Brazil – Corporate structures

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.