Brazil – How to start a business

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