20 March 2017

Mexico Is Trending - SAPIS: A Tailor-Made Solution For Investors

Deciding which is the appropriate vehicle to invest in a particular country is hardly ever an easy decision especially with so many different options in each country and throughout the world.
United States International Law
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Deciding which is the appropriate vehicle to invest in a particular country is hardly ever an easy decision especially with so many different options in each country and throughout the world.

In order to promote foreign and national investment into the Mexican economy, a vehicle called SAPIS (Sociedad Anonima Promotora de Inversion "SAPI" in singular and "SAPIS" in plural, also known as an Investment Promotion Corporation in English) were created and enacted into the Foreign Investment Law on December 2005, becoming enforceable throughout the entire country in June 2006.

With the new political reality between the United States and Mexico, there is a high probability that the latter will look to consolidate new business partners throughout the world and SAPIS are an excellent vehicle to promote and complete this foreign investment.

Benefits of creating a SAPI vs. other types of corporations in Mexico.

Some of the more interesting characteristics presented by these types of corporations are the following:

  • On a day to day basis, SAPIS are administratively less burdensome than S.A.B.'s (Sociedad Anonima Bursatiles, also known as a Publicly Traded Stock Corporation in English) because they do not quote on the Mexican Stock Exchange, thus the reporting requirements with the Mexican Regulators are far less complicated for SAPIS than for S.A.B.'s. SAPIS may however, eventually decide to convert into an S.A.B., or into a SAPIB (Sociedad Anónima Promotora de Inversión Bursátil, also known as a Public Stock Promotion Corporation in English), if the decision is made to quote on the Mexican Stock Exchange. SAPIB's are also less burdensome from a regulatory standpoint than S.A.B.'s, and can also quote on the Mexican Stock Exchange, as long as they eventually convert into a S.A.B. within three (3) years. Hence, a SAPI can very well turn into a SAPIB and then convert into a S.A.B. which would reflect a steady and logical growth process for the company.
  • In S.A.'s (Sociedades Anonimas, or Corporations in English) any type or agreement which restricts any Shareholders ability to vote shall be considered null and void. On the other hand, SAPIS provide a wide array of shareholder agreement choices, such as (i) put and call options; (ii) preferential shareholder rights; (iii) shareholder voting arrangements; (iv) issuance of shares containing specific veto rights; (iv) drag and tag along provisions; and (v) other similar arrangements agreed to by the shareholders.
  • It is prohibited for S.A.'s to repurchase their own shares, which differs from SAPIS, which can repurchase their own shares, as do many modern financial companies and institutions.
  • When compared to S.A.'s, minimum shareholder requirements are considerably lower for SAPIS, to provide greater protection to minority shareholders. For instance, SAPIS only require 10% of the capital stock to (i) summon a shareholders meeting; (ii) to name a comisario; and (iii) to name a Director of the Board. Only 15% of the capital stock is needed to file a civil suit against company administrators, and 20% of the capital stock is needed to contest a resolution of the board, which again is lower than the minimum requirements for S.A.'s.
  • SAPIS can also issue various series of shares, which can be used, depending on the case, for a unique project such as developing a specific plot of land, or to regulate a certain activity such as limiting shareholder voting rights for a particular series.
  • There is no minimum capital requirement to create a SAPI, which makes it simple for shareholders to set up the company and avoid disputes during the inception period of the company.

Impact on Foreign Investment

As previously mentioned, SAPIS present a unique opportunity for foreign to investors to conduct business in a streamline and efficient manner in an interesting and important economy such as Mexico, not only for bigger companies who want to get a taste of doing business there but also for entrepreneurs who might have shallower pockets to start out with.

Investments will continue to flow into the Mexican economy, not only from its traditional partners but also from new sources. SAPIS are an excellent vehicle for capturing foreign investment because of the appeal of the Mexican economy on the world stage during this new phase, combined with the flexibility provided to its shareholders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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