Volume 6, Number 2, Page 1

Mexico Set to Reform Commercial Registries

By John Wilson

In Roman as well as Common Law, corporations and other business entities are considered “legal persons,” enjoying many of the rights and liberties afforded to citizens or “natural persons.” However, unlike citizens made of flesh and bone, legal persons are made up of articles of incorporation outlining their structure. Consequently, third parties dealing with business entities need access to basic information in order to determine the characteristics of a given business entity. The Mexican legal system, as with most other legal systems, requires the registration of articles of incorporation with governmental authorities prior to permitting a business entity to conduct business. Registration is likewise required for changes in the business entity’s administrative, financial and/or legal structure. This registration provides third parties with information needed to decide whether or not to conduct business with the legal person.

Successful economies have made concerted efforts to construct simple yet efficient notice/registration systems. Registration systems in less developed economies, however, remain underdeveloped, burdensome, and formalistic. The Mexican Ministry of Commerce (SECOFI) has recognized the inadequacy of the present registry system. Last year, SECOFI commenced registry reform. These reform efforts aim to streamline the business entity registration process by computerizing Mexican registries, thus incorporating modern registration procedures. The following article summarizes current deficiencies and discusses the scope of current reforms.

Current Registry Deficiencies

Current Mexican registry systems and procedures are obsolete. Specific problems include inadequate searching methods, corruption caused by arcane procedures, various legal uncertainties and the lack of a central database. The rapid growth of economic activity in recent years has placed increased demands on the registry system, further impairing its legal and social functions.

Modern systems have converted registration into a ministerial task. Registries must accept documents for filing if they meet the following requirements; (1) they contain the name, agent, capital structure, legal purpose, and size of the board of directors of the corporation; (2) the documents are typed or printed; (3) appropriate fees are paid; and (4) the corporate name is distinguishable from those already registered. Documents currently registered in Mexico require the aforementioned elements. However, much more detail is needed. In addition to the above, the names, nationality, and address for each shareholder are now to be required. The corporate purpose must now individually delineate those activities the entity is authorized to undertake. The document must also contain a detailed and officially appraised description of social capital, and a description of each shareholder’s contribution is required; as is the method for the distribution of dividends. Additionally, the articles must provide a term, after which the business entity will cease to exist. Finally, the document must undergo strict review by a public official (notary public or public broker) before registration, including the notarization and ratification of its signatures.

Current Mexican registry law requires a rigorous qualification procedure before the document may be registered. Mexican registry officials with the responsibility of determining the legal validity of the articles reject those that do not meet their interpretation of the law. This aspect of the qualification procedure presents serious obstacles since most lawyers and managers agree that the courts, not filing offices, should have the authority to determine the legal effect of documents.

Registry Reform

Current registry problems have been acknowledged by SECOFI, which is working with various Mexican states on pilot projects. These projects involve the study and modernization of current registry law and practice and are contained in “Collaboration and Cooperation Agreements” published in the Diario Oficial. The states of Colima, Jalisco, Mexico, Nuevo Leon, Quintana Roo, and San Luis Potosi have subscribed agreements and are currently participating in reform projects. These pilot programs will serve as the basis for reform in the remaining states. It is also anticipated, although not confirmed, that SECOFI will draft a new commercial registry law based on pilot project experiences. This law would be available sometime this year.

[Editor’s note:: The above collaboration and cooperation agreements are available in the InterAm database: Nuevo Leon, recorded in the Diario Oficial, April 7, 1998; San Luis Potosi, April 23, 1998; Jalisco, July 7, 1998; Quintana Roo, July 16, 1998; Colima, August 20, 1998; and, Mexico, November 5, 1998.]

The central focus of reform is the introduction of an electronic filing system. The modern state of information technology has created new opportunities for the reorganization of the current registry system. A new legal and technology framework permits the recording, storage and notification of commercial operations via the use of a faster and more efficient computerized systems.

The reform project is to regulate the organization and internal functions of the registry system at the national level. Until now, states have been responsible for registry operations. This method has resulted in incompatible systems lacking uniformity. The decentralized nature of the current registry framework continues under the new registry system and individual registries will continue to be operated by individual states. Registry locations within a Mexican state, however, will be linked to each other by a state-wide database containing all current records for the state in question. This database system will replace the current paper book and folio system. Each state’s central database will then be linked to a federal database containing all nation-wide registrations.

Another important advance replaces the transactional filing system with a notice system. Records no longer consist of overly detailed documents. Under the new system, these are contained in one to two page pre-codified forms.

Notaries and public brokers are allowed direct access to the registry by modem and may register electronically. Security measures, such as confidential access keys, passwords and electronic signatures, safeguard registry use.

Once the document is sent electronically, the system automatically generates a confirmation (acuse de recibo) that contains recorded data, chronologically assigned registration numbers and an identification of the act to be recorded.

Current registry qualification is the most cited cause of registry problems and delays. The new system is based on forms instead of documents. Consequently, information to be qualified by the registrar is drastically reduced. It is possible that a maximum term will be allotted for qualification, and limits to the discretion of the registrar imposed.

Requiring extensive detailed information in the original articles of incorporation locks businesses into the originally filed text. Streamlining the registry process requires less information and provides greater flexibility to business entities. This reform simplifies filing of articles of incorporation while providing third parties with the information they need for business decisions in a less expensive, more efficient, manner.

Conclusion

Modern economic agents are more successful under clear and efficient legal systems and procedures. Although the current Mexican registry system falls short, recent developments in commercial registry implementation make reform more feasible. These reforms aim to eliminate practices that currently detract from the creation of a modern, accessible registry system. This is accomplished by implementing the most efficient practices available today. A properly functioning registry system that provides third parties with efficient, comprehensive, and inexpensive notice regarding business entities is a step in the right direction.

John Wilson is an attorney with the National Law Center for Inter-American Free Trade.