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  • Jaime Deschamps

Mercantility of companies and their corporate purpose in Mexico. Intro V. (Art 4 LGSM)

For Mexican purposes, the Article 4 of the General Law of Mercantile Corporations ("LGSM") regulates that all corporations that are incorporated in the forms provided by the Law are deemed to be mercantile corporations.


As we have already seen in previous entries, the General Law of Mercantile Corporations regulates the following corporations:


I.- Sociedad en nombre colectivo; II.- Sociedad en comandita simple; III.- Sociedad de responsabilidad limitada; IV.- Sociedad anónima; V. Limited partnership by shares; VI. Cooperative society (it only refers us to its special law), and VII. Simplified joint stock company.


The foregoing means that even if the company is not actually intended to carry out commercial activities, if it is constituted in the forms provided above, it will be deemed to be a commercial company.


The relevance of the foregoing lies in the fact that there are certain companies that are not in the commercial but in the civil sphere. These companies are companies whose main purpose is not to make a profit, i.e., to obtain profits from the exchange of goods. The two clear examples of civil societies are the civil society (for example, a school that aims to earn money but not through trade but through the services it provides) and the civil association that can earn money but whose main purpose is another (for example, a foundation).


In the event that a foundation or school constituted as an SA or S de RL would like to claim that it is not a commercial company and that its laws should not apply, it will have to prove it, since the Law will consider that it is a company that corresponds to the field of commerce.


In practice, it would be necessary to transform the company or, if possible, dissolve it and create a new one.


On the other hand, the LGSM establishes in the same Article 4 that corporations may perform all acts necessary for the fulfillment of their corporate purpose, except for those expressly prohibited by law and the bylaws.


For such purpose, it is worth clarifying what the corporate purpose and the bylaws are.


Corporate purpose:


By corporate purpose in Mexico, we must understand the activities that are intended to be carried out through the company. The corporate purpose is very relevant in Mexico, since the corporation can only perform the acts necessary for the fulfillment of its purpose and all other acts will be null and void, since the corporation does not have the capacity to carry them out.

As mentioned in the previous entry, capacity is the ability to be the holder of rights and obligations and to exercise them through a representative (capacity to enjoy) or by oneself (capacity to exercise). In the case of corporations, they only have capacity of enjoyment with respect to the purposes stated in their corporate purpose and all the accessory acts that may be related to such activities. In other words, corporations may only enter into rights and obligations that are related to the purpose set forth in the bylaws.


In some countries, such as the United States and Colombia, the object may be indeterminate. "If nothing is expressed in the articles of incorporation, it is understood that the corporation may engage in any lawful activity."


The same is established in the Model Law proposed by the OAS for the simplified joint stock company in which it is allowed to express that the company may carry out any commercial or civil activity, lawful, for profit. http://www.oas.org/es/sla/ddi/docs/Ley_Modelo_sobre_la_Sociedad_Acciones_Simplificada.pdf


In my opinion it should be regulated in Mexico the possibility of having an indeterminate object, since, I consider that the obligation to declare an object generates more problems than benefits.


Bylaws:


The bylaws are the rules of the corporation that are agreed upon at the incorporation of the same and that can be modified by agreement of the partners or shareholders at a later date. The bylaws are generally found as articles or clauses in the articles of incorporation and regulate aspects such as the corporate purpose (generally the first article), the corporate domicile, the capital, the form of entering or leaving the corporation as a partner or shareholder, the meetings, the administration and dissolution of the corporation, among other matters.


The bylaws, as long as they are not contrary to the Law, are the maximum rule regarding the operation of the corporation and must be fully complied with. It is worth mentioning that each company may have different bylaws.


In Mexico it is customary for bylaws to be extremely extensive compared to other jurisdictions. I believe there is room for improvement in this area as well.


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