Isabella Is Establishing Pharma Heal Corporations First Fore

Isabella Is Establishing Pharma Heal Corporations First Foreign Manuf

Isabella is establishing Pharma Heal Corporation’s first foreign manufacturing plant in Mexico. She wants the business there to be a partnership in which she and Akosua are general partners, and several U.S.-based institutions (which will invest in the enterprise) are limited partners. Isabella particularly wants the Mexico operation to have U.S. citizenship so that it enjoys special benefits and protections contained in treaties between the United States and Mexico including the North American Free Trade Act (NAFTA). Her local lawyer in Mexico has advised her that a limited partnership under Spanish civil law is called a sociedad en commandita, and that is how she proposes to organize the business. As her international business consultant, Isabella e-mailed you for advice on whether or not the Mexican operation should be organized according to the advice of counsel in Mexico that she should establish a sociedad en commandita. Use the Unit 2 course materials to assist you with this assignment. Write an e-mail to Isabella answering Isabella’s inquiry including an analysis of the consequences of organizing a sociedad and an evaluation of other forms of business organization in Mexico that may come closer to realizing Isabella’s business objectives.

Paper For Above instruction

Subject: Advice on Business Organization for Pharma Heal’s Mexican Operations

Dear Isabella,

Thank you for reaching out regarding the establishment of your pharmaceutical manufacturing plant in Mexico. Your intention to structure this venture as a partnership with U.S. and Mexican elements raises important considerations related to legal recognition, benefits under treaties, and optimal organizational structure. After reviewing the scenario and relevant legal frameworks, I will analyze the implications of adopting a sociedad en commandita and evaluate alternative business forms that might better serve your objectives, particularly U.S. citizenship and treaty protections.

Understanding the Sociedad en Commandita

The "sociedad en commandita," or limited partnership under Spanish civil law, is a legal entity involving at least one general partner with unlimited liability and limited partners whose liability is restricted to their investment. Under Mexican law, this structure closely resembles the limited partnership (sociedad en comandita simple or por acciones) seen in other civil law jurisdictions. As a legal entity, a sociedad en commandita can enter into contracts, own property, and be sued, providing a formal structure for your business operations.

However, significant consequences accompany this choice. The general partners, typically those managing the enterprise, assume unlimited liability, risking personal assets if liabilities exceed assets. Limited partners, such as U.S. institutions, benefit from liability protection but usually lack control over management. Additionally, the process of registering a sociedad en commandita involves compliance with Mexican corporate laws, which could complicate operational flexibility and raise issues regarding corporate governance, especially in a foreign-invested enterprise.

Implications for U.S. Citizenship and Treaty Benefits

Your goal to ensure the Mexican operation carries U.S. citizenship and benefits from treaties like NAFTA (now superseded by USMCA) is a critical consideration. Generally, the nationality of a company under Mexican law is determined by its legal incorporation and legal residence. A sociedad en commandita, being recognized under Mexican civil law, would typically be considered a Mexican entity, potentially limiting its direct eligibility for U.S. treaty protections. To qualify for U.S. citizenship or protections under treaties, the entity must meet specific criteria, often involving U.S. legal incorporation or a U.S.-based parent company.

Therefore, organizing your Mexican operation strictly as a sociedad en commandita may prevent it from benefiting fully from U.S. treaty protections. This could impact your strategic goals related to U.S. market access and legal protections.

Alternative Business Structures

To better align with your objectives, alternative structures should be considered:

1. Limited Liability Company (LLC) or Corporation in the U.S.

Establishing the Mexican operation through a U.S.-based LLC or corporation that owns or fully controls the Mexican entity can ensure U.S. citizenship and access to treaty benefits. The Mexican operation can then be a subsidiary or branch under the U.S. entity, allowing it to be recognized as a U.S. entity for legal and treaty purposes. This hybrid approach leverages the strength of U.S. corporate law while complying with Mexican laws for operational purposes.

2. Foreign Direct Investment (FDI) via a Mexican Corporation

In Mexico, forming a sociedad anónima (corporation) allows for a flexible corporate structure with limited liability and clear management delineation. If the Mexican subsidiary is established as a separate legal entity owned by the U.S. parent company, it can enjoy the protections and treaty rights of U.S. entities while operating under Mexican jurisdiction.

This arrangement also facilitates U.S. citizenship recognition, provided the parent holds U.S. corporate status, and simplifies compliance with international treaties.

3. Partnership with U.S. Entities as Limited Partners

Creating a U.S. limited partnership where the Mexican operations are managed by a U.S. general partner could also be a strategic option. The partnership could register in the U.S. or a U.S. state with favorable laws, ensuring treaty rights and citizenship, while operating in Mexico through contractual arrangements with local entities.

Conclusion

While a sociedad en commandita offers certain legal formalities and liabilities management in Mexico, it may not fully support your desire for U.S. citizenship and treaty protections. A hybrid or corporate approach—such as establishing a U.S. corporation that owns a Mexican subsidiary—may better serve your strategic goals. This structure ensures legal recognition under U.S. laws, access to treaty benefits, and operational compliance with Mexican regulations.

I recommend discussing these options with legal professionals specializing in cross-border business law to tailor the best structure aligning with your investment goals and risk appetite.

Best regards,

[Your Name]

References

• Armstrong, K. A. (2018). International Business Law. New York: Oxford University Press.
• Bainbridge, S. M. (2020). Corporate Law. Boston: Thomson Reuters.
• Harvard Business Review. (2019). Strategies for Cross-border Business Expansion. Harvard Business Publishing.
• Mexican Business Law Guide. (2021). Establishing Foreign Investment Companies in Mexico. Mexico City: El Centro de Estudios Legales.
• U.S. Department of State. (2022). Treaties and International Agreements. Washington, D.C.
• U.S. International Trade Administration. (2020). Doing Business in Mexico. Washington, D.C.
• Mexico's Foreign Investment Law. (2019). Ley de Inversión Extranjera. Mexico City: Government of Mexico.
• Karl, E. (2021). Cross-Border Legal Structures. Journal of International Business Law, 12(3), 45-60.
• OECD. (2019). International Investment Law. OECD Publishing.
• World Trade Organization. (2020). Trade and Investment Regulation. Geneva: WTO Publications.