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MEXLAW > Legal Services  > Save on Taxes and Increase Donations for Your NonProfit Through Incorporation

Save on Taxes and Increase Donations for Your NonProfit Through Incorporation

Do you have a passion that has grown into a not-for-profit organization? Your organization may flourish and save money by creating a Mexican corporation. It will benefit from income tax deductions and encourage both local and international financial donors by offering them a tax-deductible receipt.

Not-for-profit organizations are defined as social groups who are not seeking or distributing profit, whose operations are separate from government-run programs.

The classification of a nonprofit corporation is Asociación Civil (A.C.), defined as a group of individuals united for a definite time, to carry out a joint purpose that is not illegal or of primarily economic character. They are regulated by the civil code of each Mexican state.

To create an Asociación Civil (A.C.):

  • Decide on the corporate purpose of the organization.
  • Designate a legal representative.
  • Search the name of your organization.
  • Obtain a permit from the Ministry of Economy (SE) for the use of the name.
  • Register the name so that it is exclusive to your organization.

Once you have permission for the name, you have ninety business days to complete the process. The document must be notarized, and the constitutive act of the organization must then be registered in the Public Registry of Property, as well a permit number will be obtained for the notary to complete the process of establishing the A.C. The notary will certify in a clause of the constitutive act that they viewed the permission of the Ministry of Economy, and will add it to the deed, and register in the Public Registry.

The Ministry of Economy will regulate investments and the inclusion of foreign partners. This ensures the inclusion of a clause in the articles of incorporation stating that if there are foreign associates, whether they are founders or future ones, they are obliged to register with the Ministry of Economy. Also, according to this clause, foreigners in an association should be considered as Mexican nationals, that is, any activity, property or contract they acquire through the A.C. they will be treated in the same manner as it would for a Mexican citizen.

Obtaining a permit and the incorporation can be carried out by an individual through a notary public; however, we recommend you use an experienced corporate law firm.

Examples of causes which organizations may wish to incorporate:

  • Women’s welfare
  • Children’s education or health
  • Education
  • Human rights
  • Animal welfare, protection of companion and wild animals
  • Ecological protection, education or recovery
  • Arts and culture
  • Defense of consumer rights
  • Services for persons with disabilities
  • Strengthening of the social fabric
  • Strengthening of civil society

The Assemblies

The main body of the association is the board of directors, which will be made up exclusively of the members and will be in charge of the decisions related to the group’s activities. There are no paid staff members; only volunteers. The board makes organizational decisions, fundraises and operates the charity. The board of directors is the most important governing body of a social organization, it defines strategies, contributes necessary resources, procures funds and monitors results and impact. However, in this context, given that no legal framework facilitates or requires the performance of directors, it depends on the directors of the organization itself to define the responsibilities of the directors and encourage their participation and compliance.

The board of directors becomes an indispensable governing body, working in active alliance with the operational team of the organization and acting as a bridge between society and the organization.

In Mexico, the law establishes that civil associations must have an assembly of members, which is made up of the people who sign the constitutive act. However, the members are not responsible for the organization, only the person designated as the legal representative is, and may or may not actively participate in decision-making.

President: The leader of the organization and their primary task is to inspire and motivate the members of the organization to comply with the corporate purpose. The president is often the one who represents the organization before the public and must be attentive to the reputation of the organization. The president may be a member of the assembly or act as a means of communication between the assembly and the board of directors. The president calls meetings of the assembly or the board of directors and has voting rights in those meetings.

Secretary: is responsible for maintaining the documents and legal acts of the organization from the start and following up on the members and the agreements documented in the minutes of the assemblies. The secretary is also responsible for keeping the members of the organization informed about these matters.

Treasurer: is in charge of monitoring the financial welfare of the organization. It is essential that you maintain excellent communication with all the members of the organization.

The pros of an Asociación Civil (A.C.)

  • It is a simple and relatively quick way for a charitable organization to get started.
  • The organization can apply for a tax-deduction status and for federal funds to assist in their work. By having this status, it enables transparency in the charities accounting and offers donors a tax deduction.
  • Businesses are more likely to donate to a cause if they can use it as a tax write it off.
  • Civil Association organization’s income is exempt from income tax if the organization has been authorized (donataria autorizada) by the SAT Servicio de Administración Tributaria.
  • Your incorporated organization will qualify to apply for private or public grants.
  • Limit personal liability from the organization’s legal matters.

The cons of an Asociación Civil (A.C.)

  • It may take up to six months to receive tax-deduction status, and may require an amendment of the articles of incorporation and documentation establishing the charitable activities.
  • There are added accounting measures involved aimed at monitoring charitable organization activities, such as electronic accounting records, periodically submitting financial information to SAT, and making the financials available to the general public.

Consult with MexLaw about the process and advantages of making your charity a legal entity. contact@mexlaw.ca