified dissolution procedure shall be carried out according to the following steps: i) adopt resolutions at a shareholders’ meeting to dissolve the entity and name the shareholder or partner who will serve as liquidator, and publish such meeting resolutions in the PSM, without the need of formalizing such resolutions before a notary public; ii) subject to prior authorization, the Mexican Department of Economy will order the dissolution resolutions to be registered in the Public Registry of Commerce; iii) assets, record books and documents of the company shall be delivered to the liquidator; iv) upon receipt, the liquidator shall distribute to the shareholders or partners the remaining assets of the company in accordance with their capital contributions; v) all shareholders shall deliver their share certificates to the liquidator; vi) the liquidator shall publish a final balance sheet of the company in the PSM; and vii) the Department of Economy shall register the cancellation of the company’s corporate registry in the Public Registry of Commerce and shall notify the Mexican tax authorities of the dissolution. Note that the above steps must be carried out within the time limits established in the law. If the shareholders or partners make any false statements or filings in regard to the simplified dissolution procedure, such individual shall be individually liable to third parties on an unlimited basis and may also face criminal penalties.The legal reform described above presents a new opportunity to resolve problems many face when attempting to dissolve and liquidate business entities in Mexico. However, the new reform does not contain any incentives for parties seeking to liquidate companies that are currently abandoned, nor does it provide a complete solution that integrates completely with other laws that may be involved in the dissolution and liquidation procedure, most notable among which are the applicable Mexican tax laws.