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Responsibilities in Mexico of the Board of Directors / Managers

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By: Adrian Lopez Casab

In Mexico, individuals holding positions as members of a board of directors or managers in a commercial company are subject to a regime of responsibilities inherent to such roles in the company.

Generally, the governing bodies are subject to two fundamental duties: the duty of care and the duty of loyalty. The duty of care requires that the board members act in good faith and in the best interest of the company, making informed decisions without exceeding the authorities granted by the law and the company’s By-laws, and acting with the diligence of a prudent businessman. The second duty, the duty of loyalty, demands that directors prioritize the interests of the company over their own, maintaining confidentiality, acting in good faith and without deceit or malice.

Beyond the responsibility incurred when directors fail to meet the aforementioned duties of loyalty and care, Mexican legislation outlines special liabilities in which board members may incur. These liabilities are outlined below, in an enunciative non-exhaustive manner:

A. Corporate Responsibilities

In corporate matters, the General Law on Commercial Companies (“GLCC”) provides that directors are jointly and severally liable for (i) the amounts of the legal reserve fund that were not separated (arts. 20 and 21 of the GLCC), (ii) the approval of capital increases when previous contributions were still unpaid (arts. 72 and 73 of the GLCC), (iii) the accuracy of the contributions made by shareholders (art. 158 of the GLCC), (iv) compliance with legal and statutory requirements for the payment of dividends (art. 158 of the GLCC), (v) the existence and maintenance of accounting, control, registration, filing, and information systems as required by law(art. 158 of the GLCC), (vi) for failing to submit the report on the operations conducted by the company each fiscal year (art. 158 of the GLCC), and (vii) for neglecting to call for necessary shareholder meetings (art. 158 of the GLCC).

B. Tax Responsibilities

In tax matters, directors are jointly and severally liable, along with the company, in the event that the latter (i) changes its domicile without notifying the authorities, (ii) becomes untraceable, (iii) fails to pay withheld taxes, (iv) improperly transfers tax losses (through mergers, spin-offs, acquisitions), (v) issues invoices covering or deducting simulated transactions, and/or (vi) fails to maintain, conceals, or destroys accounting records. The aforementioned tax liability also extends to the payment of social security contributions.

C. Criminal Responsibilities

Administrators can be held criminally liable, with particular emphasis on tax crimes such as submitting false tax returns, reports and/or notices, failing to remit withheld taxes, simulating transactions or deducting simulated operations, recording non-existent transactions, among others. Furthermore, there are various other criminal offenses that the board may incur, independent to those related to taxation, for actions such as engaging in transactions with illicit resources, fraudulent management, improper use of confidential information and/or trade secrets, document forgery, among others.

While some of the responsibilities which the board may incur are mentioned above, that list is not exhaustive, they are not the only liabilities that may be imposed to board members. In general, the board as a collegiate body has a duty to oversee the company’s operations and the establishment of and compliance with policies related to anti-money laundering, environmental protection, data privacy, labor conditions, workplace safety, and general employer obligations, among many other areas. Therefore, it is crucial that the board is properly advised and informed.

There are certain protective mechanisms or “safe harbors”, that can be implemented to mitigate the potential liabilities of the members the board. These mechanisms include, but are not limited to:

  • Expressing dissent during the deliberation or voting of a resolution that could result in the company’s failure to comply with its obligations or with their duties as board members, and requesting that such dissent is registered in the minutes drawn up for the Board Meeting;
  • Report in writing to the statutory auditor or supervising body any irregularity from a previous administration and to maintain evidence of submitting the claim (electronic, through a public attester or acknowledgement of receipt);
  • Complying with the legal and statutory requirements for the approval of matters;
  • Making decisions and voting based on the available information upon a thorough analysis, and documenting requests for additional information deemed necessary to make an informed decision;
  • Seeking advice from legal and financial specialists, and in case of doubt, recur to them prior to issuing their vote or taking any action in its capacity as board member;
  • Choosing the most appropriate course of action based on their honest judgment;
  • Verify that negative financial effects are not foreseeable with the available information at the time of making a decision;
  • Implementing confidential whistleblowing mechanisms to report irregularities;
  • Complying and verifying compliance with shareholders meeting resolutions, provided they are not in violation of the law or company’s By-laws;
  • Establishing comprehensive compliance programs and specialized committees.

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