Many freelancers in Mexico look for ways to structure their businesses more formally, and creating a partnership limited by shares can be an intriguing option. Particularly for professionals looking to combine the benefits of a corporate entity with the flexibility of freelance work.

Today's content is designed to not only provide you with a definition of this type of partnership and its characteristics, but also to guide you on how to establish one and the pros and cons for the freelance community.

Partnership Limited by Shares: What It Is, and How to Establish It

What Is a Partnership Limited by Shares?

In Mexico, there are various types of commercial partnerships, and one of them is the partnership limited by shares (PLS.). This is a business entity where the capital is divided into shares.

This model is formed through contributions from the partners involved, whether limited or general partners.

The PLS, is ideal for projects that require different levels of investment and responsibility.

For some freelancers, it can be an attractive proposition, especially for those planning to strategically partner with investors without having to assume full liability for the business's debts.

Characteristics of a Partnership Limited by Shares

This type of partnership has a number of distinguishing features:

• It is established through a public notary and requires at least two people, either individuals or legal entities. These can be industrial partners (who contribute labor) or capitalist partners (who contribute money).

• There is no mandatory minimum for the share capital; it is represented by shares of equal value, thus granting the same rights to the partners who hold them.

• It can be managed by one or several managers, who can be partners or external individuals.

• While there is no income limit for the partnership, 5% of the net profits must be set aside annually for a reserve fund.

• It has two types of partners with different levels of responsibility:

General partners: who have unlimited liability and are personally and jointly responsible for the debts of the partnership.

Limited partners: their liability is limited to the amount of their investment, and they do not participate in the daily management of the company.

The PLS, combines flexibility with security, both for managers and investors, making it a viable option if you are looking for projects that require a sophisticated and differentiated capital structure in terms of responsibility.

Steps to Establish a Partnership Limited by Shares

To establish a Partnership Limited by Shares (PLS.) in Mexico, several legal and administrative steps must be followed. Here are the necessary steps:

1. Authorization of the name. Request the name of the partnership through the Unique Authorization Module, ensuring that the selected name is not already registered by another entity.

2. Public notary. Create the articles of incorporation, give notice of use, and register the partnership in the Public Registry of Commerce through the notary.

3. Register with the SAT. Register the partnership in the Federal Taxpayers Registry with the articles of incorporation and the registration certificate in hand. At this step, you also obtain the partnership's e-signature, which will be essential for carrying out fiscal procedures and signing documents digitally.

The notary, public broker, or notary public is responsible for drafting the articles of incorporation, which must include key information about the partnership, such as the names of the partners, the capital, the administrative structure, and the statutes.

Pros and Cons of a Partnership Limited by Shares

As a freelancer, this model can offer you several advantages and disadvantages, especially if you want to structure your business more formally and efficiently.

Advantages:

• Allows you access to additional capital to expand your operations without needing to incur personal debt.

• Formalizing a partnership enhances your credibility as an independent. This can open doors to business opportunities looking for formally established entities.

• General partners have total control over daily management. Being independent, this gives you operational power over your business while leveraging the capital contributed by limited partners.

• There is no limit to the number of partners that can make up the partnership.

Disadvantages:

• Establishing and managing this type of partnership can be more costly and complex compared to others.

• While limited partners do not participate in daily management, significant decisions often require their approval. This could slow down decision-making unless a power of attorney is filled out​.

While the PLS. is a structure where you have the opportunity to attract investments and maintain operational control, it has its complexities, which must be considered.

Difference Between a Partnership Limited by Shares and a Simple Limited Partnership

The main difference between the two is that the simple limited partnership does not divide its capital into shares, as does the PLS. Instead, contributions are recorded as participations.

The responsibility and participation also differ.

Both types of partnerships have general partners, with unlimited liability, and limited partners, with limited liability. However, in the PLS., the former own shares and have an easier time transferring their participation.

Additionally, the simple partnership is easier to establish and manage compared to the PLS., as the latter requires more formality.

These differences make each type of partnership suitable for different needs and objectives, considering the capital structure, liability, and management you want to implement.

In any case, it is important to avoid making the SAT declaration out of time, since the Mexican government may fine you.

Rights of Shareholders in a Partnership Limited by Shares

In Mexico, shareholders of a partnership limited by shares have their rights, especially limited partners, for example:

• They can participate and vote in general meetings.

• Receive dividends.

• Access financial information.

• Sell their shares.

• Challenge agreements they consider illegal.

• They have priority in the subscription of new shares.

• They enjoy the right to liquidation.

While limited partners do not participate in the day-to-day operations of the partnership, these rights help them protect their investments. They also allow them to influence strategic decisions.

The limited partners, on the other hand, have the duty to manage the partnership and are unlimitedly liable for the debts. This ensures a clear differentiation between roles and responsibilities within the partnership.

Organs of a Partnership Limited by Shares

The main organs of this model in Mexico are the general assembly of shareholders, the board of directors, and the commissioner.

• General Assembly of Shareholders. This is where important decisions are made, such as the approval of financial statements or the election of managers. All shareholders can participate and vote here.

• Board of Directors. Responsible for managing and representing the partnership. Its duty is to act in the best interest of the partnership and comply with the decisions made in the assembly. The organ is made up of one or more managers, who may be shareholders or external individuals.

• Commissioner. A type of supervisor whose task is to monitor the partnership's operations and ensure compliance with the law and statutes. They must also report to the assembly any irregularities detected in the administration.

These organs ensure three things. First, that management, in the PLS, is transparent. Second, they protect the interests of the shareholders, and third, they ensure compliance with legal and statutory obligations.

The partnership limited by shares is a structure that can work for your business as a freelancer. However, you should consider its pros and cons, as well as your needs and those of your company.

No matter your decision, DolarApp will be there as a secure alternative for your online transactions, whether in Mexican pesos or dollars.