Legal Framework for Corporate Election in Real Estate Projects

The structuring of a real estate project in Mexico requires a primary corporate decision: what legal vehicle will support asset ownership, the relationship between partners, profit distribution and, where applicable, eventual divestment. The General Law of Commercial Companies (LGSM), published in the DOF on August 4, 1934 and whose most recent amendment dates to June 2023, and the Securities Market Law (LMV), amended in December 2024, offer a menu of vehicles whose practical implications differ substantially depending on the investor profile, time horizon and transactional complexity.

Classical Corporation

The Corporation (SA) regulated in articles 87 to 206 of the LGSM remains the most widely used vehicle in medium-scale real estate projects. Its capital structure divided into shares, the limited liability of partners to the amount of their contribution and the possibility of issuing share series with differentiated rights make it functional for projects with two or three partners and a well-defined exit horizon. However, the SA presents relevant rigidities in governance matters: article 91 of the LGSM requires that the capital stock be fully subscribed at the time of incorporation and that each share be paid at least 20%, no longer imposing a nominal minimum after the 2014 reform; and articles 194 to 206 regulate assemblies with quorums that may be inconvenient when agile decision-making is required. For projects involving co-investment with foreign capital, the SA requires compliance with the sectoral limits of Chapter II of the Foreign Investment Law (LIE), as well as registration with the National Commission for Foreign Investment in accordance with article 32 of that law.

Investment Promotion Corporation

The SAPI, introduced by the LMV in 2006, represents the most sophisticated vehicle for real estate projects involving multiple classes of investors, veto rights, drag-along clauses and preferential mechanisms in liquidation. The SAPI regime was originally found in articles 16 to 28 of the LMV in its text prior to the December 2024 amendment; the reform published in the DOF in December 2024 had as its main objective the regimes of FIBRA-E and collective financing, so the final renumbering of the articles of the SAPI regime is pending verification against the text of the decree published in the DOF. The references to specific articles of the LMV in this article correspond to the pre-reform text unless otherwise indicated, and readers should confirm the current numbering in the DOF before citing in transactional documents. Unlike the conventional SA, the SAPI allows statutory restrictions on the transfer of shares, reinforced right of first refusal and predefined valuation formulas for cases of disagreement between partners, all in accordance with article 13 of the LMV in its pre-reform numbering. Its corporate governance regime is more demanding: article 16 requires a board of directors with independent directors when provided for in the bylaws, which is desirable for private capital funds or co-investments with financial institutions. The SAPI is today the preferred vehicle in large-scale tourism and residential development projects in Quintana Roo precisely because its statutory provisions can replicate conditions inherent to private equity without the regulatory burden of a publicly traded company.

Exit Mechanics in the SAPI: An Operational Analysis

The SAPI is frequently identified as the ideal vehicle for projects with eventual divestment, but this assertion requires a concrete analysis of the available exit mechanics, given that the efficiency of the vehicle at the time of divestment depends on decisions made from the initial structuring.

With respect to the tax treatment of transfer, articles 24 and 25 of the LISR establish differentiated regimes depending on the exit mechanism chosen. The disposition of shares is taxed as a capital gain calculated on the difference between the sale price and the average tax cost per share, with the possibility of applying losses from prior years under the terms of article 25. The disposition of assets, in contrast, is integrated as ordinary income to the tax profit of the fiscal year at the corporate rate of 30%, without access to capital gain treatment, and additionally generates the possible triggering of value added tax on the price of transferred real estate assets. For foreign investors, the sale of shares in a SAPI may benefit from the reduced rates provided in treaties to avoid double taxation, a matter developed in the tax section of this article. The choice between share sale structure and asset sale is therefore not neutral from the perspective of the seller or the buyer, and must be resolved case by case considering the fiscal position of both parties.

Regarding drag-along clauses, article 13 of the LMV in its pre-reform text expressly authorizes that the bylaws of a SAPI incorporate drag-along rights and tag-along rights, which represents a structural advantage over the ordinary SA in which such clauses lack express legal support. However, the judicial enforceability of a drag-along clause in Mexico presents practical limitations that must be considered. Mexican courts apply the general principles of contractual freedom of the Commercial Code, but the forced execution of an obligation to transfer shares at a price determined by statutory formula requires the exercise of an action for execution of deed or its equivalent, with the procedural timeframes that this entails. The most efficient strategy in practice consists of combining the drag-along clause with an irrevocable power of attorney granted to the majority shareholder or a trusted third party to formalize the transfer, reducing reliance on the ordinary judicial process.

The statutory valuation formula fulfills an additional function to dispute resolution: in the absence of an observable market price for the shares of a private SAPI, the predefined formula avoids deadlock situations in which a minority shareholder can obstruct the exit by contesting the value. A well-drafted formula, based on multiples of projected EBITDA, property appraisal value or a combination of both, with binding expert arbitration mechanisms, is an element as relevant to the efficiency of the vehicle as any provision of the statutory corporate governance regime.

Limited Liability Company

The SRL, regulated in articles 58 to 86 of the LGSM, offers a more closed structure and simplified management that is suitable for family projects, vacation rental platforms or asset holdings with a reduced number of shareholders, given that article 61 limits to fifty the maximum number of shareholders. Partnership interests are not freely transferable without the consent of the majority of shareholders in accordance with article 65, which provides natural control over capital composition but restricts liquidity. From a tax perspective, the SRL is taxed identically to the SA under the legal entities regime of Title II of the Income Tax Law (LISR), which neutralizes any differential tax advantage between both forms.

Administrative and Real Property Trust

The trust, regulated in articles 381 to 407 of the General Law of Negotiable Instruments and Credit Operations (LGTOC), operates as a vehicle of ownership and administration rather than as a corporate form strictly speaking. In real estate projects it performs different functions depending on its structure: as an administrative trust, it separates patrimonially the asset from the risks of the settlor developer; as a trust in restricted zone, it allows foreign natural persons to acquire rights over real property in the fifty-kilometer coastal strip in accordance with articles 10, 10-A and 11 of the LIE, in relation to article 27 of the Constitution, first paragraph, and the Regulations of the LIE in article 16. The trust is not a legal entity, therefore it lacks direct procedural capacity and active and passive standing falls on the fiduciary institution, a critical aspect in litigation over the asset. The First Chamber of the SCJN has held, in a consistent judicial trend reflected in various rulings on the legal nature of the trust, that the administrative trust with real estate purposes does not transfer full ownership to the beneficiary but rather generates fiduciary rights of a personal nature. This trend has direct implications in judicial executions and commercial insolvencies of the developer.

Criteria for Selection and Combination of Vehicles

In projects of greater complexity, market practice in Quintana Roo has consolidated two-level structures: a SAPI or SA as the operating vehicle that holds construction permits, land use licenses and labor relations, with an administrative trust at the upper level that holds title to the real property and distributes cash flows to investors. This architecture responds to two concrete needs: to isolate the real estate asset from the operating liabilities of the developer, and to facilitate the participation of foreign investors without requiring corporate modifications each time a new trustee enters. The Collegiate Courts of the XXVII Circuit have recognized, in isolated rulings in amparo matters whose specific identification by thesis number or case number must be verified in the SJFG before being invoked as binding precedent, the legality of these two-level structures, confirming that the administrative permits granted to the operating legal entity are not undermined by the existence of the trust holding title to the real property, provided that there is a clear contractual link between both vehicles.

Cross-Cutting Tax Implications

The choice of corporate vehicle has tax consequences that cannot be disassociated from corporate analysis. Under Article 7 of the LISR, SAs, SAPIs and SRLs are taxed as resident legal entities in Mexico at a rate of 30% on profits. The distribution of dividends to foreign shareholders is subject to withholding in accordance with Article 164 of the LISR; however, the effective withholding rates vary significantly for the most frequent investor profiles in tourism and residential projects in Quintana Roo. Under the Convention between Mexico and the United States to Avoid Double Taxation, withholding on dividends may be reduced to 5% when the beneficial owner is a corporation that owns at least 10% of the capital of the Mexican distributing entity, and to 10% in other cases. The Convention with Canada establishes equivalent rates of 5% and 10% under similar conditions. The Convention with Spain provides for withholding of 5% for significant shareholdings and 10% in other scenarios. These reductions are materially relevant for modeling returns and should be incorporated from the stage of fiscal due diligence of the project.

The administrative trust in its real estate modality may be subject to the regime of Article 187 of the LISR if structured as a FIBRA, generating a favorable fiscal transparency regime, although this requires the existence of participation certificates placed among the general investing public, a condition difficult to satisfy in medium-scale private projects. For larger institutional projects, Development Capital Certificates (CKD) and FIBRA-E represent relevant structural alternatives that allow access to long-term financing through the securities market; the detailed analysis of both instruments exceeds the scope of this article and will be the subject of a specific IBG Legal publication.

Regardless of the corporate vehicle selected, real estate developers executing construction works may benefit from the construction cost deduction provided in Article 115 of the LISR, which allows legal entities to deduct the cost of sales of constructed real estate in accordance with applicable costing rules. This deduction operates transversally and is not conditioned to the corporate form of the vehicle, so it should be planned from the accounting structuring of the project regardless of whether the developer operates as an SA, SAPI or SRL.

Operational Conclusion

There is no universally optimal vehicle. The SA is suitable for short-cycle projects with homogeneous shareholders and national capital. The SAPI is the standard for structured co-investments, private capital and projects with multiple investment series, with the additional advantage of a more robust statutory exit framework when designed with the correct divestment mechanics from the outset. The SRL offers simplicity of management for closed and family operations. The trust resolves title in restricted zones and asset isolation, but requires an authorized trust institution and generates annual maintenance costs that should be budgeted from the time of structuring. The combination of vehicles, when properly documented, outperforms any single vehicle in efficiency, but requires a coherent legal architecture from day one of the project.

IBG Legal has structured dual-level vehicles for tourism and residential development projects in Quintana Roo and the Riviera Maya, combining operational SAPIs with administrative trusts for co-investors from the United States, Canada and Europe. The corporate and real estate structuring practice of the firm is led by Lic. Gerardo Interián, based in Cancún. For inquiries regarding the selection of the appropriate vehicle for your project, the design of exit mechanics or the fiscal optimization of the structure, you may contact directly via email info@ibg.legal or by WhatsApp at +52 998 123 4567.

Sources and References

Legislation

• General Law on Mercantile Corporations (LGSM), DOF August 4, 1934, last reform published in the DOF in June 2023. Articles 58 to 86 (SRL); 87 to 206 (SA); article 91 (subscription and minimum capital payment, without nominal minimum after the 2014 reform).
• Securities Market Law (LMV), DOF December 30, 2005, last reform December 2024. Articles 13 and 16 to 28 in pre-reform numbering (SAPI regime); renumbering resulting from the December 2024 reform is pending verification against the decree published in the DOF. Note: said decree was primarily oriented toward FIBRA-E regimes and collective financing; it is recommended to confirm applicable articles at www.dof.gob.mx before citing in transactional documents.
• Foreign Investment Law (LIE), DOF December 27, 1993, with subsequent reforms. Articles 10, 10-A and 11 (restricted zone and trust mechanism), in relation with article 27 of the Constitution, first paragraph; article 32 (registration before the National Commission of Foreign Investments); Chapter II (reserved activities and acquisitions).
• Political Constitution of the United Mexican States. Article 27, first paragraph (property regime and restricted zone).
• Regulations to the Foreign Investment Law and the National Registry of Foreign Investments, DOF September 8, 1998, with reforms. Article 16 (trust in restricted zone).
• General Law on Securities and Credit Operations (LGTOC), DOF August 27, 1932, with reforms. Articles 381 to 407 (trust).
• Income Tax Law (LISR), DOF December 11, 2013, with reforms in effect as of January 1, 2026. Articles 7 (legal entities); 24 and 25 (tax cost in transfer of shares); 115 (deduction of construction costs for developers); 164 (withholding on non-residents for dividends); 187 (FIBRA regime).

Tax Treaties

• Treaty between Mexico and the United States of America to Avoid Double Taxation, DOF February 3, 1994, with Protocol. Article 10 (dividends: 5% for significant participations; 10% in other cases).
• Treaty between Mexico and Canada to Avoid Double Taxation, DOF July 17, 2007. Article 10 (dividends: 5% for significant participations; 10% in other cases).
• Treaty between Mexico and the Kingdom of Spain to Avoid Double Taxation, DOF January 27, 1995, with Amending Protocol. Article 10 (dividends: 5% for significant participations; 10% in other cases).

Judicial Criteria

• First Chamber of the SCJN: consistent judicial trend regarding the legal nature of real estate administration trusts, to the effect that the beneficiary’s rights are of a personal nature and do not constitute full ownership of the trust property, with implications in judicial executions and bankruptcy proceedings. The specific applicable criteria must be identified by thesis number or IUS registration in the Federal Judiciary Bulletin and Official Gazette (SJFG), available at sjf2.scjn.gob.mx. The criteria referenced in this article do not constitute binding jurisprudence in the technical sense of article 217 of the Amparo Law without the formal integration of five consecutive theses.
• Collegiate Courts of the XXVII Circuit (Quintana Roo): isolated criteria in amparo matters recognizing the legality of two-tier structures (operative corporation plus real estate administration trust), confirming that administrative permits granted to the operative legal entity are not vitiated by the existence of the trust holding the real property, provided that the contractual link between both vehicles is properly documented. The specific case files and thesis numbers must be verified in the SJFG before invoking these criteria as precedent in judicial proceedings or transactional documents.

Doctrine

• Barrera Graf, Jorge. Institutions of Commercial Law. Editorial Porrúa, México. 2nd edition, 1989. ISBN 968-452-867-X. Note: it is recommended to supplement with doctrine after 2006 for the specific analysis of the SAPI regime, given that this work predates the introduction of said vehicle by the LMV.
• Mantilla Molina, Roberto L. Commercial Law. Editorial Porrúa, México. 29th edition, 1993. ISBN 970-07-0070-3. Note: reference work for general principles of Mexican corporate law; prior to the SAPI regime and the 2014 reforms to the LGSM; must be read in conjunction with applicable legislation for the matters covered by this article.
• Díaz Bravo, Arturo. Commercial Contracts. IURE Editores, México. 10th edition, 2013. ISBN 978-607-7743-52-9.
• Rojas Amandi, Víctor Manuel. The Investment Promotion Anonymous Company. Journal of Private Law, UNAM, México, 2007. Contemporary doctrinal reference to the SAPI regime introduced by the LMV of 2005.

Official Sources

• Federal Official Gazette (DOF): www.dof.gob.mx
• Judicial Gazette of the Federation and Official Gazette (SJFG), IUS system: sjf2.scjn.gob.mx
• Official Gazette of the State of Quintana Roo: www.qroo.gob.mx
• National Banking and Securities Commission (CNBV), circulars and provisions applicable to SAPI: www.cnbv.gob.mx
• Ministry of Economy, National Foreign Investment Commission, registry and resolutions: www.gob.mx/se