MEXICO Trends and Developments Contributed by: Gabriela Pellón, Cecilia Díaz-de-Rivera, Fabiola Jiménez and Lucía Ibáñez, Galicia Abogados
of shares at a determined or determinable price. In a family business setting these mechanisms can pro - vide liquidity to a departing branch and stability to the remaining owners. Tag-along and drag-along clauses are equally impor - tant. A tag-along right protects minority sharehold - ers by allowing them to participate in a sale initiated by a controlling shareholder on the same terms. A drag-along right facilitates a sale of the entire com - pany by requiring minority shareholders to join a transaction approved under previously determined conditions. Mexican corporate law recognises both types of arrangements – including agreements under which a shareholder may only sell if the purchaser also acquires shares from other shareholders, and arrangements requiring the sale of shares when cer - tain acquisition offers are accepted. These mecha - nisms become particularly relevant where the family anticipates future investment, consolidation or sale opportunities. Balance sheet management techniques, such as share repurchases and capital redemptions, can also be implemented to return value to shareholders or rebalance ownership structures, though they must be carefully analysed from corporate, creditor protection and tax perspectives. In family businesses, repurchas - es and redemptions may be part of a broader liquid - ity plan – especially where the company has retained earnings, non-core assets or a structure that allows value to be distributed without impairing the operat - ing business. Valuation methodology is often the most critical – and most contentious – element of an exit mechanism. A right to exit is of limited practical value if the parties cannot agree on price. Family arrangements should therefore specify how value will be determined: by a formula, book value, adjusted net asset value, market multiples, independent appraisal, expert determina - tion or a combination of methods. The agreement should also address the following matters: discounts for lack of control or marketability, treatment of related-party debt, contingent liabilities, tax effects, whether payment will be made in cash, instalments or in kind, and the extent to which the exiting family
member would be responsible for contingencies and undisclosed liabilities. Liquidity planning is equally important. A buyout mechanism that forces the company or remaining shareholders to fund a large payment immediately can create severe financial pressure, or even threaten the operating business. Families should therefore con - sider reserves, staged payments, insurance, financing arrangements, dividend policies, asset sales or partial redemptions. The objective is to create a realistic path to separation that does not punish either the exiting family member or the continuing business. Dispute resolution procedures should be embedded into the exit architecture. Disagreements may arise over whether a trigger occurred, whether a valuation is accurate, whether a proposed purchaser satisfies agreed conditions, or whether a party is acting in good faith. The structure should contemplate negotiation, escalation to a family council or advisory board, medi - ation, expert determination for technical matters, and arbitration or judicial proceedings where necessary. Confidentiality and continuity covenants can help pre - serve business value while the dispute is resolved. This is where family governance and legal design must converge. A family that has already developed com - munication habits, negotiation spaces and a function - ing family council is far better positioned to implement an exit mechanism without turning every disagree - ment into a rupture. Conversely, a purely legal mecha - nism will fail if the family lacks information, trust or a forum for serious conversations. Orderly exits are particularly important for global-living families. A family member who moves abroad may be subject to multiple tax residency rules which can make continued ownership inefficient. Another may be subject to foreign reporting obligations, marital prop - erty claims or estate planning constraints. A third may have different liquidity needs because their personal wealth is not otherwise diversified. Any governance structure that assumes uniform circumstances among all family members will become less realistic with each passing generation.
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