In Brief: Rights and Powers of Shareholders in Mexico
The rights and fair treatment of shareholders and employees
Powers of shareholders
What powers do shareholders have to appoint or remove directors or to require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?
The general meeting appoints and dismisses the members of the board of directors. Unless otherwise provided in a company’s articles of association, shareholders can appoint and dismiss them by majority vote. The general law on commercial organizations stipulates that if there are three or more members of the board of directors, the articles of association must provide for the corresponding rights of the minority shareholders to appoint members of the board, but in any case, the minority shareholders representing 25% of the share capital have the right to appoint at least one member. For investment promotion joint-stock companies and listed companies, shareholders representing 10% of the share capital have the right to appoint at least one member, and removal of that member by the remaining shareholders (i.e. ie non-registered shareholders) can only take place if the shareholders intend to dismiss all the members of the board of directors.
The general law on commercial organizations also establishes that the shareholders’ meeting appoints, dismisses or ratifies the members of the board of directors or the sole administrators, at least once a year; in practice, however, such a change is made whenever the company needs it.
What decisions should be left to shareholders? What issues must be submitted to a non-binding shareholder vote?
According to the general law on commercial organizations, the general meeting of shareholders is the supreme organ of any commercial entity. Therefore, this body has full power and authority to approve any matter concerning the affairs of the company. While some issues can be resolved either by the general meeting or by the management body, among others, the following decisions are reserved for shareholders:
- approval of the accounts and the annual report drawn up by the management body;
- appointment and dismissal of the board of directors and the statutory auditor(s);
- early dissolution;
- increase or decrease in share capital;
- change of corporate purpose or nationality;
- transformation or merger;
- issuance of preferred shares;
- amendments to the articles of association; and
- any other decision reserved to shareholders under the company’s articles of association.
Matters relating to the organization of the company and matters for which the law requires a special quorum are reserved for extraordinary general meetings.
Under Mexican law, no specific matter should be submitted to a non-binding shareholder vote; however, the articles of any company may contain provisions relating to voting restrictions applicable to certain types of shares.
Disproportionate voting rights
To what extent are disproportionate voting rights or limitations on the exercise of voting rights permitted?
Generally, at meetings, shareholders are entitled to one vote for each share they hold; however, the by-laws may provide for classes or series of shares which may confer different rights (ie limited voting shares, non-voting shares, preferred shares). In addition, in accordance with the General Law on Commercial Organizations, companies may include in their articles of association provisions relating to the issue of shares which:
- do not confer or confer limited voting rights;
- grant non-property rights other than the right to vote or exclusively the right to vote; or
- confer a right of veto or require the favorable vote of one or more shareholders.
While some restrictions to exclude shareholders from profit sharing apply to joint stock companies and limited liability companies, there are no such restrictions for investment promotion joint stock companies.
As a general rule, publicly traded companies may issue common stock only if the rights of their respective holders are not limited or restricted; however, they may issue different series of shares with the authorization of the National Banking and Securities Commission, provided that non-voting shares, restricted voting shares and limited voting shares do not may exceed 25% of the shares held by the general public (or float).
Shareholders meetings and voting
Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual shareholder meetings allowed?
Meetings must be held at the registered office of the company to be valid, except in fortuitous cases or force majeure. In Mexico, corporate domiciles are defined by each corporation in its articles of association and are often expressed as a city and not as a particular address (i.e. Mexico City). Prior notice must be sent to all shareholders of the agenda, time and date of the meeting. Notice must be given at least 15 days before the meeting for joint-stock companies and 8 days for limited liability companies, unless otherwise provided in the articles of association. However, the meeting of shareholders is deemed to be legally in place and notice is not required if 100% of the company’s share capital is represented at the meeting, although listed companies must always give at least least 15 days using the electronic system. for publications.
Nevertheless, the general law on commercial organizations provides that the articles of association may provide for unanimous resolutions instead of a general meeting, which have the same validity as a general meeting, insofar as they are confirmed in writing.
Shareholders may be represented at meetings by a proxy, whether or not part of the company, but under no circumstances may a proxy be a member of the board of directors or auditor.
Shareholders and Board of Directors
Can shareholders demand that shareholder meetings be called, that resolutions and director nominations be voted on by shareholders against the will of the board, or that the board circulate dissenting shareholder statements?
The power to convene a general meeting belongs to the board of directors or to the sole administrator, as the case may be, or to the auditors. In joint-stock companies, shareholders representing at least 33 per cent of the company’s share capital may, at any time, request the sole director, the board of directors or the auditors to convene a general meeting to deliberate on the objects indicated in the request. If the meeting is not convened within 15 days of receipt of the request, the meeting may be convened by court order at the request of the shareholder.
In investment promotion joint-stock companies and listed companies, shareholders holding at least 10 percent of the voting shares (including limited or restricted voting rights) may, at any time, request the chairman of the board of directors, the auditor, the managing director of the company’s external auditors or a committee of the board to convene a meeting to discuss relevant matters.
Control of shareholder duties
Do controlling shareholders have duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against the controlling shareholders for breach of these obligations?
Under Mexican law, there are no specific provisions regarding special obligations, such as fiduciary duty, owed by controlling shareholders in favor of the company or non-controlling shareholders. However, shareholders must abstain from voting in matters where the corresponding shareholder has a conflict of interest. A shareholder who does not comply with this provision may suffer damages which affect the company.
In addition, shareholders representing 25 percent of the share capital of joint-stock companies or 20 percent of the share capital of investment promotion joint-stock companies may object to resolutions approved by the general meeting through judicial process, provided that they have the right to vote with respect to the questions approved in these contested resolutions.
Can shareholders ever be held liable for the acts or omissions of the company?
Shareholders are only liable for the amount of their capital contributions. If a company is not duly registered in the Public Registry of Commerce, the shareholders or partners may be held jointly and severally liable for certain acts and omissions of the company in violation of tax and criminal laws.
In addition, partners or shareholders are jointly and severally liable for tax claims in the part that cannot be covered by the company’s assets, without exceeding the amount of their capital contributions, among other things, in the event of non-compliance by the company from certain tax obligations.
Tax liability will only apply to partners or shareholders who have or had effective control of the company, in respect of tax receivables, when they had this status as partners or shareholders. Effective control is defined in the Federal Tax Code as the power to:
- impose decisions at shareholders’ meetings, or appoint or dismiss the majority of the members of the board of directors or similar;
- have the right to exercise the right to vote in respect of more than 50 percent of the share capital of the company; and
- to direct the administration, strategy, or broad direction of the corporation, whether through stock ownership, contract, or otherwise.