The Journal of The DuPage County Bar Association

Back Issues > Vol. 17 (2004-05)

Can a Foreign Company Do Business in Mexico? The Answer Depends on the Type of Business it Wants to Do There
By Alexander Olsansky, Jr.

The General Rule is that Foreign Companies are Entitled to do Business in Mexico to the Same Degree as Mexican-owned Companies. However, there are Several Exceptions to the General Rule.

I. INTRODUCTION

Foreign companies that want to do business in Mexico must first determine whether they can legally do so under Mexican law. The rules governing foreign investment in Mexico are derived from two primary sources:

• Ley para Promover la Inversión Mexicana y Regular la Inversión Extranjera. In English, it is referred to as the Foreign Investment Law, or "FIL" for short; and

• Reglamento de la Ley para Promover la Inversión Mexicana y Regular la Inversión Extranjera. Translated, it means the Regulations to the Foreign Investment Law.1

Under FIL, as with most laws, there is a general rule and a set of exceptions. The "General Rule" is that foreign companies are entitled to do business in Mexico to the same degree as Mexican-owned companies. In the vernacular of FIL, foreigners are entitled to participate in most "Economic Activities"2 to the same extent as their Mexican counterparts. They can acquire, control and manage Mexican companies; they can purchase business equipment and other assets located in Mexico; and they can establish new operations in Mexico.3

However, the General Rule does not apply to foreign participation in every Economic Activity. Under FIL, there are three categories of "Exceptions" to the General Rule:

• Reserved Economic Activities – Many Economic Activities can only be performed by state-owned entities, Mexican-owned companies or Mexican nationals.

• Economic Activities Subject to Foreign Ownership Limitations – Many Economic Activities can only be performed by companies that have majority Mexican ownership.

• Economic Activities that Require Prior Government Approval – Many Economic Activities can only be performed by foreign companies if they obtain prior consent of the Mexican government.4

Ultimately, a foreign company seeking to do business in Mexico must determine whether its business – or Economic Activity – is covered by the General Rule or subject to one of the Exceptions. The foreign company can proceed with its due diligence and strategic planning only after it makes this determination.

II. TYPES OF FOREIGN OWNERSHIP OF MEXICAN COMPANIES

There are three types of foreign ownership of Mexican companies – direct ownership, indirect ownership and neutral ownership. Definitions and examples of the three types of foreign ownership are provided below. The examples are based on the ownership structure of a hypothetical company, Mexico Crane, S.A. de C.V. The ownership structure of Mexico Crane is provided in Exhibit A.

A. Direct Ownership.

Although it is not specifically defined in FIL, direct ownership generally means an ownership interest in the company that actually operates the business – or participates in the Economic Activity – as opposed to ownership in a parent company or joint venture partner.

Example – Based on the ownership structure in Exhibit A, USA Crane owns 40% of the shares of Mexico Crane. Under FIL, this represents direct ownership in Mexico Crane, since it is ownership in the entity (i.e. Mexico Crane) that is participating in the Economic Activity (i.e. manufacturing of industrial cranes).

B. Indirect Ownership.

Under Article 4 of FIL, indirect ownership means an interest in a company that, in turn, has an ownership interest in the company engaged in the Economic Activity (e.g. ABC Co. is an entity engaged in a particular Economic Activity in Mexico; ownership in a joint venture partner that owns a portion of ABC Co. is indirect ownership of ABC Co.).

Example – Based on the ownership structure in Exhibit A, USA Crane owns 10% of Mexico Holdings, S.A. de C.V. Mexico Holdings is a Mexican company that owns 60% of Mexico Crane. USA Crane’s 10% interest in Mexico Holdings represents indirect ownership in Mexico Crane, since it is an interest in a Mexican company that holds an interest in the company engaged in Economic Activity. It is equivalent to 6% indirect ownership in Mexico Crane, which is calculated by taking 10% of Mexico Holdings’ ownership in Mexico Crane, or .10 multiplied by 60 (see infra note 8 for additional examples).

C. Neutral Ownership.

Under Article 19 of FIL, neutral ownership is defined as a non-voting interest in a Mexican company. Shareholders of neutral ownership interests usually only share in the profits of that company.

Example – Based on Exhibit A, USA Crane owns 125 shares in Mexico Crane through an authorized trust. Since these are non-voting shares through an authorized trustee, they are neutral ownership interests under FIL.

III. THE GENERAL RULE

Under Article 4 of FIL, the General Rule is that foreign companies are entitled to own, operate and control businesses in Mexico to the same degree as their Mexican counterparts. In most cases, FIL places no limits on the type (direct, indirect, neutral) or amount (up to 100%) of foreign ownership that will be allowed in Mexican companies.

In other words, as long as the particular Economic Activity is not subject to one of the Exceptions, 100% foreign ownership of Mexican companies is allowed under FIL (the Exceptions were introduced in Section I of this Article and are explained in Section IV). In addition, foreign companies will be entitled to have complete control over all aspects of their Mexican operations, including the establishment, acquisition, operations, management and sale of the business.

Examples of foreign ownership scenarios covered by the General Rule are provided in Section V, Subsection A-1 and Section V, Subsection A-2 of this Article.

IV. EXCEPTIONS TO THE GENERAL RULE.

Not every Economic Activity is covered by the General Rule. Many Economic Activities, rather, will be subject to one of the following Exceptions.

A. Reserved Economic Activities.

There are two sub-categories of reserved Economic Activities – those that are reserved for state-owned companies (i.e. reserved to the Mexican government) and those that are reserved for Mexican nationals and Mexican-owned companies.

1. Economic Activities Reserved for State-owned Companies.

Economic Activities listed in Article 5 of FIL can only be provided through state-owned companies. Examples include areas of national interest, including the production of electricity, crude oil, natural gas and nuclear power. Foreign ownership of companies participating in these Economic Activities is not allowed in any form.5

Economic Activities under Article 5 are listed in Exhibit B. An example of a foreign ownership scenario subject to this Exception is provided in Section V, Subsection B-1 of this Article. In addition, the rules and requirements for this Exception, along with each of the following Exceptions, are summarized in table format in Exhibit F.

2. Economic Activities Reserved for Mexican Nationals and Mexican-owned Companies.

Economic Activities listed in Article 6 of FIL, such as domestic land transportation, radio and television broadcast services and credit unions, cannot be performed by foreign companies. These Economic Activities can only be performed by Mexican citizens and Mexican-owned companies. To qualify as "Mexican-owned," a company’s by-laws must include a "Foreigner’s Exclusion Clause."6

This means that foreign companies cannot maintain direct ownership or indirect ownership in companies performing these Economic Activities. Under Article 18 of FIL, however, foreign companies can own neutral interests in such companies.

Economic Activities under Article 6 are listed in Exhibit C. An example of a foreign ownership scenario subject to this Exception is provided in Section V, Subsection B-2.

B. Economic Activities Subject to Foreign Ownership Limitations.

Under Article 7 of FIL, many Economic Activities are subject to foreign ownership limitations. Depending on the Economic Activity, foreign direct ownership of the Mexican entity will be limited to either 10%, 25% or 49%. The corollary, therefore, is that Mexican nationals or Mexican-owned companies must own the remaining interests in the Mexican entity in order to comply with the requirements of Article 7.

Generally, Article 7 does not limit the amount of indirect ownership or neutral ownership that a foreign company can own in a Mexican entity. As for indirect ownership, however, this is not the case when the foreign company owns more than 49% of a Mexican joint venture partner.7 In such cases, the amount of indirect ownership (in terms of a percentage) will be added to the amount of direct ownership (also in terms of a percentage) to determine if the ownership threshold has been exceeded.8 Essentially, in these cases, the indirect ownership will be treated as direct ownership for purposes of calculating the amount of foreign ownership under Article 7.9

1. Economic Activities Subject to 10% Foreign Ownership.

Under Part I of Article 7, foreign direct ownership is limited to 10% of "cooperative companies of production." This means that Mexican nationals or Mexican-owned companies must have at least 90% direct ownership in Mexican co-op’s.

Economic Activities subject to 10% foreign ownership limitations are listed in Exhibit D. An example of a foreign ownership scenario subject to this Exception is provided in Section V, Subsection C-1 of this Article.

2. Economic Activities Subject to 25% Foreign Ownership.

Under Part II of Article 7, foreign direct ownership is limited to 25% of companies that are engaged in certain domestic and specialized air transportation services. This means that Mexican nationals or Mexican-owned companies must have at least 75% direct ownership in companies offering these services.

Economic Activities subject to 25% foreign ownership limitations are listed in Exhibit D. An example of a foreign ownership scenario subject to this Exception is provided in Section V, Subsection C-2.

3. Economic Activities Subject to 49% Foreign Ownership.

Lastly, under Part III of Article 7, foreign direct ownership is limited to 49% of companies that are engaged in a wide range of Economic Activities, including financial services, investment services and certain commercial shipping services. This means that Mexican nationals or Mexican-owned companies must have at least 51% direct ownership in companies engaged in these Economic Activities.

Economic Activities subject to 49% foreign ownership limitations are listed in Exhibit D. An example of a foreign ownership scenario subject to this Exception is provided in Section V, Subsection C-3.

C. Economic Activities that Require Prior Government Approval.

Other foreign companies will need to obtain government approval before they will be allowed to engage in certain Economic Activities. Article 8 and Article 9 of FIL include conditions upon which prior approval will be required from Mexico’s Foreign Investment Commission. Under Article 29 of FIL, the Foreign Investment Commission will consider several factors when reviewing approval requests, including the impact on employment, technology, the environment and economic output.

1. Prior Approval Required under Article 8 of FIL.

Under Article 8, a foreign company must obtain prior government approval to own more than 49% direct ownership in a Mexican company if its Economic Activity is listed in Article 8 of FIL. Prior approval is required upon both the creation of new companies and upon the acquisition of existing companies. The corollary is that prior approval will not be required if foreign direct ownership is less than 49% or the Economic Activity is not listed in Article 8.

Generally, a foreign company’s indirect ownership will not trigger the obligation to obtain prior government approval.10 As long as the percentage of foreign ownership in a Mexican-controlled joint venture partner does not exceed 49%, the amount of indirect ownership will not be added to the amount of direct ownership to determine if the 49% ownership threshold has been exceeded.11 However, if the percentage of indirect ownership does exceed 49%, the amount of indirect ownership and direct ownership will be combined to determine whether the foreign company has exceeded the 49% ownership threshold.12

Neutral ownership is never included in the ownership calculation, regardless of the amount owned by the foreign company.

Economic Activities under Article 8 are listed in Exhibit E. An example of a foreign ownership scenario subject to this Exception is provided in Section V, Subsection D-1 of this Article.

2. Prior Approval Required under Article 9 of FIL.

Under Article 9 of FIL and Article 3 of the Regulations, a foreign company must obtain prior government approval before it can acquire certain Mexican companies. Prior approval will be required in order for a foreign company to acquire greater than 49% direct ownership and indirect ownership of existing Mexican companies if total assets of that company exceed $150,000,000.13 Unlike the rules for indirect ownership under Article 7 and Article 8, indirect ownership is included in the ownership calculation, regardless of the percentage of indirect ownership.14

Prior approval will not be required in order for foreign companies to establish new Mexican companies, however.15 Further, foreign investors may own neutral interests in Mexican companies without triggering the approval requirements under Article 9.

An example of a foreign ownership scenario subject to this Exception is provided in Section V, Subsection D-2.

V. APPLYING THE GENERAL RULE AND ITS EXCEPTIONS TO VARIOUS ECONOMIC ACTIVITIES AND FOREIGN OWNERSHIP SCENARIOS

The following hypothetical scenarios demonstrate the legal impact of the Foreign Investment Law on a variety of Exceptions and foreign ownership scenarios.

A. Examples of Economic Activities Covered by the General Rule.

1. Economic Activity: Sale of Lumber Products.

Stanley’s Lumber Supply Co. is an Illinois corporation specializing in the sale of lumber and millwork for residential construction projects in Illinois, Indiana and Wisconsin. To take advantage of the building boom in central Mexico, Stanley’s Lumber would like to expand operations into Mexico City through a wholly-owned subsidiary, Stanley’s Mexico, S.A. de C.V.

Analysis: The selling of lumber products is not listed under Articles 5, 6, 7 or 8 of FIL (see Exhibits B, C, D and E; see also Section IV). And since this is the establishment of a new company, as opposed to the acquisition of an existing company, Article 9 will not apply either (see Section IV, Subsection C-2). Thus, the General Rule under Article 4 (see Section III) will apply and Stanley’s Lumber will be allowed to own and operate Stanley’s Mexico without FIL’s ownership limitations or approval requirements.

2. Economic Activity: Production of Corrugated Boxes.

USA Box Co. is the East Coast’s leading producer of corrugated boxes. It would like to acquire a 60% interest in BoxMex, S.A. de C.V. BoxMex is Mexico’s leading producer of corrugated boxes with total assets of $50 Million (US).

Analysis: This Economic Activity is not subject to any of the Exceptions because it is not listed under Articles 5, 6, 7 or 8 (see Exhibits B, C, D and E; see also Section IV). And since total assets are less than the $150 Million (US) threshold, the acquisition of BoxMex is not subject to the approval requirements under Article 9 (see Section IV, Subsection C-2). USA Box will be entitled to acquire a 60% interest in BoxMex without needing approval from the Foreign Investment Commission.

B. Examples of Reserved Economic Activities.

1. Economic Activity: Transportation of Liquid Petroleum.

Transport Inc. is a U.S. company that is interested in transporting liquid petroleum by truck and rail to points throughout Mexico.

Analysis: Transportation of liquid petroleum is reserved for state-owned companies under Article 5 of FIL and Article 2 of the Regulations (see Exhibit B; see also Section IV, Subsection B-1). Thus, Transport Inc. cannot provide these services in Mexico, nor can it maintain any form of ownership in a company that performs these services.

2. Economic Activity: Distribution of Liquid Petroleum.

Maple Leaf Distributors, Inc. is a Canadian distributor of liquid petroleum. Its management would like to acquire a majority interest in a Mexican petroleum distribution company.

Analysis: Under Article 6 of FIL, companies that are engaged in the distribution of liquid petroleum must be owned by either Mexican nationals or Mexican-owned companies (see Exhibit C; see also Section IV, Subsection B-2). So, Maple Leaf Distributors cannot have direct ownership or indirect ownership in Mexican companies that distribute liquid petroleum. Neutral ownership interests, on the other hand, would be allowed subject to compliance with the requirements of Articles 18 through 22 of FIL.

C. Examples of Economic Activities Subject to Foreign Ownership Limitations.

1. Economic Activity: Dairy Products Co-op.

Get Milk, Inc. is a Wisconsin corporation engaged in the distribution of milk and cheese products to grocery stores throughout the United States. Get Milk, Inc. now wishes to expand operations into Mexico by acquiring 51% direct ownership in a Mexican dairy co-op.

Analysis: Under Article 7 of FIL, co-op’s are subject to a 10% foreign ownership limitation (see Exhibit D; see also Section IV, Subsection B-2). This means that Get Milk, Inc. cannot acquire 51% direct ownership in the Mexican dairy co-op. The maximum percentage of foreign direct ownership is 10%. An alternative would be to offset the limitation on direct ownership by increasing its indirect ownership and neutral ownership in the co-op.

2. Economic Activity: Domestic Trans-portation Company.

Helicopter Destinations, Società per Azioni is an Italian company that specializes in transporting vacationers between Rome, Venice and Milan by high-speed helicopters. Ownership would like to offer similar services between Mexico City, Cancun and Acapulco. However, due to the risky nature of the business, the company’s management wants to share the risk with Mexican investors through a joint venture, Copter-Mex Journeys, S.A. de C.V. Outside consultants believe that Helicopter Destinations’ optimal ownership in the joint venture would be (i) 25% direct ownership in Copter-Mex Journeys and (ii) 75% indirect ownership in the Mexican joint venture partner.

Analysis: Specialized air transportation is listed under Article 7 of FIL. This means that foreign direct ownership is limited to 25% of Copter-Mex Journeys and indirect ownership is limited to 49% of the joint venture partner (see Exhibit D; see also Section IV, Subsection B-2). As a result, Helicopter Destinations cannot own the desired percentages of direct ownership or indirect ownership in Copter-Mex Journeys.

The amount of direct ownership, 25%, in and of itself, does not exceed the 25% ownership threshold. However, since Helicopter Destinations seeks 75% ownership of the Mexican joint venture partner, the limitation on indirect ownership will be exceeded (here, indirect ownership is calculated by taking 75% of 60%, which is 45%). This means that the indirect ownership will be added to the direct ownership (25%, the direct ownership, plus 45%, the indirect ownership, equals 70%, which is Helicopter Destinations’ combined ownership in Copter-Mex Journeys). Since Helicopter Destinations’ combined ownership exceeds the 25% foreign ownership threshold, the desired ownership structure exceeds the 25% limitation and will not be allowed under FIL.

3. Economic Activity: Supply of Fuel and Lubricants.

A group of five "twenty-something" millionaires (all U.S. citizens) wants to invest their fortunes in Fuel-it-Fast, S.A. de C.V., which is a Mexican start-up specializing in the storage and distribution of fuel and lubricants for the helicopter transportation industry (its first customer will be Helicopter Destinations). The investors want to retain full ownership and control of Fuel-it-Fast.

Analysis: Under Article 7, supplying fuel and lubricants for air travel is subject to the 49% foreign direct ownership limitation (see Exhibit D; see also Section IV, Subsection B-3). This means that the millionaires will not be allowed to own 100% of Fuel-it-Fast. According to Article 4, Paragraph 3, they may only own (i) 49% direct ownership of Fuel-it-Fast and (ii) 49% of a Mexican-controlled joint venture partner. Remember, that indirect ownership will be treated like, and cumulated with, direct ownership if indirect ownership exceeds 49% of a Mexican joint venture partner (see supra note 8 for examples of calculating indirect ownership in a Mexican company).

D. Examples of Economic Activities Requiring Prior Government Approval.

1. Economic Activity: Drilling of petroleum wells.

Worldwide Drilling Co. is a Toronto-based company that specializes in drilling petroleum wells throughout Canada. Its ecologists believe that there are several untapped petroleum-rich areas in southern Mexico. Worldwide Drilling would like to form a wholly-owned Mexican subsidiary to drill petroleum wells in the southern regions of Mexico.

Analysis: Petroleum drilling is listed under Article 8 of FIL (see Exhibit E; see also Section IV, Subsection C-1). This means that prior approval of the Foreign Investment Commission will be required before it can begin operations in Mexico. If the Foreign Investment Commission grants approval, then Worldwide Drilling will be entitled to own and operate a wholly-owned Mexican subsidiary.

2. Economic Activity: Producer of Cement and Ready-mix Concrete.

Catalina Brothers, Inc. is a large, family-owned business specializing in the production and sale of cement and ready-made concrete products. It is an Oregon corporation with corporate offices in Portland, Oregon. It has been presented with a "once in a lifetime" opportunity to acquire a 100% interest in a Mexican concrete producer, Mexment, S.A. de C.V. Total assets of Mexment are $200 Million (US).

Analysis: Under Article 9, Catalina Brothers will need to obtain prior approval from the Foreign Investment Commission, because (i) this is an acquisition (as opposed to a start-up), (ii) the total assets of Mexment are greater than the $150 Million (US) threshold and (iii) foreign ownership is more than 49% of Mexment (see Section IV, Subsection C-2).

VI. CONCLUSION

Due diligence for global expansion initiatives should begin with an analysis of the laws governing foreign investment in the target country. In Mexico, foreign investment is governed by the Foreign Investment Law ("FIL"), Ley para Promover la Inversión Mexicana y Regular la Inversión Extranjera and its Regulations, Reglamento de la Ley para Promover la Inversión Mexicana y Regular la Inversión Extranjera.

The first, and most important, legal issue facing a foreign company seeking to do business in Mexico is whether its Economic Activity will be covered by the General Rule under Article 4 of FIL (see Section III of this Article) or subject to one of the Exceptions under Articles 5, 6, 7, 8 or 9 (see Section IV).

If the foreign company’s Economic Activity is covered by the General Rule, it will be legally entitled to operate its business in Mexico, and do so without ownership limitations or approval requirements. On the other hand, if the Economic Activity is subject to one of the Exceptions, then the foreign company must comply with the applicable requirements in order to conduct business in Mexico in the desired manner.

The legal impact of the Exceptions on foreign businesses and operations will vary depending on which Exception is applicable. The foreign company may be barred from conducting business in Mexico entirely. The foreign company may be prohibited from retaining the desired amount of ownership in the Mexican entity. Or it may be required to obtain approval from the Foreign Investment Commission as a condition precedent to conducting the desired business in Mexico.

Essentially, foreign companies should view this dilemma as portrayed in Diagram 1, below, and then compare the desired Economic Activity and proposed ownership structure to the rules and requirements for each Exception (see Exhibit F for a summary and comparison of the Exceptions). If the Economic Activity is not subject to any of the Exceptions, the General Rule under Article 4 will govern and the foreign company will be entitled to proceed as planned. If, on the other hand, the Economic Activity is subject to one of the Exceptions, then the foreign company must abide by its specific rules and proceed accordingly.

1 NAFTA, and other international agreements (e.g.’s, Mexico-European Union Free Trade Agreement, Mexico-Israel Free Trade Agreement), provide foreign companies with an additional layer of rights and protection vis-à-vis their Mexican business investments and operations. For a complete list of Mexico’s bilateral and multilateral trade agreements, visit: http://www.sice.oas.org/Trade/mex_e.ASP. A discussion of the impact of international agreements on foreign investment in Mexico is not the focus of this Article.

2 The phrase "Economic Activity" simply means the type of business or the specific goods or services to be provided by the foreign company in Mexico.

3 It has been the public policy of recent Mexican administrations to create a modern, globally-integrated business environment through the promotion of foreign direct investment. The General Rule is derived from this policy.

4 The Exceptions to the General Rule are also derived from public policy and based on many factors, including historical considerations and national security concerns.

5 Under the Regulations to Article 5 of FIL, there may be cases where foreign participation in these reserved Economic Activities is allowed. For example, electricity, generally, is a reserved Economic Activity. However, under Article 2 of the Regulations, foreign participation is allowed for certain limited purposes, such as the generation of electricity for emergencies, self-supply or export. This may be the case for other Economic Activities, including those listed under Article 6 (Economic Activities reserved to Mexican nationals and Mexican-owned companies), Article 7 (Economic Activities subject to foreign ownership limitations) and Article 8 (Economic Activities that require prior government approval). It is always advisable to thoroughly review the Regulations to FIL to determine if there are "exceptions to the exceptions."

6 The purpose of a Foreigner’s Exclusion Clause is to internally restrict foreign ownership in that company.

7 Paragraph 3 of Article 4 states that "[f]or purposes of determining the percentage of foreign investment in the economic activities subject to maximum limits of participation, the foreign investment realized in said activities in an indirect manner through Mexican companies with a majority of Mexican capital shall not be computed, provided that those companies are not controlled by the foreign investment."

8 E.g., a Mexican entity conducts an Economic Activity listed under Article 7 of FIL. It is owned through a joint venture comprised of a Mexican ownership group and a U.S. ownership group. The U.S. ownership group has (1) direct ownership in the Mexican entity and (2) indirect ownership in the Mexican entity through its ownership of a portion of the Mexican ownership group. If the U.S. ownership group owns more than 49% of the Mexican ownership group, that indirect ownership will be treated as direct ownership in the Mexican entity. However, if the U.S. ownership group owns less than 49% of the Mexican ownership group, that indirect ownership will not be treated as direct ownership in the Mexican entity.

9 Consider the following two foreign indirect ownership scenarios:

Scenario #1: The foreign company owns 40% of a Mexican-controlled joint venture partner. The Mexican joint venture partner owns 90% of the Mexican entity. This means that the foreign company has 36% indirect ownership in the Mexican entity [Calculation: Take 40% (foreign company’s interest in the Mexican joint venture partner) of 90% (the Mexican joint venture partner’s interest in the Mexican entity) or 0.4 multiplied by 90, which equals 36%].

Scenario #2: The foreign company owns 60% of a Mexican joint venture partner. The Mexican joint venture partner owns 90% of the Mexican entity. This means that the foreign company has 54% indirect ownership in the Mexican entity [Calculation: Take 60% (foreign company’s interest in the Mexican joint venture partner) of 90% (the Mexican joint venture partner’s interest in the Mexican entity) or 0.6 multiplied by 90, which equals 54%].

In Scenario #1, since foreign ownership in the Mexican joint venture partner is less than 49%, its indirect ownership, 36%, will not be added to the foreign company’s direct ownership for purposes of determining whether the applicable ownership threshold has been exceeded. In Scenario #2, however, foreign ownership in the Mexican joint venture is greater than 49%, which means that its indirect ownership, 54%, will be cumulated with its foreign direct ownership for threshold calculation purposes.

10 It is a matter of statutory interpretation as to whether indirect ownership will be included when calculating the percentage of foreign ownership in a Mexican company under Article 8. The position that indirect ownership is not included (as long it is less than 49% of a Mexican-controlled joint venture partner) in the ownership calculation is based on the author’s interpretation of Paragraph 3 of Article 4 of FIL (see supra note 7 for the text of Paragraph 3 of Article 4). It may be prudent to include indirect ownership in the calculation, regardless of amount or obtain an official opinion from the Foreign Investment Commission as to whether indirect ownership must be included in an Article 8 calculation.

11 For an example of indirect ownership that does not exceed the 49% ownership limitation, see supra note 8, Scenario #1.

12 For an example of indirect ownership that exceeds the 49% ownership limitation, see supra note 8, Scenario #2.

13 Under Article 3 of the Regulations to FIL, this amount is adjusted annually for inflation in accordance with generally accepted accounting practices.

14 This is an important distinction between Article 9 requirements and those of other Articles and should not be overlooked when calculating indirect ownership for the foreign company.

15 This is another important distinction, between the rules for existing companies versus new companies, that should not be overlooked when determining the applicability of Article 9.

Alexander Olsansky, Jr. is a Staff Attorney and Director of Corporate Real Estate for an Illinois corporation located in Buffalo Grove, Illinois. Mr. Olsansky earned his business degree in Finance, with Honors, from the University of Illinois at Urbana-Champaign, his law degree from Marquette University Law School, and his master’s degree in Real Estate Law, with Honors, from The John Marshall Law School. He is licensed to practice law in Illinois, England and Wales and is a member of the British-American Chamber of Commerce.

Mr. Olsansky’s articles examine business and legal aspects of globalization and foreign investment in Mexico, Canada, Latin America and the United Kingdom. His latest article, "Global Expansion is a Matter of Construction: To take a Company Global, Build a Bridge that Connects the Company to the Right Global Opportunities," examined the global expansion efforts of W.W. Grainger, Inc. into Mexico and Canada within the context of a global expansion model. That article can be viewed on-line at: http://www.dcba.org/brief/sepissue/2003/art4903.htm.


 
 
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