Corporate Vehicles and Litigation Strategies for Doing Business in Mexico

The most common types of companies for foreign investors in Mexico are the limited liability company, stock corporation (Sociedad Anonima or SA) and its variation, the investment promotion stock corporation. The SA is widely used and offers limited liability for shareholders. The investment promotion stock cis often favoured by investors requiring complex structures, such as private equity and venture capital funds.

Foreign companies can register a branch in Mexico to conduct business activities. While this option does not require incorporating a new company, it has the same tax treatment as a Mexican corporation. Additionally, acquiring or merging with an existing Mexican company can be a viable alternative, particularly in regulated sectors. Joint ventures (JVs) are also possible, taking various forms like simple JV agreements, special purpose vehicles (SPVs), or equity investments in existing companies.  

To protect foreign investors and avoid cross-border litigation, including a well-drafted forum selection and choice of law clause is crucial. This clause should clearly state that any disputes will be resolved in Mexico under Mexican law. Alternative dispute resolution mechanisms, such as mediation and arbitration, can also be included in agreements.

If a foreign investor fails to include a choice of law and forum clause, Mexican law will apply. The Mexican legal system is formalistic, and the Commercial Code generally governs business transactions. When litigating in Mexico, it's important to consider the statute of limitations, evidence requirements, and the formal process of serving notice. Mexican litigation typically involves a first instance, an appeal, and a final constitutional procedure called “Amparo”.

Due to the current political environment in Mexico and discussions regarding the independence of judicial bodies, it is becoming increasingly common to include arbitration clauses in agreements subject to Mexican law. Arbitration offers flexibility and technical specialisation, and it is advisable to follow model clauses proposed by mediation or arbitration forums when drafting such clauses. The current political environment and potential changes to the judicial branch further emphasise the importance of considering arbitration as an alternative to litigation.