One of the first questions foreign investors interested in doing business in Brazil typically make to local lawyers is what type of legal entity they should incorporate in Brazil.<\/p>\n
The two most common types of companies in Brazil are the limited liability company (sociedade limitada), governed by Brazilian Law No. 10,406 of January 10, 2002 (the Civil Code), and the corporation (sociedade an\u00f4nima), governed by Law No. 6,404 of December 15, 1976 (the Corporation Law).<\/p>\n
Although both types of entities provide their equityholders with limitation of liability, the limited liability company and the corporation have peculiarities that differ them apart.<\/p>\n
The following contains a brief explanation of the main characteristics of limited liability companies and corporations which may be useful in the task of determining the most suitable type of entity for each business and each set of equityholders.<\/p>\n
A limited liability company may be incorporated by a single partner or by multiple partners.<\/p>\n
The corporation, however, must be incorporated by at least two shareholders (except with respect to wholly owned subsidiaries \u2013 which require a Brazilian legal entity as the sole shareholder).<\/p>\n
Generally, no minimum corporate capital is required for limited liability companies and corporations. However, certain regulated markets and industries (e.g., financial institutions, insurance companies, online betting companies, etc.) may require a minimum corporate capital.<\/p>\n
The corporate capital may be paid in in cash or assets. In a limited liability company, the partners may arbitrate the value of assets transferred by them to the company. In a corporation, assets used by shareholders to pay in their shares must be appraised by three individual experts or by a specialized firm.<\/p>\n
The articles of association (in a limited liability company) and the bylaws (in a corporation) will determine the form and term for the payment of the corporate capital. The Corporation Law, however, requires that at least 10% of the corporate capital of a corporation payable in cash be paid in at the time of the incorporation of the company.<\/p>\n
The limited liability company allows the distribution of dividends in a proportion different than the proportion of the corporate capital \/ quotas held by the partners. This is one of the most interesting features of the limited liability company and allows the partners to segregate percentage of ownership from allocation of profits.<\/p>\n
In a corporation, the profits are distributed to shareholders based on the percentage of equity held by them. Nonetheless, to a good extent, preferred stock can be used as a mechanism to allocate disproportionate portions of profits among the shareholders.<\/p>\n
Limited liability companies and corporations may issue common quotas and common shares and preferred quotas and preferred shares (respectively).<\/p>\n
The attributes of preferred quotas and preferred shares may include priority in the distribution of fixed or minimum dividends and\/or priority in the reimbursement of capital.<\/p>\n
Up to 50% of the corporate capital may be represented by preferred equity with no voting rights or restrictions on voting rights.<\/p>\n
Unless otherwise set forth in the articles of association or partners\u2019 agreement, the quotas of a limited liability company may be freely transferred among partners but may only be transferred to third parties if there is no opposition from partners holding 25% or more of the corporate capital.<\/p>\n
Unless otherwise set forth in the bylaws or shareholders\u2019 agreement, the shares of a corporation may be freely transferred by the shareholders.<\/p>\n
A partner may withdraw from a limited liability company with an indefinite term at any time.<\/p>\n
A shareholder may only withdraw from a corporation in specific circumstances, such as dissenting from the approval of the creation of preferred stock, change of corporate purpose, the spin-off of the company and the transformation of the corporation into a different type of company (say, a limited liability company).<\/p>\n
Access to capital markets and trades in the stock exchange as a publicly held company is limited to corporations.<\/p>\n
In certain situations, the capitalization of a company requires the issuance of equity at a premium, allowing new investments to be captured without overdiluting the existing equityholders.<\/p>\n
Briefly stated, Brazilian tax laws consider the premium paid by a shareholder on her\/his shares of a corporation a non-taxable revenue of the company. Although subject to debate, the tax authorities understand that such treatment is not extensible to limited liability companies \u2013 which means the tax authorities deem the premium on the issuance of quotas by a limited liability company as a taxable revenue of the company.<\/p>\n
The Corporation Law sets forth two management bodies for a corporation: the board of officers (which is mandatory), formed by one or more officers, and the board of directors (which is optional for companies that are not publicly held or do not have authorized corporate capital), formed by three or more directors.<\/p>\n
Although the Civil Code limits the management of the limited liability company to the board of officers, in practice the partners may opt to have a board of directors in addition to the board of officers.<\/p>\n
In both cases, representation powers fall only on the officers and the directors undertake a supervising and decision-making role.<\/p>\n
The administrative bodies are subject to and bound by the decisions taken from time to time by the partners or shareholders in the relevant general meetings. Subject to specific arrangements set forth in the articles of association, the bylaws, partners\u2019 agreements and\/or shareholders\u2019 agreements, the quorum to approve matters in the general meeting ranges from relative majority to absolute majority.<\/p>\n
In general, limited liability companies are not obligated to publish their financial statements.<\/p>\n
In contrast, corporations are subject to certain publications of financial statements.<\/p>\n
MMR \u2013 Mastrocola Marcondes Rocha Advogados<\/strong> is fully prepared to assist its clients, including foreign investors, in all matters involving corporate law. Our lawyers\u2019 broad experience both in Brazil and abroad (our partners have been representing foreign clients for over 20 years) allows us to provide our clients customized solutions for each of their particular needs, objectives and challenges.<\/p>\n <\/p> Contact us<\/h2>\n\n
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