There are many ways to get funding for your business or entrepreneurship project, such as a shareholder’s agreement, crowdfunding, debt, grant funding, or capital investment. In this four-article series, you will find an analysis of each of the contracts listed above to know how can you finance your business.

Partnership Agreement.

The first type of contract we will analyze is a partnership agreement, which is the funding approach par excellence to fund a business. A partnership agreement is the document by which two or more people establish the conditions to create a new legal entity and set up a company with their investment. Those who form a group with a common purpose to constitute a legal entity are called Partners or Shareholders, depending on the type of company they form and also the type of company will grant each of them different rights and duties.

Our legislation contemplates several types of companies that answer to the various needs of the partners and that will determine the participation and responsibility of the partners or shareholders: 

What are the types of companies?

Non-Commercial Partnerships: Non-Profit Organization and Non-Commercial Partnership

Non-Commercial Partnerships are constituted by a group of people who are mutually obliged to combine their resources or efforts to reach a common end. It is a primarily economic kind of partnership with a non-speculative nature whose purpose is not to earn profit, and it is regulated by the Civil Code.

The Non-Commercial Partnership (also known as Non-Trading Partnership) in specific is a legal entity and its goal is primarily economic, but it has a non-profit nature. They are created by means of a group of professionals who, usually, provide consultancy services or are dedicated to teaching, either with the authorization or with official recognition according to the provisions of the General Education Act. They can also be created with the purpose of administering funds or saving banks. Their abbreviation is NCP, and, in Spanish, they are known as S. C., which stands for “Sociedad Civil.”

Main Characteristics:

The responsibility of the administering partners will account, in an unlimited, jointly and severally manner, to social obligations. Other partners will only be obliged to their contributions. Should a partner be excluded, he will still be accountable for his portion of losses. 

• It requires a minimum of two partners.
• There is no minimum initial capital for fees or contributions.
• There are no share certificates, since the share capital is represented in Partnership Interests, which can be covered by certificates. 
• The administration of the company is carried out by an Assembly of Members as well as by a Manager or Administrator. 
• Partners cannot transfer their rights without previous unanimous consent of the others. 
• Partners cannot take new members without the previous unanimous consent of the others. 
• Taxes are paid until they receive the money and not when the invoice is issued (like commercial companies).

The Non-Profit Organization does not have an economic purpose. Are groups of people who carry out non-profit activities with social interest aims, for cultural, political, sport or religious purposes, to support scientific or technological research within the National Register of Scientific and Technological Research Institutions, or to support museums and libraries open to the public. 

Main Characteristics:

• It requires a minimum of two partners.
• There is no minimum initial capital for fees or contributions. 
• It has no shares and its capital is represented in equity interests. 
• The organization shall be regulated by a Board of Associates and a Managing Director. 
• The organization is regulated by the Civil Code of the State in which it is created.
• The organization must NOT have a mainly economic goal.
• The Partner will not be able to vote in the decisions where he, his spouse, ancestors, descendants, or collateral family to the second degree have a direct personal interest.
• It will only be possible to exclude partners for the reasons stated in the articles of association. 
• Partnership cannot be transferred,
• They can obtain an authorization to become Donatarias Autorizadas to issue tax deductible receipts for donations.

Corporations: “SAS”, LLC, JSC, and “SAPI” 

Corporations are companies whose purpose is to gain profit by means of commercial speculation. In other words, they are focused on the commercialization or sale of a product or service. 

The Simplified Shares Company (SAS, for their name in Spanish) are a new kind of corporation created to solve the needs of Mexican entrepreneurs. According to the Reform Act to the General Law of Business Corporations, SAS corporations may be established through the platform launched by the Mexican Department of Economy (SE), which is linked to the Tax Administration System (SAT) and to the Mexican Social Security Institute (IMSS). This link allows users to obtain the following from one platform: (i) an authorized corporate name, (ii) an Incorporation Certificate; (ii) the Federal Taxpayer Register, and (iv) a registration number assigned by the IMSS. 

Main Characteristics:

• For its incorporation, all stockholders must have a valid electronic signature (“E.firma”, in Spanish).
• The company’s administration will be carried out by an Administrator, who shall necessarily be a Stockholder. 
• There is no minimum initial capital for fees or contributions.
• They may be single-member companies. 
• The company must be changed into a different type of company if it exceeds the annual income limit of five million Mexican pesos.  
• Shareholders will be accountable, collaterally or jointly and severally, as applicable, before the society, for exhibiting behavior punishable as felony. 
• There is no charge for its incorporation. 

Limited Liability Company or LLCs are constituted by partners who are only obliged to the payment of their contributions. Equity interests cannot be represented by action titles. The most important part of this kind of company are the people who integrate it: there is control of who enters and who leaves, and equity interests cannot be freely transferred.  

Main Characteristics:

• The company is regulated by the General Law of Business Corporations.
• Partners are only obliged to the payment of their contributions. 
• It requires a minimum of two partners and it can have a maximum of fifty partners.
• There is no minimum initial capital.
• Each partner can only have one equity interest only.
• The company is controlled by a Management Board. 
• The company is supervised by a Supervisory Board. 
• The admission of new partners requires the consent of all members. 
• The company will keep a record of all partners, including their name and domicile, their contribution, and, when applicable, the transferring of equity interests.
• When the equity interest states so, the partners will be obliged both to their general duties and to making supplementary contributions proportional to their contribution. 

Stock Corporations are integrated only by shareholders whose sole responsibility is the payment of their shares. The main trait of this type of company is the capital provided by the shareholder, and not the shareholder as such. They can be of several kinds depending on the type of company’s business activity. 

Main Characteristics:

• The company is regulated by the General Law of Business Corporations.
• Partners are only obliged to the payment of their contributions. 
• It requires a minimum of two partners.
• There is no minimum initial capital for fees or contributions.
• Shares are formalized by means of share certificates.
• Stockholders freely decide in articles of association whether or not they can transfer their stocks and how. In principle, the law does not outline any restrictions for this transfer.
• The company’s administration can be carried out either by a Management Board or by a Single Administrator.
• The supervision of the company must be in charge of one or more commissioners.

Investment Promotion Corporations (SAPI, for their name in Spanish) are the legal acknowledgment of the practices carried out by LLCs, and they can acquire funds from any kind of stockholder. Additionally, they are created so that, as they grow and capitalize, they are able to list on the stock. Asides from being regulated by the General Law of Business Corporations, they are regulated by the Securities Market Act. 

Main Characteristics:

• It is regulated by General Law of Business Corporations and the Securities Market Act (“LMV”, for its Spanish name).
• Partners are only obliged to the payment of their shares. 
• It requires a minimum of two partners.
• There is no minimum initial capital for fees or contributions.
• Shares are formalized by means of share certificates.
• The company’s administration is in charge of a Management Board.
• The supervision of the company must be in charge of an Audit Committee.
• The Securities Market Act allows to impose restrictions in the articles of association with regards to the transfer of rights regarding the range or type of share.
• The Securities Market Acts allows the issuing of different types of shares, in which the right to vote can be limited and non-economic rights can be granted.
• It must have policies regarding the disclosure of information and the protection of minority shareholders.