Limited liability company: characteristics

The limited liability company is one of the most common types of companies due to its characteristics and flexible regulation. One of the seven commercial companies provided for in the General Law of Commercial Companies (LGSM), governed under the regulation of this law and the provisions of the Commercial Code, as well as the rest of the commercial laws that may be applicable.

In the limited company, the participation of the partners is not represented by registered titles (shares), but by contributions symbolized by social parts that cannot be represented by shares.

What is the limited liability company?

The limited liability company is one of the types of commercial companies most used to create small and medium-sized companies (SMEs) due to its flexible regulation. It is constituted with a minimum of 2 partners and a maximum of 50 who will only be obliged to pay their contributions.

The social capital is made up of the contributions of the partners, which do not have to be in money, but can be in useful assets for the company such as machinery, office or transportation equipment, inventories of finished products, etc.

The social shares are not represented by negotiable titles, to order or to bearer, and they will only be assignable in the cases and with the requirements established in the LGSM.

The reason or corporate name must be followed by the words “Limited Liability Company” or its abbreviation “S. of R.L.” Omitting this requirement will force the partners to respond in an unlimited, subsidiary and jointly and severally, so they would have to become a company in a collective name.

Likewise, those who want to establish a limited company with a specific company name must first obtain a use authorization issued by the Ministry of Economy.

What are the characteristics of a limited liability company?

The regulations governing limited liability companies, the General Law of Commercial Companies, defines their characteristics, the most relevant being:

Number of partners and responsibility

The limited liability company can be formed by two or more partners, with a maximum of fifty. In case you want to have more partners, you must choose another type of company. The partners may be both natural persons (any person of legal age) and legal or moral persons (any company established under the requirements dictated by law).

Likewise, each partner will be the owner of a part of the company and this will be represented by social parties. A social part is the fraction of the company that accredits to its holder the ownership of a portion of it.

The partners will be responsible for the operations of the company up to an amount of equal value to the contributions made. In the event that the company incurs debts or cannot meet its obligations, the partners will only have to respond in proportion to their contributions.

Reason or company name

The name of the business name must include the name or surname of one or more partners, and may be freely chosen by them. Likewise, the word “and company” or its equivalent will be added. It must also be followed by the words “Limited Liability Company” or its abbreviation “S. of R.L.”

As we have already said, in the event of not complying with this requirement, the partners must respond in a subsidiary, unlimited and joint and several manner for the corporate obligations.

The corporate name chosen must be different from any other company and will need authorization for use from the Ministry of Economy.

In the event that one of the partners separates or dies and their name appears in the reason of the company, the word “and successors” must be included in the company name.

Share capital of the limited liability company

At the time it is decided to establish a limited company in Mexico, the minimum capital stock (minimum amount of money with which it will begin to operate) must be established, into how many social parts it will be divided and how many will belong to each partner, having to have at least an action. At least fifty percent of each social part must be paid.

If the capital stock cannot be fully paid, the terms and conditions will have to be established in which the missing part of it will be paid.

Likewise, the minimum capital stock to create a limited liability company in Mexico is 3,000.00 pesos, and a minimum of 1,500.00 pesos (50%) must have been paid at the time of its creation.

The General Law of Mercantile Companies establishes an amount for the company’s reserves, being 5% of the annual profits up to an amount that represents 20% of the total capital of the company.

Social Participation Division

The social parts are the contributions made by the partners to the social capital, which may be of unequal value and category. These cannot be expressed or represented through negotiable or nominative titles, and the part corresponding to each partner cannot be divided.

Social contract of the limited liability company

The social contract is the policy, act or articles of incorporation of the limited company and must contain:

  • Names, nationalities and domiciles of the physical or legal persons that constitute the company.
  • Object of the company.
  • Reason or company name.
  • Duration of the company.
  • Amount of share capital.
  • Exhibition of share capital.
  • Expression of the contributions of each partner.
  • Tax domicile of the company.
  • Manner of distributing profits and losses among members of society.
  • Amount of the reserve fund.
  • Appointment of the Supervisory Board.
  • Assumptions in which the company must be dissolved early.
  • Bases to carry out the liquidation of the company.

Bodies for decision-making and administration of the limited company

The bodies of the limited liability company are:

Business meeting

Supreme body of society and in charge of making decisions of vital importance for society. These resolutions will be taken by majority vote.

The calling process for a Shareholders’ Meeting and the voting method can be freely chosen by the partners at the time of incorporation of the company.

Each partner will have the right to vote in the assembly and in the event that they do not reach an agreement in making a certain decision, a mechanism will have to be established to reach an agreement.

They are in charge of the distribution of profits, the appointment of managers and the supervisory board, as well as the admission of new partners or the dissolution of the company, if necessary.

Board of Directors or managers

They are the representatives of the company, in charge of its administration and which can be exercised by a single manager or an administrative body.

In addition to managing the company, they are in charge of appointing the positions of vital importance for its development, as well as making relevant decisions regarding the company. Although its powers are limited by the bylaws and legal provisions.

This administrative body must be appointed at the time of incorporation of the company.

Supervisory Board

This council may be headed by one or more people who may or may not be partners in the limited liability company.

Its function is to ensure that the decisions made are not detrimental to the company, to ensure that the administrators carry out their activities responsibly, as well as to oversee the company’s financial statements.

The people who make up the supervisory board must be appointed at the time of incorporation of the company.

Constitution of the limited liability company

Once the social contract of the limited liability company is signed, the partners must appear before a notary public for the constitution and sign said contract before him.

The notary public will be in charge of the registration of the company in the Public Registry of Commerce of the federative entity in question.

The requirements for the constitution of a limited liability company are:

  • Carry out a meeting of partners where the project of social statutes is carried out.
  • Process before the Ministry of Economy the authorization for the creation of the limited liability company.
  • Carry out the protocolization before a notary public of the company.
  • Be registered in the public registry of commerce and register with the Tax Administration Service (SAT).
  • Have a name or company name.

Fiscal obligations

Limited liability companies pay and declare VAT (Value Added Tax) and corporation tax.

Regulation of the limited liability company

The legal framework of the limited company in Mexico is the General Law of Mercantile Companies.