Brazil: Corporate Capital Of Limited Liability Companies

As a general rule, no minimum corporate capital is legally required for a limited liability company. For purposes of the Articles of Incorporation of a limited liability company, It is usually suggested that the amount of the corporate capital be consistent with the initial operational needs of the company. In the event that a higher amount is needed afterwards, the partners may increase the corporate capital amount at any time, provided that the initial corporate capital has been fully paid-in.

If the partners decide to increase the corporate capital of the company, an Amendment to the Articles of Association shall be executed and filed before the Board of Commerce of the State where the head office of the company is located.

The partners may pay in the corporate capital in cash, credits or assets.

Contributions to the capital consisting of services are prohibited.

The partners' liability is restricted to the value of their quotas, but all partners are jointly and severally liable for the full payment of the corporate capital. Therefore, according to Brazilian laws, the company's assets are not linked to the partners' net worth. In the event that the company's assets are not sufficient to bear the company's obligations, if the corporate capital has not been fully paid-in, the partners shall be jointly liable up to the amount of the corporate capital. If the subscribed corporate capital has been fully paid-in by the partners, the partners will be solely liable up to the amount of their respective interest in the corporate capital.

The liability limitation is applicable to obligations of any nature, including civil and tax liabilities. With respect to tax liabilities, there is an exception regarding the liability in case the partners act with excess power or against the law or the Articles of Association.1 In these cases, the judge may disregard the corporate entity (pierce the corporate veil) in order to determine that the partners are personally liable for those obligations (i.e. debts of the company).

Contrary to what is required for corporations, in the case of limited liability companies, there is no legal obligation to have an evaluation of the assets contributed to the corporate capital by an independent third party neither to have an appraisal report prepared by such independent third party. Therefore, the amount by which certain asset is contributed to corporate capital is unilaterally set by partner who has offered the asset to the limited liability company.

The corporate capital of a limited liability company must be fully subscribed at the date of its incorporation, but there is no legal requirement for its immediate payment. Accordingly, the partners may establish in the Articles of Association a time frame for the payment of the corporate capital, which may also be renewed by means of an Amendment to the Articles of Association.

Although there is no legal time frame set forth in the law for the payment of the capital, a maximum period of 24 months is usually suggested, which may be modified at any time, if necessary. Any capital increase will only be possible after the full payment of the previously subscribed amount.

The duty of the partners to pay in the quotas that they have subscribed is one of the most important obligations of the partners of a limited liability company. The investments made by the partners in the company will guarantee the necessary funds for the operation of the business. If any partner breaches this obligation, the law allows the other partners some alternatives to be implemented against the breaching partner (such breaching partner is called "sócio remisso").

There is not a single opinion regarding whether or not it is necessary to notify the partner about the need for the payment giving him 30 days to cure the default or if such notice is not necessary because the partner is in breach immediately after the period set forth in the Articles of Association.

If there is no provision setting forth the term in the Articles of Association (considering that the partners are free to establish another term they deem appropriate), it seems to me that the 30-day period needs to be followed, since this is the general rule established in the Brazilian law in case of default.

If the breaching partner does not pay in the corporate capital after the term, the other partners can approve by majority of votes (if a higher quorum is not established in the Articles of Association) the appropriate measure to be taken.

The remedies available in the law in case of breach of payment of the quotas subscribed by the partners are the following: (i) judicial collection by the company of the amounts not paid in; (ii) extrajudicial reduction in the number of quotas of the breaching partner to the amount duly paid in; and (iii) the extrajudicial exclusion of the breaching partner.

We could also add to the list above the possibility of suspending the rights of the breaching partner, which would also require the approval of majority of votes of the other partners (while the breaching partner does not comply with his obligation of paying in the corporate capital).

In case of judicial collection filed by the company (item (i) above), the partner continues to be a quotaholder while the company tries to collect judicially the amount of the corporate capital not yet paid-in. The amount to be paid by the subscribed quotas shall be adjusted by inflation, interests, legal fees and any other costs and expenses.


1. Código Tributário Nacional (C.T.N.) (National Revenue and Taxation Code), Art. 135 (1966) (Braz.).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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