On 03 June, 2014 the Normative Instruction N.º 1,470/14 ("Act"), issued by the Brazilian Federal Revenue became effective. This new rule imposes the Silent Partnerships ("SCPs") the obligation to hold a corporate tax identification number, the so called "CNPJ".

With the publication of this new Act, some discussions have been raised regarding the impacts on the current regulation of the legal personality of the SCP, as well as on the rules related to the limitation of liabilities of its partners.

The SCP is legally recognized as a corporate type and is governed by sections 991 to 996 of the Brazilian Civil Code, according to which it is possible to define the SCP as an "internal partnership", incorporated by means of an agreement to discipline the relationship between a venture partner ("active partner" - sócio ostensivo) and an investment partner ("silent partner" - sócio participante) for exploitation of a certain project or business.

The SCP has no legal personality and it is not mandatory its registration with any official body to be considered an existing entity. Due to the fact that the absence of legal personality derives from law1, even if the partners decide to provide the registration of the SCP articles with the Board of Commerce or with the public Registry of Deeds and Documents, such registration will not be able to confer any change in the legal status of the company, which remains as a company with no legal personality for all legal purposes.

As a general rule, according to section 986 of the Brazilian Civil Code, while the articles of incorporation of a company are not registered with the competent body, all partners shall be jointly and severally liable for all obligations assumed by the company.

In a limited liability company, as an example, in which the liability of each partner is limited to the amount of the non-paid stake of the capital stock of the company (section 1,052 of the Brazilian Civil Code), in case its articles of incorporation are not registered with the Board of Commerce or the Civil Registry of Legal Entities, as the case may be, the limitation on partners' liability will not be subject to the rules of section 1,052 but to the rules of section 986.

This means that once the articles of incorporation of a limited liability company is duly registered, the company will be entitled to a legal personality distinct from that of its members2. As a consequence, the company will, in principle, be liable for all obligations undertaken by itself. On the other hand, while the articles of incorporation are not registered, there will be no separate legal personality and the partners can be personally liable for the obligations assumed by the company.

The legal effect of a separate personality upon registration of the company in the context of a limited liability company shall not apply to the SCP, as this corporate type, by definition, has no legal personality whether its articles are registered or not.

It is important to mention that the legal personality begins with the registration of the articles of association with the Board of Commerce or the Civil Registry of Legal Entities, as the case may be. The enrollment of any company with the CNPJ shall never be understood as an indication of the existence or not of a legal personality.

Therefore, the new requirement for the SCP to hold a CNPJ shall not be associated with the rule regarding the legal personality of this corporate type. Neither the registration of the articles of association of the SCP with a public registry nor its enrollment with the CNPJ are able to grant the SCP a legal personality.

In addition, even if the partners of the SCP decide to register the articles of the SCP, the active partner will remain as the sole responsible before any third parties for the obligations undertaken in the context of the SCP.

According to Section 991 of the Brazilian Civil Code, the active partner assumes on its own name all operations within the SCP. In practical terms, the active partner is responsible for entering into agreements and negotiate with third parties, invoicing clients for services rendered or products sold etc.

Third parties with whom the active partner conducts the business on behalf of the SCP usually have no knowledge of the existence of the SCP or of the silent partner. For that reason, in an SCP the active partner is the sole party responsible before any third parties (there is no joint or several liability of the silent partner towards third parties). An exception to that rule are the cases in which the silent partner intervenes in the relationship of the active partner with third parties – in which case the silent partner may be held jointly liable with the active partner towards such third party.

The rules related to the responsibility of the partners of an SCP, as indicated above, shall not be affected by the requirement of the enrollment with the CNPJ provided for in the new Act.

Additionally, there will be no increase in the exposure of the silent partner as a consequence of the new rules of the Act, since it does not require the insertion of the name of the silent partner in the Partners and Managers Table (Quadro de Sócios e Administradores)3 of the CNPJ and the rules regarding the ancillary obligations of the company (e.g. filing of the Income Statement of the Legal Entity - Declaração de Rendimentos da Pessoa Jurídica - DIPJ), in which the composition of its partners is required, were changed.

1 Section 993 of the Brazilian Civil Code.

2 A company's separate personality gives rise to important effects, as it allows the company to own its properties, having its own rights and being subject to its own obligations. In addition, the company will have the right to sue and be sued in its own name.

3 Section 12, §2º of the Act.

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.