Brazil – Corporate structures

12 octubre 2017

  • Brasil
  • Derecho Societario

In this brief post, a few highlights on the usual formats to start a business and enter into the Brazilian market and an overview of the current Brazilian economic outlook.

The usual forms are not much different from other countries. The most utilized are:

Incorporating a Brazilian subsidiary

A sole individual or entity – Brazilian resident or not – can incorporate a company with limited liability up to paid-in capital stock. The most usual type – a limited liability company – needs two shareholders.

The foreign shareholder shall nominate a Brazilian resident individual as legal representative by proxy. The Brazilian company needs a Brazilian resident individual as officer. Minimum capital requirement is only for the sole shareholder entity currently BRL 95,400 (with the current exchange rate, would be EUR 23,000 or USD 28,100). The company’s purposes should be specific for obtainment of the appropriate registries, to be verified during preparation of the incorporation of the Brazilian subsidiary.

Entering a distribution agreement

Brazilian Civil Code regulates this type of agreement. The parties are free to set forth the terms and conditions, as to exclusivity of product, territory, remuneration and termination conditions.

The law establishes that, if a party made relevant investment for the execution of the distribution activities, the agreement can only be terminated after a term compatible with the nature and value of the investment.

Special attention in case of health and medical products: the distributor will be the owner of the product registries and, as such, the person entitled to import, on a non-exclusive basis (unless otherwise agreed between principal and distributor). The distribution agreement shall include the specific provisions for the rights of the distributor after the termination of the distribution agreement, as obtaining registries for these products takes some time.

Entering a commercial representation agreement

A specific law regulates these activities. The commercial representative will be paid commissions over the products sold and effectively received by the principal.

Major points of attention are: (i) the indemnification of 1/12 over all commissions paid for the entire duration of the commercial representation; (ii) the commercial representative is entitled to terminate the contract in case principal reduces the scope or territory without compensation and still be entitled to receive the 1/12 indemnification; and (iii) jurisdiction of Brazilian courts .

Entering an agency agreement

Agency agreements are also regulated under Brazilian Civil Code. Similar to the distribution, the agent and principal have freedom to set forth the terms and conditions for the agency.

Similar to distribution, the termination term shall be compatible with nature and value of the investment, if a party made relevant investment to perform the agency.

Principals must be attentive that they cannot nominate two agents for the same territory with same incumbencies. The agent may claim remuneration for businesses even if closed without his/her assistance.

Franchising

Brazilian franchising law leaves the content and discipline of the operation to the parties. The franchising law requires franchisor to provide the franchise offering letter with, among others, clear provisions as to the obligations and presentation of franchise operation, financial status, background of franchisor activities information.

Brazilian people has seen many successful international operation stipulated in franchising systems. There are also good Brazilian franchising business as well. It is a more complex operation, from finding the right franchisee profile that is capable to meet specific franchisor standards – demands training for operation – and to replicate the model to all other franchisees.

Brazilian economic outlook

There are good news for investors: Brazil is coming back to action. A realistic prediction for GDP growth for 2018 is 2.8% and similar rate for the forthcoming years. Cause or consequence: traffic is getting worse than the last couple of years.

There is a large market, for the population of 200 million people. Brazilians are not afraid to spend: rather spending than saving. There is easy credit and the ability to buy (a TV, cell phone, fridge) in installments (3, 6, 12, 18 monthly payments) with direct financing from the retail.

A favorable exchange rate (currently €1 = BRL 4.10; US$1 = BRL 3.40) is also an additional attractive for investors in Brazil.

An investor may expect good margins, despite the complex tax systems and several obligations. Experienced consultants assistance for piloting Brazilian obligations is key.

Labor law reform passed last year and allows more flexibility to negotiate labor agreements terms. This is a topic to be further explored.

It is true there is corruption around. This view shall change in a near future, as a result of a series of investigations of political scandals and more rigorous compliance rules for government contracts. It may not get over, but hopefully reduced.

Promising sectors are consumer goods, food, agribusiness, clean power and IT. Infrastructure – ports, airports, roads, railroads, public transport developments are always on the spot and around for big players.

The author of this article is Paulo Yamaguchi

The limited liability company (“Limitada”) is the most common form of corporate organization in Brazil, being largely adopted in view of advantages. A Limitada must have at least two partners (quotaholders), natural persons or legal entities that do not need to be Brazilian or Brazilian residents.

As a consequence of such requirement, many companies adopting the limited liability form would have a second partner holding as little as one quota simply to comply with the legal requirement. In many cases, the second partner would have no interference in the business but undertakes a liability that is not under his/her/its control.

Also, the need of the second partner would imply in extra costs with documentation and bureaucratic measures, not to mention extra accounting requirements when such second partner is a legal entity.

In 2011 a new legislation was passed modifying the Brazilian Civil Code and included a new corporate form, the Limited Liability Individual Company, known as EIRELI. However, the EIRELI could not be incorporated with a legal entity as its holder, but would only be applicable to natural persons, whether Brazilians or Brazilian residents.

Finally, in May 2017, the Brazilian Civil Code was modified once again in order to allow legal entities, whether domiciled in Brazil or not, to be the sole holders of an EIRELI. However, a holder of an EIRELI can only hold a single company incorporated as an EIRELI.

A Limitada or an EIRELI are advantageous as they (i) are subject to fewer disclosure requirements as opposed to a corporation; (ii) have a simpler and less expensive organization; and (iii) corporate decisions can be taken easier and quicker.

This Article intends to present the basic organization of a Limitada and of an EIRELI, as follows:

Partners, Quotas and Capital

A Limitada must have at least two partners, natural persons or legal entities that do not need to be Brazilian or Brazilian residents. An EIRELI may have only one holder, natural person or legal entity that do not need to be Brazilian or Brazilian resident.

Each of the foreign partners or the holder, in case of EIRELI, shall name a legal representative, who lives in Brazil, with minimum powers to accept service of process and for representation before the Federal Revenue for obtaining a taxpayer number (for controlling purposes only).

There is no minimum quota capital requirement for most cases, unless a permanent visa is required or if an import license is needed (the amount of the company’s capital influences the authorized amounts for imports and exports). The Brazilian company may be financed either by the direct investment (capital) or by loans to be granted by the partners. In case of loans, thin-capitalization rules apply.

The ownership of the Limitada quotas or of the EIRELI is reflected in the company’s Articles of Association, since no certificates to that effect are issued.

The quotas of a Limitada can only be transferred by a specific amendment to the Articles of Association and must be subscribed at the time the company is established. The EIRELI’s capital may or may not be divided into quotas.

The company’s capital does not have to be paid up upon incorporation; it may be paid up within a certain period of time (i.e., two years), in Brazilian currency or goods.

Company’s name, objectives and address

The Limitada’s name has to include some words that indicate what the company’s objectives are. The names should be followed by the objectives (if more than one just the main objective) and by the specific area of the market. The EIRELI does not have to follow those requirements.

The company objectives and address must be included in the Articles of Association.

Administration

The administration structure of the Limitada and of the EIRELI must be determined in the Articles Association. In addition, in the Articles of Association, or in a separate document for the Limitada, at least one administrator (general manager) has to be nominated. The partners of the Limitada or the holder of the EIRELI are(is) free to appoint one or several of them to administer the company, as well as third parties.

The administrator has to be a Brazilian resident, meaning either a Brazilian or an expatriate bearing a permanent visa.

Partners Resolutions

Most of the partners’ resolutions in a Limitada may be taken by majority of the capital or by any higher quorum agreed upon by the partners.

Resolutions of the partners altering the Articles of Association or deciding on acquisition, merger, dissolution, and cessation of the liquidation status must be taken by three quarters of the company’s capital. A few other resolutions as the election of the administrators when the capital is not fully paid up must be taken by the totality of the company’s capital.

As the EIRELI has one single holder, all decisions are taken by the holder.

Liability of Partners and of Holder

The liability of the partners of the Limitada and of the EIRELI’s holder is limited to their respective participations in the company’s capital, except when the company’s capital is not fully paid-up. In this case, the partners are liable, with their personal assets, for the total amount of the company’s capital. Please note that in certain cases of disregard of the corporate veil, activities against the law and acts performed without proper authority, the partners or the holder may be unlimitedly responsible, especially in tax, labor and environment areas. In case of non-payment of taxes the administrator may be held co-responsible.

Brazilian legislation requires every nonresident that holds quotas, capital or shares of a Brazilian company appoints an attorney-in-fact that resides in the country, with powers to receive service of process.

Besides granting the power required by law, foreign partners usually grant other powers to their attorneys-in-fact, in order to facilitate the procedures, since all documents executed abroad must be notarized and Apostilled, and once they arrive in Brazil they must be translated by a sworn translator and registered before the Public Registry of Titles and Documents, in order to be valid in Brazil, which is time and money consuming.

Also, all foreign companies holding quotas, capital or shares of the Brazilian company, need a Taxpayer number, called CNPJ. The taxpayer number is not for tax payment purposes, but for controlling purposes only. The foreign partners / holder need to grant a power of attorney for their enrollment at CNPJ, and representation before the Federal Revenue in all matters.

By the time the company is incorporated the Power of Attorney granting the above-mentioned mandatory powers must be presented before the Board of Trade.

Moreover, all Foreign Direct Investment must be registered at the Central Bank of Brazil. This means that every time the foreign shareholder/partner transfers money to the Brazilian company as investment, the respective exchange agreement must be registered at the Central Bank. Such registration is done electronically.

The main effects of such registration are the possibility of remitting dividends and of repatriating the capital invested.

In view of the above, the documents to be presented at the incorporation of a company in Brazil are:

  • Power of Attorney granting to a Brazilian resident powers to accept service of process, for enrollment at CNPJ and representation before the Federal Revenue;
  • In case the foreign partners/shareholders/holder are/is a natural person, a copy of his/her passport;
  • In case the foreign partners/shareholders/holder are/is a legal entity:

– Copy of the passport of the legal representative of the foreign partners/shareholders/holder; and

– Updated Certificate issued by the Board of Trade of the foreign partners/shareholders/holder’s head offices attesting: (a) its existence and good standing, and (b) its legal representatives for the purposes of evidencing that the company was duly represented in the Power of Attorney granted. This document (or a separate one issued by a public authority) must also contain the head offices address, name of shareholders, capital and objectives.

Note that all documents need to be duly notarized and apostilled. Once they arrive in Brazil, they will undergo sworn translation and will be registered at the Public Registry Office in order to be valid.

We would like to point out that the Federal Revenue and commercial banks have increasingly been requesting a series of complementary documents for compliance reasons, so that the final beneficiaries (natural person) of each foreign company holding quotas, capital or shares of Brazilian entities may be identified.

At the chosen bank’s own discretion, other documents may be necessary, as balance sheets, statements and corporate documentation until the end controller (natural person) is identified. These documents must be presented for the opening of a bank account, and banks have been taking quite some time to open the account.

Renata Antiquera

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  • Contratos
  • Derecho Societario
  • Contratos de distribución
  • Fusiones y adquisiciones
Contáctanos Renata

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    Brazil – Legal requirements for incorporating a company

    28 septiembre 2017

    • Brasil
    • Agencia
    • Derecho Societario

    In this brief post, a few highlights on the usual formats to start a business and enter into the Brazilian market and an overview of the current Brazilian economic outlook.

    The usual forms are not much different from other countries. The most utilized are:

    Incorporating a Brazilian subsidiary

    A sole individual or entity – Brazilian resident or not – can incorporate a company with limited liability up to paid-in capital stock. The most usual type – a limited liability company – needs two shareholders.

    The foreign shareholder shall nominate a Brazilian resident individual as legal representative by proxy. The Brazilian company needs a Brazilian resident individual as officer. Minimum capital requirement is only for the sole shareholder entity currently BRL 95,400 (with the current exchange rate, would be EUR 23,000 or USD 28,100). The company’s purposes should be specific for obtainment of the appropriate registries, to be verified during preparation of the incorporation of the Brazilian subsidiary.

    Entering a distribution agreement

    Brazilian Civil Code regulates this type of agreement. The parties are free to set forth the terms and conditions, as to exclusivity of product, territory, remuneration and termination conditions.

    The law establishes that, if a party made relevant investment for the execution of the distribution activities, the agreement can only be terminated after a term compatible with the nature and value of the investment.

    Special attention in case of health and medical products: the distributor will be the owner of the product registries and, as such, the person entitled to import, on a non-exclusive basis (unless otherwise agreed between principal and distributor). The distribution agreement shall include the specific provisions for the rights of the distributor after the termination of the distribution agreement, as obtaining registries for these products takes some time.

    Entering a commercial representation agreement

    A specific law regulates these activities. The commercial representative will be paid commissions over the products sold and effectively received by the principal.

    Major points of attention are: (i) the indemnification of 1/12 over all commissions paid for the entire duration of the commercial representation; (ii) the commercial representative is entitled to terminate the contract in case principal reduces the scope or territory without compensation and still be entitled to receive the 1/12 indemnification; and (iii) jurisdiction of Brazilian courts .

    Entering an agency agreement

    Agency agreements are also regulated under Brazilian Civil Code. Similar to the distribution, the agent and principal have freedom to set forth the terms and conditions for the agency.

    Similar to distribution, the termination term shall be compatible with nature and value of the investment, if a party made relevant investment to perform the agency.

    Principals must be attentive that they cannot nominate two agents for the same territory with same incumbencies. The agent may claim remuneration for businesses even if closed without his/her assistance.

    Franchising

    Brazilian franchising law leaves the content and discipline of the operation to the parties. The franchising law requires franchisor to provide the franchise offering letter with, among others, clear provisions as to the obligations and presentation of franchise operation, financial status, background of franchisor activities information.

    Brazilian people has seen many successful international operation stipulated in franchising systems. There are also good Brazilian franchising business as well. It is a more complex operation, from finding the right franchisee profile that is capable to meet specific franchisor standards – demands training for operation – and to replicate the model to all other franchisees.

    Brazilian economic outlook

    There are good news for investors: Brazil is coming back to action. A realistic prediction for GDP growth for 2018 is 2.8% and similar rate for the forthcoming years. Cause or consequence: traffic is getting worse than the last couple of years.

    There is a large market, for the population of 200 million people. Brazilians are not afraid to spend: rather spending than saving. There is easy credit and the ability to buy (a TV, cell phone, fridge) in installments (3, 6, 12, 18 monthly payments) with direct financing from the retail.

    A favorable exchange rate (currently €1 = BRL 4.10; US$1 = BRL 3.40) is also an additional attractive for investors in Brazil.

    An investor may expect good margins, despite the complex tax systems and several obligations. Experienced consultants assistance for piloting Brazilian obligations is key.

    Labor law reform passed last year and allows more flexibility to negotiate labor agreements terms. This is a topic to be further explored.

    It is true there is corruption around. This view shall change in a near future, as a result of a series of investigations of political scandals and more rigorous compliance rules for government contracts. It may not get over, but hopefully reduced.

    Promising sectors are consumer goods, food, agribusiness, clean power and IT. Infrastructure – ports, airports, roads, railroads, public transport developments are always on the spot and around for big players.

    The author of this article is Paulo Yamaguchi

    The limited liability company (“Limitada”) is the most common form of corporate organization in Brazil, being largely adopted in view of advantages. A Limitada must have at least two partners (quotaholders), natural persons or legal entities that do not need to be Brazilian or Brazilian residents.

    As a consequence of such requirement, many companies adopting the limited liability form would have a second partner holding as little as one quota simply to comply with the legal requirement. In many cases, the second partner would have no interference in the business but undertakes a liability that is not under his/her/its control.

    Also, the need of the second partner would imply in extra costs with documentation and bureaucratic measures, not to mention extra accounting requirements when such second partner is a legal entity.

    In 2011 a new legislation was passed modifying the Brazilian Civil Code and included a new corporate form, the Limited Liability Individual Company, known as EIRELI. However, the EIRELI could not be incorporated with a legal entity as its holder, but would only be applicable to natural persons, whether Brazilians or Brazilian residents.

    Finally, in May 2017, the Brazilian Civil Code was modified once again in order to allow legal entities, whether domiciled in Brazil or not, to be the sole holders of an EIRELI. However, a holder of an EIRELI can only hold a single company incorporated as an EIRELI.

    A Limitada or an EIRELI are advantageous as they (i) are subject to fewer disclosure requirements as opposed to a corporation; (ii) have a simpler and less expensive organization; and (iii) corporate decisions can be taken easier and quicker.

    This Article intends to present the basic organization of a Limitada and of an EIRELI, as follows:

    Partners, Quotas and Capital

    A Limitada must have at least two partners, natural persons or legal entities that do not need to be Brazilian or Brazilian residents. An EIRELI may have only one holder, natural person or legal entity that do not need to be Brazilian or Brazilian resident.

    Each of the foreign partners or the holder, in case of EIRELI, shall name a legal representative, who lives in Brazil, with minimum powers to accept service of process and for representation before the Federal Revenue for obtaining a taxpayer number (for controlling purposes only).

    There is no minimum quota capital requirement for most cases, unless a permanent visa is required or if an import license is needed (the amount of the company’s capital influences the authorized amounts for imports and exports). The Brazilian company may be financed either by the direct investment (capital) or by loans to be granted by the partners. In case of loans, thin-capitalization rules apply.

    The ownership of the Limitada quotas or of the EIRELI is reflected in the company’s Articles of Association, since no certificates to that effect are issued.

    The quotas of a Limitada can only be transferred by a specific amendment to the Articles of Association and must be subscribed at the time the company is established. The EIRELI’s capital may or may not be divided into quotas.

    The company’s capital does not have to be paid up upon incorporation; it may be paid up within a certain period of time (i.e., two years), in Brazilian currency or goods.

    Company’s name, objectives and address

    The Limitada’s name has to include some words that indicate what the company’s objectives are. The names should be followed by the objectives (if more than one just the main objective) and by the specific area of the market. The EIRELI does not have to follow those requirements.

    The company objectives and address must be included in the Articles of Association.

    Administration

    The administration structure of the Limitada and of the EIRELI must be determined in the Articles Association. In addition, in the Articles of Association, or in a separate document for the Limitada, at least one administrator (general manager) has to be nominated. The partners of the Limitada or the holder of the EIRELI are(is) free to appoint one or several of them to administer the company, as well as third parties.

    The administrator has to be a Brazilian resident, meaning either a Brazilian or an expatriate bearing a permanent visa.

    Partners Resolutions

    Most of the partners’ resolutions in a Limitada may be taken by majority of the capital or by any higher quorum agreed upon by the partners.

    Resolutions of the partners altering the Articles of Association or deciding on acquisition, merger, dissolution, and cessation of the liquidation status must be taken by three quarters of the company’s capital. A few other resolutions as the election of the administrators when the capital is not fully paid up must be taken by the totality of the company’s capital.

    As the EIRELI has one single holder, all decisions are taken by the holder.

    Liability of Partners and of Holder

    The liability of the partners of the Limitada and of the EIRELI’s holder is limited to their respective participations in the company’s capital, except when the company’s capital is not fully paid-up. In this case, the partners are liable, with their personal assets, for the total amount of the company’s capital. Please note that in certain cases of disregard of the corporate veil, activities against the law and acts performed without proper authority, the partners or the holder may be unlimitedly responsible, especially in tax, labor and environment areas. In case of non-payment of taxes the administrator may be held co-responsible.

    Brazilian legislation requires every nonresident that holds quotas, capital or shares of a Brazilian company appoints an attorney-in-fact that resides in the country, with powers to receive service of process.

    Besides granting the power required by law, foreign partners usually grant other powers to their attorneys-in-fact, in order to facilitate the procedures, since all documents executed abroad must be notarized and Apostilled, and once they arrive in Brazil they must be translated by a sworn translator and registered before the Public Registry of Titles and Documents, in order to be valid in Brazil, which is time and money consuming.

    Also, all foreign companies holding quotas, capital or shares of the Brazilian company, need a Taxpayer number, called CNPJ. The taxpayer number is not for tax payment purposes, but for controlling purposes only. The foreign partners / holder need to grant a power of attorney for their enrollment at CNPJ, and representation before the Federal Revenue in all matters.

    By the time the company is incorporated the Power of Attorney granting the above-mentioned mandatory powers must be presented before the Board of Trade.

    Moreover, all Foreign Direct Investment must be registered at the Central Bank of Brazil. This means that every time the foreign shareholder/partner transfers money to the Brazilian company as investment, the respective exchange agreement must be registered at the Central Bank. Such registration is done electronically.

    The main effects of such registration are the possibility of remitting dividends and of repatriating the capital invested.

    In view of the above, the documents to be presented at the incorporation of a company in Brazil are:

    • Power of Attorney granting to a Brazilian resident powers to accept service of process, for enrollment at CNPJ and representation before the Federal Revenue;
    • In case the foreign partners/shareholders/holder are/is a natural person, a copy of his/her passport;
    • In case the foreign partners/shareholders/holder are/is a legal entity:

    – Copy of the passport of the legal representative of the foreign partners/shareholders/holder; and

    – Updated Certificate issued by the Board of Trade of the foreign partners/shareholders/holder’s head offices attesting: (a) its existence and good standing, and (b) its legal representatives for the purposes of evidencing that the company was duly represented in the Power of Attorney granted. This document (or a separate one issued by a public authority) must also contain the head offices address, name of shareholders, capital and objectives.

    Note that all documents need to be duly notarized and apostilled. Once they arrive in Brazil, they will undergo sworn translation and will be registered at the Public Registry Office in order to be valid.

    We would like to point out that the Federal Revenue and commercial banks have increasingly been requesting a series of complementary documents for compliance reasons, so that the final beneficiaries (natural person) of each foreign company holding quotas, capital or shares of Brazilian entities may be identified.

    At the chosen bank’s own discretion, other documents may be necessary, as balance sheets, statements and corporate documentation until the end controller (natural person) is identified. These documents must be presented for the opening of a bank account, and banks have been taking quite some time to open the account.

    Renata Antiquera

    Áreas de práctica

    • Contratos
    • Derecho Societario
    • Contratos de distribución
    • Fusiones y adquisiciones
    Contáctanos Renata