In Mexico, a business can be purchased through a share purchase, an asset purchase, a merger or a combination of those transactions.

Each structure has specific issues that need to be considered by the seller and the buyer during the negotiation process. Below are certain key differences between a share acquisition and an asset acquisition.

The principal distinction between an asset and a share acquisition is that, for share acquisitions, the buyer will assume the entire liability from the target company. In contrast, in an asset acquisition, the buyer will generally only absorb liability concerning the assets acquired (subject to an exception concerning the acquisition of a business as a going concern).

In an asset transaction, the seller might need to obtain consent from a contracting party to transfer certain contracts to the buyer. In a share acquisition, contracts are generally unaffected by the transfer of shares, unless the contract contains a change of control provision. Similarly, a target company's licenses, permits and authorizations will remain unaltered and will not need to be typically transferred in a share acquisition. In an asset acquisition, certain permits and authorizations held by the target company could be difficult to transfer because of the need to obtain consent from the issuing government agencies. In the majority of the cases, it will be necessary to obtain a new permit or authorization.

In an asset acquisition, VAT at a 16% rate shall be paid. In a share acquisition, no VAT is payable.

In an asset acquisition, the buyer may choose those assets that it wishes to acquire and those liabilities that it wishes to assume. This means that due diligence in an asset acquisition is generally narrower, as it usually involves verifying title to the corresponding asset(s) and the seller's compliance with legal requirements applicable to the import, use or sale of the relevant assets. In contrast, due diligence in a stock acquisition context requires a complete and comprehensive review of the affairs of the target company to limit the risk that the buyer might assume liabilities that it does not wish to assume.

Under Mexican law, two or more entities can merge either by integration or by absorption. A merger by integration involves the formation of a new entity by one or more entities, which merge, integrate and consolidate with a new entity, resulting in the extinction of the integrated entities. In a merger by absorption, two or more entities merge into one, which will be the resulting entity. The merged entities are extinguished and cease to exist upon transfer of their assets, liabilities, and capital to the surviving or resulting entity.

Among the most commonly used forms of business organization, are:

•  Corporations:
  • Sociedad Anónima (SA)
  • Sociedad Anónima de Capital Variable (SA de CV) 

• Sociedad Anónima Promotora de Inversión de Capital Variable (SAPI de CV)

•  Limited liability companies:
  • Sociedad de Responsabilidad Limitada (S de RL)
  • Sociedad de Responsabilidad Limitada de Capital Variable (S de RL de CV)

Foreign investors, particularly US investors, frequently incorporate limited liability companies because this form of business organization provides limited liability to its partners and certain benefits for US income tax purposes (as they are considered pass-through entities). Corporations, however, are by far the most common form of business organization used in Mexico.

There are two different types of limited liability companies:

• Sociedad de Responsabilidad Limitada (S de RL)
• Sociedad de Responsabilidad Limitada de Capital Variable (S de RL de CV)

These entities offer limited liability, which means that the shareholders or members are insulated from liability up to the amount of their contributions at the entity level.

Limited liability companies are formed by partners that are obligated to pay only their contributions. In contrast to a corporation, the partners' contributions are only represented by quotas, which do not constitute negotiable instruments. The transfer of quotas and admission of new partners is subject to approval of the majority of the partners in the company.

Yes, there are restrictions on the number of shareholders for each form of business organization described above. Each of the following business organizations: S de RLs, S de RL de CVs, SAs and SA de CVs, must have a minimum of two shareholders or partners, as applicable, and these shareholders/partners are obligated to pay only their contributions. Both S de RLs and S de RL de CVs need to have at least two partners but cannot have more than 50 partners.

Generally (except where the SA de CV's bylaws provide additional requirements), all that is required to transfer legal title to the shares in a stock corporation (SA de CV) is:

• Execution of a stock/share transfer agreement
• Endorsement and delivery to the buyer of the relevant stock certificate(s)
• Registration of the new shareholder in the company's shares registry book

Similar requirements apply to the acquisition of membership interests in limited liability companies (S de RL de CV), except for the following:

• The majority of members of the company must consent with the transfer of quotas and the admission of new partners.
• The endorsement of the equity certificate is not required since an S de RL de CV does not issue negotiable stock certificates.

Additionally, in a sale of a share under a stock corporation or a membership interest in a limited liability company, as part of post-closing actions the companies will need to do the following:

(i) Publish before the electronic system created by the Ministry of Economy the new ownership structure

(ii) File a notice before the Mexican Tax Authorities regarding the new ownership structure.

Asset transfers are typically documented in an asset purchase agreement (APA). The APA must follow the requirements applicable to the transfer of those particular assets. Asset transfers usually require the issuance of an official tax invoice under Mexican tax laws, which, among other items, require the itemized list of assets and the allocated value to each of them. The transfer of real estate ownership requires a notarial deed prepared by a notary public and its registration with the public registry of property at the location of the transferred real estate property.