LEGAL MATTERS

“What are the powers and functions of the Sole Administrator? - How can I become Sole Administrator of a company if I am a foreigner?”
By Karem García • Photos by Jesús de Avila • January 2010

“Understanding theoverall framework of the powers and functions of the Sole Administrator (administrador único), may help foreigners ensure a strategic guidance of the company at the moment of decision making.”

According to the applicable General Law of Commercial Companies (Federal) “Ley General de Sociedades Mercantiles”, and taking into account that the highest corporate body is the General Shareholders Assembly, there are two recognized governing bodies that control a company: the wellknown Board of Directors quite similar to the common law and the other one, the Sole Administrator. Sole Administrators must be individuals (never having been charged on any felony accounts). Foreigners are also allowed to become Sole Administrators, but with some limitations that we will tackle further.

Functions of the Sole Administrator

It is relevant to clarify a general misunderstanding that normally foreigners are faced with in México. The Sole Administrator has the same or very similar functions as a Chief Executive Officer (Common Law System), however, these functions can be restricted by the shareholders since the draft of the bylaws of the company or by General Shareholder Meeting. For instance, it is possible to restrict the powers of the administrator to sign contracts above certain amount of money or the obligation to request for the approval of the shareholders to compromise the company.

In relation to the Sole Administrator functions two are important to address:

1 - Administration of BusinessAffairs: This function allows the Sole Administrator to decide and to guide the day-to-day business affairs and activities connected to the core business of the company. It is therefore more involved in the internal matters of the company.

2 - Legal Representation: The Sole Administrators in Mexico are allowed to act on behalf of the company without prior authorization of the shareholders, but must act honestly. Any unlawful representation will make the Sole Administrator liable individually. Other general duties of the Sole Administrator consist of the maintenance of the accounting systems and controls, custody of the corporate books and documents of the company, to confirm if the contributions of the shareholders where done and, among others, to comply with all the requirements established at the bylaws related with dividends matters.

Exercise Powers of the Sole Administrator

The exercise by the Sole Administrator of its powers like the common law systems usually ocurrs in the General Shareholders Meetings or by the resolutions passed by their own power. Some of these powers include: to call for a Shareholder Meeting, follow all the agreements by the General Shareholders Meetings, draft, authorize and sign General Shareholder Meeting registered in the corporate books, subscribe share c e r t i f i c a t e s , c a l l for bankrupcy, execute the agreements of the shareholders at a General Shareholders Meeting and to appoint
agents or attorneys in fact and to designate managers. Therefore, managers are subordinated to the Sole Administrators.

Limitations of the Sole Administrator

As the Common law systems, the Mexican legislation lets most relevant decisions to be taken by the shareholders meetings. For example, bylaws cannot be amended by a sole adminstrator but only by the shareholders. Other general limitations established under the General Law of Commercial Companies include: authorize the acquisition of shares of the company, vote on the approval of the Annual Report of the General Shareholder Meeting, transfer his position, authorize dividends for the legal reserve, perform acts beyond the purpose of the company.

Election and Removal

The Sole Administrator is normally appointed at the Incorporation of the Company. The other appointment system is upon the shareholders voting at a General Shareholder Meeting. The powers and functions of the Sole Administrator must be established in the bylaws of the company.

In general, foreigners can also be appointed as Sole Administrators, with the condition that they have to ask for permission to the Mexican immigration authorities and to apply for an FM3-Visa (Forma Migratoria FM3). Otherwise, they will not have the legal authority to execute legal acts on behalf of the company with respect to the third parties. Apart from that, the Law of Foreign Investments (Ley de Inversion Extranjera), provides that foreign investors may participate in the governing bodies of a company but only in proportion to the foreign equity participation in the company.

Removal of the Sole Administrator under the applicable law shall always be discussed and approved at a General Shareholders’ Meeting. Sole Administrators, as in common law systems, may also leave office by resignation and death.

To conclude, our recommendation in this article is that the position of the Sole Administrator shall always be carefully designated in a person that is completely capable and familiar with good practices of corporate governance; and, in the case of foreigners, all authorizations from immigrations must be obtained in order to avoid nullity of acts performed on behalf of the company and all legal consequences derived from such acts.  Email to a friend

Robles, Lazo y Gallardo - Law Firm
E-mail: jgallardo@rlg.com.mx

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• Robles, Lazo y Gallardo, S.C. is a Law Firm of specialists in various areas of Law, including Corporate Law, Real Estate, Immigration, Foreign Investment, among others. The Firm is integrated with a group of highly qualified attorneys and has offices in Guadalajara (Privada del Niño No. 676, Fraccionamiento Camino Real, telephone number  33-3121-3010  33-3121-3010 ) and Puerto Vallarta (Carretera a Mismaloya No. 479 interior 107, Edificio Scala. Telephone number  322-223-3218  322-223-3218 ).E-mail: jgallardo@rlg.com.mx

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