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How to efficiently incorporate a Mexican Company using third parties

Mtro. Juan Carlos Caropresi

The international treaty that corporate attorneys have been using in the last 75 years for corporate representation across different countries is the International Treaty known as Protocol on Uniformity of Powers of Attorney Which are to be Utilized Abroad or Washington Protocol (February 17, 1940), ratified by the Mexican government and published in the official federal gazette on December 3, 1953, a few years after, the topic was addressed again in the Panama Convention that took place on January 30, 1975.

 

In accordance with both international treaties  there are a few basic characteristics that should be taken into account:

ARTICLE I

Powers of attorney granted in the countries, comprising the Pan American Union, for utilization abroad, shall conform to the following rules:

  1. If the power of attorney is executed by or on behalf of a natural person, the attesting official (notary, registrar, clerk of court, judge or any other official upon whom the law of the respective country confers such functions) shall certify from his own knowledge to the identity of the appearing party and to his legal capacity to execute the instrument.  
  2. If the power of attorney is executed in the name of a third person, or if it is delegated or if there is a substitution by the agent, the attesting official, in addition to certifying, in regard to the representative who executes the power of attorney, or delegates or makes a substitution, to the requirements mentioned in the foregoing paragraph, shall also certify that such representative has in fact the authority to represent the person in whose name he appears, and that this representation is legal according to such authentic documents as for this purpose are exhibited to said attesting official and which the latter shall mention specifically, giving their dates, and their origin or source.
  3. If the power of attorney is executed in the name of a juridical person, in addition to the certification referred to in the foregoing paragraphs, the attesting official shall certify, with respect to the juridical person in whose name the power is executed, to its due organization, its home office, its present legal existence, and that the purposes for which the instrument is granted are within the scope of the objects or activities of the juridical person; which declarations shall be based on the documents which for that purpose are presented to the official, such as the instrument of organization, bylaws, resolutions of the board of directors or other governing body, and such other legal documents as shall substantiate the authority conferred. The attesting official shall specifically mention these documents, giving their dates and their origin.  

 

The center of our study will be the powers of attorney (“POA”) or any other type of representation document issued or executed on behalf or in the name of any corporation. We could easily dissect this article into 4 key elements that POA issued to represent a corporation must have:

 

  • Identity of the appearing party (grantor)
  • Legal Capacity of grantor
  • Authority of grantor
  • Legal Existence, including its organization, office address, and that the purpose of the POA being granted is within the corporation’s scope

 

Another main aspect of these POA is that they need to be “notarized” by the “attesting official” (notary, registrar, clerk of court, judge or any other official upon whom the law of the respective country confers such functions), and here is precisely where the problem arises. For years  corporate attorneys in both sides of the border have been using  “double column Power Of Attorney” (usually written in English and Spanish) that POW was to be attested by the corresponding official in the case of the United States this official would be the Notary Public.

 

In January 1, 2015 an amendment to the State of California’s Civil Code, sections 1189 and 1195 was enacted:

 

Article 1189.  

(a) (1) Any certificate of acknowledgment taken within this state shall include a notice at the top of the certificate of acknowledgment in an enclosed box stating: “A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.” This notice shall be legible.

 

We all know that in order to become a Notary Public in the United States you do not need to hold a law degree, therefore we always knew that the Notary Public notarizing the POA was not really paying much attention to the accuracy or validity of the document, but we all looked the other way and assume that said official did take those factors into account when they stamped or sealed a certificate of acknowledgment.

 

Beginning on January 2015, all Notary Publics in the State of California are including in their certifications of acknowledgement a very visible box:

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

 

We have a very big problem because the POA is no longer complying with the international regulation (Washington Protocol).

In addition to the foregoing, we have another important aspect to consider, the law that governs Notary Publics in Mexico is issued by each one of the Mexican States, and therefore, as can be expected, there are some differences in these laws throughout Mexico, the reason why this has some bearing in this matter is because some Notary Laws in Mexico establish that International Instruments , in order to be executed in Mexico, shall be recognized by a Mexican Court, with the exceptions provided by law and international treaties, in this exception we find the POA, and example of this would be article 113 of the Baja California Notary Law, that clearly states the two options to execute an international document in Mexico are: i) through a Mexican Court; and, ii)as an exception, such as the POA, can be recognized and executed by a Notary Public in the state.

 

Here is where we have a very interesting situation, the interpretation of the law (Notary Law in Baja California) largely influenced by notaries  is that since the amendment of the California Civil Code, the POA from California  to be exercised in Mexico, precisely Baja California, do not meet the international regulations, therefore are not subject to be executed and recognized directly before a notary public, so we need to appear before a judicial court, this is very important since courts almost everywhere in the world do not work fast, Mexico is no exception, we are looking at two to three months in order to get a POA recognized by a court in Mexico, as we can anticipate business men are not comfortable waiting that long in order to set up a business in Mexico.

 

What can we do?

 

These are a few solutions to this particular situation:

1.- In order for POA issued abroad to be perfected and used in Mexico, the Notary Laws in various states in Mexico require them to be notarized  by a Notary Public  or recognized and authorized by a court of law, and since Notary Publics in the State of Baja California have expressed their opinion that POA issued and notarized in the State of California do not meet the international regulation, the only way is through the State Courts.

An option to avoid this is to use a “Corredor Publico” instead of a Notary Public. A Corredor Publico is a Federally authorized attorney, who, exactly as the Notary is granted full faith and power in order to attest to any act within the field of commerce, this is the big difference between Notary and Corredor Publico, a Corredor Publico is only authorized to act as the Federal Notary in matters of commerce. Having said this, appearing before a Mexican Corredor Publico, will allow foreign investors to avoid the hassle of having to go to court in Mexico. Now, the international regulation that applies to POA (Washington Protocol) applies also to the Corredor Publico, it is the domestic law, in this case the Federal Correduria Publica Law, that is more flexible and allows said official to comply with every aspect that international regulation requires using several documents and not only one. Allow me to explain, Corredores Publicos, will also have to attest to the following aspects when a person is appearing on behalf of a third party, just as the notary does.

 

The big difference, as expressed before, is that Corredores Publicos can use several, different documents to gather information that allow them to meet this international requirements. Following that train of thought, we suggest the following documents for  each specific requirement.

 

Basic requirements for POA Suggested document to meet requirements
·         Identity of the appearing party (grantor)

 

·         POA, the commonly used double column POA, duly executed before a notary public from California, is still a very good way to prove that the grantor is indeed who he or she claims to be. (Id of grantor should be attached to said POA)
·         Legal Representation

 

·         Certificate of Incumbency, this legal instrument is used precisely to establish the individuals who, in any case, are authorized by said third party (company) to act on its behalf.
·         Legal Capacity of the appearing party (grantor)

 

·         Jurat, we suggest a well drafted jurat in which the Secretary of the Board or any other member with full capacity for such purposes, establishes that the certificate of incumbency was duly signed. That will suffice the capacity in which the grantor is appearing before the Corredor Publico.
·         Legal Existence, including its organization, its home office, and that the purpose of the instrument being granted is within the scope of the company. ·         Certificate of Good Standing. This document is being used to corroborate that the company is not only duly incorporated but that is currently operating in a certain state in the United States. A copy of the Articles of Incorporation, Partnership Agreement or any other corporate  document, should be attached to the certificate.

 

In accordance to recent amendments to The Federal Correduria Publica Law, the Corredor Publico can accept documents written in a foreign language if said corredor acknowledges that he or she is fluent in such language, most Corredores Publicos in Mexico are fluent in the English language, but in any case, it will be a good idea to have all documents duly translated.

 

2.- Although the proposed solution previously described suits better the agile and fast corporate world of today, due to the fact that in house or of counsel attorneys could have this corporate documents always at hand and ready now that they know they could use them at any given moment, another option is to appear before the a Mexican Consulate, there has been a widely spread misunderstanding regarding the fact that Mexican Consulates in the United States acting as Notary Public are only attesting to documents being granted by Mexican citizens. This is completely false. As long as the document is being used in Mexico, such as the incorporation of a company in Mexico, the POA can be granted before said authority.

 

3.- A third option, even though attorneys in Mexico use this less and less, there is still the chance to use Mexican attorneys as “the facto” incorporating officers, in this case, they will, as Mexican citizens appear before a Mexican Notary or Corredor Publico and sign the public deed containing the incorporation of a new company, and then through the adequate legal instruments (purchase of stock agreement, and a shareholders meeting), they will transfer their interest in the newly formed company to the rightful owners. One very important aspect to consider in this option is that, attorneys, accountants or any other individuals acting on behalf of a third parties to incorporate a new company in Mexico, must convey such information to the Notary or Corredor Publico, and said official will take note and give notice to the Financial Intelligence Unit (Unidad de Inteligencia Financiera UIF). This is not against the law, but it has to be disclosed.

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