by: Rene Cacheaux -
Mexican laws are diametrically opposed to those of the U.S. when it comes to the liability of shareholders or owners of a business entity. In the U.S., there is a risk that courts may pierce the so called "corporate veil" and hold shareholders of a company individually liable for the company's obligations in cases involving inappropriate capitalization, fraud, co-mingling of assets owned by the company with those owned by the company's owners or when shareholders use the corporate structure to carry out their own activities. These implications are included in the prevailing laws in the U.S., but by no means is such the case in Mexico. In accordance with Roman Law, corporate independence was established between the obligations of business entities and the personal obligations of its shareholders. These companies have their own legal identities, assets and liabilities apart from those of their owners or shareholders. It is from this principle that the general rule that shareholders are not liable for the obligations and responsibilities of the entities they own derives. Business entities are liable for obligations up to the value of the assets they own. Shareholders have no liability arising from corporate obligations not covered by the assets of such companies. This principle was passed on from Roman Law to Italian Law and, from there, it has been incorporated into Mexico's General Law of Business Associations (Ley General de Sociedades Mercantiles). For this reason, Mexican courts may not hold shareholders liable for the obligations and debts of the companies they own. This begs the following question: Is there any exception in Mexico to this principle of corporate protection that may serve as the basis for shareholders to be held liable for corporate debts? In limited circumstances, Mexican legal provisions allow shareholders to be held liable for company obligations by applying the legal concept of joint and several liability without piercing of the corporate veil. In accordance with the principles of joint and several liability, a person may be jointly liable for the obligations of another person or entity, , but both are fully and individually liable for the same obligation. In Mexico, these limited circumstances include the following: (i) in the case of unperfected entities, shareholders are liable for corporate obligations when they carry out corporate activities through such unperfected entities. Unperfected entities are those which are organized, but their articles of incorporation are never registered with the Public Registry of Commerce (Registro Publico de Comercio); (ii) in the case businesses acquisitions by multiple parties, those acquiring the business become jointly and severally liable for unpaid taxes by the entity that conducted such business. The acquisition of a business occurs when a person or group of persons acquires all elements of production (including assets) or of provision of services, without acquiring the shares of the company that controls such elements of production or provision of services; and (iii) in the event the business entity is not registered with the Mexican Federal Taxpayer Registry (Registro Federal de Contribuyentes or RFC)), if it changes its domicile without providing the required notice of change of domicile to tax authorities, when audits are initiated or when the business entity does not maintain tax records for accounting purposes or attempts to hide them, with respect to federal taxes due and not fully paid with assets of the business entity. Therefore, in cases (i) and (iii) above, the individual shareholders can be held jointly and severally liable for payment of the resulting balance from the tax debt owed by the business entity, when such is not paid off with corporate assets; while under scenario (ii) the acquiring individual or entity, although not its shareholders, would be jointly and severally liable for the unpaid taxes of the acquired businesses.