Brazil: How To Establish A Business In Brazil ?*


Any foreign company interested in establishing a business may choose among several types of corporate entities that exist under Brazilian law. Even though there are various business entity forms in Brazil, the two most frequently utilized worth mentioning are: (i) the Sociedade por Quotas de Responsabilidade Limitada (the "Limitada"); and (ii) the Sociedade Anonima (the "Corporation").

The incorporation and operation of companies is governed by Federal law, uniformly applicable throughout the Country. Commercial registration is controlled by the National Department for Registration of Trade (DNRC), which is part of the Brazilian Ministry of Justice. Each State has a Commercial Registry which effects the registration of commercial companies with its head-office located within the State's territory.


II.1 - Limitada

The basic source of law governing the Limitada is Decree No. 3,708, dated January 10, 1919, which consists of only nineteen articles. The partners of a Limitada have wide latitude to contractually establish in the company's Articles of Association, the rules and norms which most adequately reflect their intention with respect to the operation of the Limitada and the conduct of its business. For this reason, the Limitada is rightfully considered to be an extremely flexible type of company.

Limitadas may be considered similar to an English limited liability company or an American closely-held company and have certain characteristics of an English or American limited partnership.

The Limitada requires a minimum of two Quotaholders, which may be individuals, resident or non resident in the Country, or Brazilian or foreign legal entities.

The Limitada's corporate capital is represented by "quotas", the ownership of which is specifically spelled-out in the Limitada's Articles of Association. Ownership is not represented by physical quota's certificates; but is evidenced by the Articles of Association. The transfer of quotas requires an amendment to the Articles of Association of the company which, unless otherwise established in the Articles of Association must be signed by all of the quotaholders. All quotas have the same voting rights and a nominal value which is also spelled-out in the Limitadas's Articles of Association.

The Articles of Association of a Limitada may establish rules regarding the transfer of quotas or voting rights. Specific performance of Quotaholders' Agreements, however, is a controversial issue. The limit of the liability of the Quotaholder is the stated amount of the company's capital. If this has been fully paid up, no Quotaholder may be compelled to satisfy the obligations of the company with his own personal assets.

However, if the capital has not been fully paid up, any Quotaholder may be required to pay over an amount necessary to fully pay up the total capital, even if such amount exceeds the value of the quotas to which he subscribed.

Furthermore, the Quotaholders will have to return to the Limitada, any dividend or value received from the company, even if the payment was authorized by the Articles of Association, whenever such payment was effected against the paid up corporate capital. The Quotaholder's personal liability, however, is always limited to the total amount of the company's capital. Such limitation must be stated in the Limitada's Articles of Association.

There are exceptions to the rule of liability limitation. Managing Quotaholders, Officers, managers or representatives are personally liable for debts resulting from acts performed in excess of their authority, or in breach of the law or of the Articles of Association.

The Limitada may be managed by all, some or just one Quotaholder (individual or legal entity). The Limitada's Articles of Association must state who will act as the managing Quotaholder. In case the managing Quotaholder is resident abroad the managing powers must be delegated to one or more delegate managers who must be resident in Brazil. The Articles of Association, however may establish that certain corporate decisions require the prior approval of the Quotaholders.

With regard to the holding of partners' meetings, the law that regulates the Limitada does not regulate this issue. However, the Articles of Association may make such meetings obligatory and may establish the manner of calling such meetings, the quorum necessary for the meetings to be called to order and pass resolutions, etc.

Even though the Commercial Registry is a public record and any one may obtain a copy of the Limitada's documents, the Limitada is not required to publish its Articles of Association, the Quotaholders' Resolution or Meetings or notices of increases in capital.

Limitadas are simpler and easier to operate and, consequently, are normally less costly in this particular.

II. 2 - Corporation

The Sociedade Anonima or Corporation is governed by Law No. 6,404, dated December 15, 1976 (the "Corporation Law"). It is a much more sophisticated form of corporate entity than the Limitada and its internal structure is more rigid.

The Corporation Law provides for two distinct forms of Corporations - open and closed companies. The distinction is based on whether or not the company's shares or securities are traded on the stock market or in the over-the-counter market. The present report will limit itself to an examination of closed companies, whose shares are not traded on the stock exchange or in the over-the-counter market.

A Brazilian closely-held company may be compared with a closely-held company in the United States, for example.

Two Shareholders, individuals or corporate entities, Brazilian or foreigners are sufficient to incorporate and maintain a Corporation (except in case of a wholly owned subsidiary, also called a branch, which is subject to specific rules).

The Corporation's stock capital is represented by shares. Corporations may issue ordinary and/or preferred shares, which may have a stated value or be of "no-par value". Shares must necessarily be nominative. The ownership and transfer of shares is recorded in the corresponding books which are kept by the company. A transfer of shares does not require any amendment to the by-laws of the Corporation.

Preferred shares may have restrictions on the exercise of voting rights or have no voting rights at all. Corporations may create various classes of ordinary or preferred shares and impose limitations on the circulation of shares in the by-laws.

The incorporation of a Corporation requires that all the shares must be subscribed and a minimum of 10% of the corporate capital must be paid up, in cash, through a deposit with any commercial bank.

Shareholders may also enter into Shareholders' Agreements amongst themselves regulating share purchase and sale conditions, the exercise of the right of first refusal for acquisition thereof and voting rights, which, if filed at the Corporation's headquarters, will also be binding on the Corporation and be subject to specific performance. The specific performance of a Shareholders' Agreement is expressly established in the Corporation Law.

The liability of a Shareholder is always limited to the issue price of the shares to which he subscribed or which he acquired. In other words, regardless of whether or not the capital has been fully paid up, each Shareholder's liability is limited to the value of the share he either subscribed to or acquired.

The management of a Corporation may be entrusted to an Administrative Council (with at least three members) and to a Board of Directors (with at least two members), or solely to a Board of Directors. While the Shareholders elects and controls the Administrative Council, the Administrative Council elects and control the Board of Directors which is in charge of the day to day business of the Corporation. Members of the Administrative Council of a Corporation must necessarily be shareholders.

Only individuals resident in Brazil may participate in the Administrative Councils or in the Board of Directors of a Corporation. Notwithstanding, non-residents may participate in other administrative organs, such as Consultative Councils, provided such organs do not have decision-making powers.

The Administrative Council and the Board of Directors of a Corporation are always elected for a set term of office, which may not exceed three (3) years. Up to one-third of the members of the Administrative Council may also be elected to the Board of Directors.

As a general rule, a Corporation must comply with much more rigid and complex formalities in carrying out its normal activities, such as: publication of financial statements prepared in the form required by law; publication of notices to shareholders; publication of Management and Fiscal Council reports; the keeping of corporate books, etc. These requirements represent an additional cost and a higher degree of public exposure in comparison to Limitadas.

Ordinary Shareholders' meetings must be necessarily held every year following the closing of the corporate year, and extraordinary shareholders' meetings whenever necessary. Such meetings, however, are called, opened and shall decide on matters in compliance with the rules established by the Corporation Law and in the Corporation's By-laws.


There are advantages and disadvantages to both the Limitada and the Corporation and comparisons between the two have been the object of extended theoretical discussions. In our opinion, it is impossible to determine "a priori" which legal structure is most advantageous for a given company based on purely objective criteria - business volume, capital, number of shareholders, type of business etc. Many other elements, some of them subjective, must be taken into consideration in deciding the best legal form for a company, including the corporate structure, the relationship between the partners and the corporate purposes. The decision should always be taken on a case-by-case basis.

* The content of this article is intended to provide a general guide to the subject matter. A specialist's advice should be sought in order to provide professional advice on a case to case basis which will meet specific circumstances.

For more information please contact us.

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