General Law of Commercial Companies
The general law of commercial companies (LGSM) is one of the most important pieces of legislation within the framework of commercial law in Mexico. This law regulates the constitution, operation and dissolution of commercial companies, providing a clear and structured legal framework for the creation and management of various forms of commercial entities. In this blog, we will explore in depth the key aspects of the LGSM, its types of companies and its most relevant characteristics.
What is the General Law of Commercial Companies?
It is a set of rules that regulate the activities of commercial companies in Mexico. It was enacted on August 4, 1934 and has been amended several times to adapt to the changing needs of the business environment. Its main objective is to establish the legal bases for the creation, operation and dissolution of commercial companies, ensuring transparency and protection of the interests of partners, shareholders and third parties.
Types of Commercial Companies under the LGSM
The LGSM contemplates several types of commercial companies, each with specific characteristics and requirements. Below, we describe the most relevant ones:
Public Limited Company (SA)
The Public Limited Company is one of the most common forms of business organization. It is characterized by having capital divided into shares and the liability of the partners is limited to the amount of their contributions. This type of company is ideal for companies seeking to attract investment through the sale of shares.
Characteristics:
– Capital divided into shares.
– Liability limited to the amount of shares subscribed.
– Administration can be carried out by a board of directors or a sole administrator.
– Important decisions are made in shareholder meetings.
Limited Liability Company (S. de RL)
The Limited Liability Company is another popular form of company, especially among small and medium-sized businesses. It is characterized by having capital divided into social parts and the liability of the partners is limited to the amount of their contributions.
Characteristics:
– Capital divided into social parts, not into shares.
– Liability limited to the amount of the contributions.
– Partners can participate directly in the management of the company.
– Decisions are made in partner meetings.
Company in Collective Name
This type of company is characterized by the unlimited and joint liability of the partners for social obligations. It is a less common form of organization due to the high responsibility it implies for the partners.
Characteristics:
– Unlimited and joint liability of the partners.
– The name of the company must include the name of one or more partners.
– Decisions and administration are made directly by the partners.
Limited Partnership and Shares
The Limited Partnership can be simple or by shares. It is characterized by having two types of partners: the limited partners, who have unlimited liability, and the limited partners, whose liability is limited to their contributions.
Characteristics:
– Two types of partners: limited partners (unlimited liability) and limited partners (limited liability).
– In a limited partnership by shares, the capital is divided into shares.
– The administration is generally in charge of the limited partners.
Cooperative Society
The Cooperative Society is a form of organization where members associate to satisfy common needs. Its main characteristic is equality in decision-making and the participation of partners in the benefits and management of the company.
Characteristics:
– Equality in decision making.
– Equitable sharing of benefits.
– The partners have an active participation in the management of the company.
Incorporation Process of a Commercial Company
The constitution of a commercial company under the General Law of Commercial Companies involves several essential steps:
- Choosing the type of company: The first step is to decide what type of company is most suitable for the objectives and needs of the business.
- Preparation of the articles of incorporation: This document must contain the statutes of the company, including the name, corporate purpose, duration, share capital, and administrative structure.
- Registration with the Ministry of Economy: The articles of incorporation must be registered in the Public Registry of Commerce to publicize the constitution of the company.
- Obtaining permits and licenses: Depending on the type of business activity, it may be necessary to obtain additional permits.
Obligations and Rights of Partners
Establishes both obligations and rights for the partners of a commercial company:
Obligations:
– Capital contributions: Partners must make the capital contributions agreed in the articles of incorporation.
– Compliance with the statutes: Partners must comply with the provisions established in the corporate statutes.
– Participation in assemblies: Partners must participate in assemblies and meetings, contributing their vote and opinion in important decisions.
Rights:
– Participation in profits: Partners have the right to a proportional part of the profits generated by the company.
– Information and transparency: Partners have the right to be informed about the progress of the company and to access the company's records and books.
– Voting in assemblies: Partners have the right to vote in assemblies, influencing the decisions of the company.
Dissolution and liquidation
The LGSM also regulates the process of dissolution and liquidation of commercial companies. The causes of dissolution may include the expiration of the term established in the statutes, the impossibility of carrying out the corporate purpose, or the decision of the partners.
Clearance process:
- Appointment of liquidators: The partners must appoint one or more liquidators to be in charge of the liquidation process.
- Inventory and balance sheet: Liquidators must prepare an inventory and balance sheet of the company.
- Payment of debts: All debts and obligations of the company must be paid.
- Distribution of the remainder: Once the debts are paid, the remainder is distributed among the partners according to their participation in the share capital.
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