What every joint venture in Mexico shares—regardless of structure—is this: the terms of the agreement itself do either most of the work of protecting the parties or most of the work of creating problems for them later.
Contractual joint venture vs. corporate joint venture
Contractual joint venture. Two or more parties collaborate under a contract without forming a new entity. Each party retains its own legal identity and is responsible for its own obligations. Revenue sharing, cost allocation, and decision-making rules are governed entirely by the contract.
This structure is common in construction, infrastructure, and professional services. Its flexibility is also its main risk: in the absence of a shared entity, disputes about governance, intellectual property ownership, and exit are resolved through the contract alone.
Corporate joint venture. The parties create a new Mexican company—typically an S.A. de C.V. or S. de R.L. de C.V.—owned jointly by the partners. The venture has its own legal personality, assets, liabilities, tax obligations, and employees. Governance is regulated both by the articles of incorporation and by a shareholders’ agreement.
Most mid-to-large-scale joint ventures in Mexico use the corporate model because it provides cleaner liability separation, more predictable governance, and a clearer framework for exit.
Essential clauses in a Mexican joint venture agreement
1. Purpose and scope
The joint venture agreement must define precisely what the venture is created to do—and what it is not authorized to do. Overly broad scope language creates disputes about whether a particular activity falls within the joint venture or belongs to one of the partners independently. Overly narrow language can paralyze the venture when circumstances change.
For ventures with a specific project or time horizon, sunset provisions—automatic termination clauses tied to project completion or a fixed date—should be included from the start.
2. Capital contributions and funding
How much does each party contribute? In what form—cash, assets, services, intellectual property, or licenses? On what timeline? What happens if a party fails to contribute?
Mexican law permits contributions in kind to a company’s capital, but they must be properly valued and documented. Intellectual property contributions require licensing or assignment agreements that comply with Mexican IP law and, where applicable, registration with the Mexican Institute of Industrial Property (IMPI).
Funding obligations beyond initial capital—future capital calls, shareholder loans, and guarantees—need explicit treatment. A joint venture that runs out of capital and has no agreed mechanism for additional funding is a joint venture heading toward dispute.
3. Governance and decision-making
Who runs the venture? How are major decisions made? What decisions require unanimous consent vs. a simple majority?
In a corporate joint venture, governance operates through the board of directors or the shareholders’ meeting, depending on how the articles of incorporation are structured. Key governance clauses include:
- Board composition. How many seats each partner controls.
- Reserved matters. Which decisions require unanimous or supermajority approval: capital increases, asset disposals above a threshold, entry into significant contracts, or change of business.
- Deadlock resolution. What happens when partners cannot agree on a reserved matter? Options include mediation, escalation to senior management, buy-sell mechanisms, or referral to an independent expert.
Deadlock is one of the most common reasons joint ventures in Mexico end badly. A well-drafted agreement addresses it before it happens.
4. Profit distribution and accounting
How are profits calculated and distributed? When? In what currency? What accounting standards apply?
For joint ventures involving foreign investors, the agreement should specify whether distributions are made in pesos or USD, how currency risk is allocated, and what happens to retained earnings when the parties disagree on reinvestment.
Transfer pricing rules apply to transactions between the joint venture and its shareholders if they are related parties for Mexican tax purposes. This requires that all intercompany transactions—including management fees, royalties, and loans—be structured at arm’s length and properly documented.
5. Exclusivity and non-competition
Does the joint venture operate exclusively with these partners for the duration? Are the parties prohibited from competing with the venture during its term? These clauses are common but must be drafted carefully under Mexican competition law. The Federal Economic Competition Law (LFCE) prohibits agreements that have anticompetitive effects, and certain exclusivity arrangements can draw COFECE scrutiny.
6. Intellectual property
Who owns IP developed within the joint venture? What happens to jointly developed IP if the venture dissolves? What licenses does each party grant to the venture, and what are the terms of those licenses?
IP ownership in a joint venture context is frequently underdefined and consistently overestimated as a problem that can be solved “later.” It cannot. Litigation over jointly developed IP is expensive, prolonged, and rarely satisfying for either party.
7. Transfer restrictions and exit rights
Can a partner sell its interest in the joint venture? Under what conditions? Mexican law does not impose transfer restrictions on shares by default—those must be created contractually in the shareholders’ agreement, not in the articles of incorporation.
Common transfer restriction mechanisms in Mexican joint ventures:
- Right of first refusal (ROFR). A partner wishing to sell must first offer the interest to the other partners at the same price and terms offered by the third-party buyer.
- Tag-along rights. If one partner sells to a third party, the other partners have the right to sell their interests on the same terms.
- Drag-along rights. If one partner (typically the majority) accepts an acquisition offer, it can require the other partners to sell their interests on the same terms.
- Lock-up period. Partners are prohibited from selling or transferring their interests for a defined period after the joint venture is formed.
8. Exit mechanisms
How does the joint venture end? Mexican law permits dissolution and liquidation of companies, but the process is time-consuming. Many joint venture agreements include contractual exit mechanisms that operate faster:
- Buy-sell (Texas shootout). One partner proposes a price; the other must either buy at that price or sell at that price. Creates strong incentive for fair valuation.
- Put option. One party has the right to require the other to buy its interest at a defined price or formula.
- Call option. One party has the right to require the other to sell its interest.
- Automatic buyout on default. If one party commits a material breach, the other has the right to buy out the defaulting party at a predetermined price.
9. Governing law and dispute resolution
Mexico allows parties to choose the governing law for their contracts, subject to limitations. Most joint ventures between Mexican entities are governed by Mexican law. Those involving foreign partners often specify a neutral governing law—New York, English, or Mexican law—depending on the transaction.
For dispute resolution, the parties typically choose between Mexican courts and arbitration under the ICC, UNCITRAL, or CAM (Centro de Arbitraje de México) rules. Arbitration is generally preferred for cross-border ventures because arbitral awards are enforceable under the New York Convention in over 170 countries, while enforcing a foreign court judgment in Mexico is a slower and less certain process.
Working with a lawyer on your joint venture
Joint venture agreements are negotiated documents. The first draft—whoever produces it—sets the framing for the negotiation. Parties who enter a joint venture without specialized legal counsel on their side frequently discover, when the venture runs into trouble, that the agreement protects the other party’s interests more effectively than their own.
At Schöndube · Fernández · López Madrigal, we advise clients on joint venture structuring across industries—from real estate development partnerships in Quintana Roo to cross-border commercial alliances—providing both the legal framework and the practical knowledge to anticipate how these relationships evolve over time.
Frequently asked questions
No. A contractual joint venture operates through an agreement without creating a new entity. However, for ventures of significant scale or duration, the corporate structure generally provides better governance, cleaner liability separation, and a more predictable framework for exit.
Yes, in most sectors. Foreign partners can hold up to 100% of the equity in Mexican companies in the majority of economic activities. Sector-specific restrictions apply in areas such as energy, broadcasting, and domestic transport and must be reviewed before the venture is structured.
The consequences depend on how the agreement is structured. In a corporate joint venture, the bankrupt partner’s shares may be subject to attachment by its creditors. A well-drafted shareholders’ agreement should include provisions that address this scenario—such as a mandatory buy-out right triggered by the insolvency of a partner—to prevent an unwanted third party from becoming a co-owner through bankruptcy proceedings.
If the joint venture operates through a Mexican company, the company pays corporate income tax (ISR) at 30% on its taxable income, and distributions to shareholders are subject to dividend withholding at 10%. In a contractual joint venture, each party reports its share of revenues and expenses on its own tax return. Transfer pricing rules may apply to intercompany transactions within the venture.
For guidance on structuring or reviewing a joint venture agreement in Mexico, contact Schöndube · Fernández · López Madrigal.