3 Chapter Incorporation

    • 3-1-1 Sort of business of Brazil

       When first starting the process of forming a company in Brazil you can choose between seven different organization forms:

      ·         [Non-profit company (Sociedade simples)

      ·         General partnership (Sociedade em nome coletivo)

      ·         Limited partnership (Sociedade em comandita simples)

      ·         Limited partnership by shares (Sociedade em comandita por ações)

      ·         Overt/covert partnership (Sociedade em conta de participação)

      ·         Limited liability Company (Sociedade limitada / Ltda.)

      ·         Corporation (Sociedade anônima / S.A.)

      The non-profit form together with the four different types of partnerships that committing the owners to an unlimited liability for the organization are not commonly used by foreign businesses.][1]


    • 3-1-2 Local subsidiary

       3-1-2-1 LTDA

      ·         [Limited liability for the partners

      ·         Simple to form and operate

      ·         Normally no minimum capital requirement

      ·         No obligation to constitute a capital reserve

      ·         No obligation to publish annual financial statements

      ·         Can be converted to a Corporation / S.A.


      The company needs to be founded with at least two partners but neither of them needs to be Brazilian. A partner can be either an individual person or a legal organization.

      A Ltda. must be managed by an individual residing in Brazil; it can either be a Brazilian citizen or a foreign citizen with a Brazilian work permit. In the case of having a foreign manager relocating to Brazil in order to manage the company, an interim manager is required for the period between the opening of the company and the obtaining by the foreign manager of the Brazilian work permit based on the newly formed company.][1]


      3-1-2-2 S/A

      ·          [Limited liability for the shareholders.

      ·         Detailed regulatory framework for corporate activities.

      ·         Obligation to publish annual financial statements.

      ·         A reserve of 10% of the total capital must be kept in a bank account.

      ·         Requirement of a Board of Directors (minimum two Brazilians).

      ·         Requirement of an Audit Committee.

      The Corporation needs at least two shareholders and, due to the required capital reserve, at least 10% of the shares must be paid in, in cash. If you are planning to have the stock negotiated at a stock exchange, the organization must be registered as a public corporation and it is required to registered with the Brazilian Stock Exchange Commission (Comissão de Valores Mobiliários / CVM)][2]

      3-1-2-3 Comparison with LTDA and S/A






      Limited to the value of shares

      Limited to issuance of price shares


      Name requirement

      Organization name followed by the expression "Ltda"

      Organization name followed by the words "Sociedade Anônima" or "S.A." or placing before the organization name the word "Companhia" or its abbreviation "Cia"



      Public or Private


      Form of organization

      Articles of Association

      Corporation’s articles


      Local "Junta Comercial”

      Local "Junta Comercial"

      Owner changes

      Changes in the Articles of the Association registered with the local "Junta Comercial"


      Simple transference of shares

      Mandatory books

      Besides the regular ones used for commercial practices, there must be:

      ·         Management minutes book

      ·         Record book and the legal opinion of the statutory committee

      ·         Record book of general meetings


      ·         Besides the regular ones used for commercial practices, there must be:

      ·         Book for nominative shares

      ·         Book of nominative share transference

      ·         Record book of general assembly meetings

      Shareholder attendance book

      ·         Record book of the board of directors

      ·         Meeting and minute books and the legal opinions from the statutory committee



      Appointed administrator

      Board of Directors

      Official body

      ·         In companies with more than 10 partners: General Meeting

      ·         In companies with 10 partners or less: Regular Meeting


      General Meeting

      Including new partners

      Need 75% approval from the existing partners


      Mandatory Audit


      Only Mandatory for Public Companies

      Board of Directors


      Minimum of 2, who must necessarily reside in Brazil


      Administrative Council


      Minimum of 3 shareholders who don't need to reside in Brazil

      Audit Committee


      Minimum of 3 and maximum of 5 members; plus an equal number of substitutes





    • 3-1-3 How to advance into Brazil market except for Local subsidiary

       ·         [Non-profit company (Sociedade simples) In the simple society, economic activity is usually carried out by their own members, but have employees, or administrator who works personally, coming there a relationship between them and the designated activity.



      ·         General partnership (Sociedade em nome coletivo)General Partnership Act (Brazil) or general partnership (Act Portugal) (CNS), refers to the formation of a company by company, where all partners are liable for the debts indefinitely. Also it called society at large, unlimited company or unlimited caring society.The corporate name of such association is composed of business or company name in the personal name consists of one or more partners and must accompany the words "and Company" or "& Company" in full or abbreviated ("& Co." or "& Co.") when not referring to all members. This society is necessarily made up of individuals and cannot be composed of persons of a legal nature. So each has its place as comandita approval.Members of general partnerships, and respond to society for entry must also inform the creditors of the company for the obligations of this. The responsibility for these debts is subsidiary in relation to society - which means that creditors of the company can only enforce the partners after the expiration of the assets of the company - but solidarity between the partners - which translates in the ability of the Company's lenders require any of the partners of the entire debt (art. 175, paragraph 1, CSC)


      ·         Limited partnership (Sociedade em comandita simples)The main feature of the limited partnership is the existence of partner or partners with unlimited liability, and, in the same contract, a partner or limited partners.One of the company's characteristics in simple limited is the fact that not all members can be managers. The management company is in charge of the general partners or such of them as to what is or who are designated in the social contract. If the limited partner is concerned in the management of the company or if your name appears on the social firm, jointly and severally liable with general partner, and he may, however, monitor operations and be named attorney society for a specific purpose. (art. 1047 and sole paragraph). Social -Firma only with the names of the general partners. -The Limited partner is not obliged to spare profits received in good faith and in accordance with the balance sheet. (art. 1049) -to Comanditados fit the same rights and obligations of the partners of the general partnership. (art. 1046, par. Single). -Extinção Society: art. 1,051


      ·         Limited partnership by shares (Sociedade em comandita por ações)

      It has a minimum of five limited partners;

      The minimum amount required by the capital amounts to € 50,000.00;

      Only the shares of the limited partners are represented by shares;

      The general partners are secondarily liable to the society and severally with the other partners with regard to creditors, as general partnerships;

      Each silent partner is responsible only and only for their contributions;

      The company name must contain the name and address of at least one of the general partners, followed by the addition "in comandita Limited" or "Limited & limited partnership";

      It is governing a subsidiary in the provisions relating to public limited companies, insofar as they are compatible with its regulations.


      ·         Overt/covert partnership (Sociedade em conta de participação)

      The main feature of the Company on account of participation is the fact that it not be personified, ie has no legal personality, even though she is enrolled in any record. Do not have CNPJ or corporate name or registered office and set capital. The SCP has also the characteristic of being anonymous, due to its silent partners, showing only the partner who practiced the trade.

      In addition to these mentioned features, we can also sort this society as a contractual society, that is, depends on a contract to exist. These societies arise from a contract where the partners express the will to hire the formation of a society. It is also an accidental, momentary society, as happens during a short period of time, only to the realization of the objective.

      It also has the Civil Code, art. 995, that: "Unless otherwise agreed, the lead partner may not admit new members without the express consent of the other."

    • Establishment of Business location

       [Companies in Brazil are registered in the local business registers; the Board of Trade in Brazil is organized in accordance with the States. To be included as partners in Brazil company established foreign individuals, residents and non-residents must apply for registration in the CPF (Physical Cadastro de Pessoas) do Ministério da Fazenda do Brasil (Ministry of Finance and Public Administration). The CPF is a tax registration. You must be registered with the CPF to operate assets in Brazil (financial assets, stakes in companies, etc.), purchase of movable and immovable property, etc. Local authorities where the procedures are done defining the details and these can be the Board of Trade (Commercial Register) of the city where the company is constituted, Town Hall, Social Security Treasury (Federal and State Recipe).][1]
    • 3-2-1 Establishment procedure of LTDA

        [Time - 4 weeks approx. to incorporate your company

      Price - a society in Brazil will cost about £ 7,400.

      Directors - are required for society two directors of any nationality

      Shareholders - only two shareholders are required to have any nationality

      Shareholders may be individuals or corporations - nominee shareholders are allowed

      Social Capital - there is no minimum share capital

      Support - we provide expert assistance every step of the constitution.

      The information required for the constitution of a limited partnership is:

      ·         Company Name

      ·         The full name of the Directors, date of birth, address and nationality

      ·         Name and address of shareholders

      ·         The objectives of the Company, indicating the main activity

      ·         The amount of capital and number of shares issued to each partner

      All documents signed abroad must be notarized by the Brazilian Consulate.][1]


    • 3-2-2 Establishment of Corporation

       [The constitution of a company in Brazil will take at least 30 days

      By law, it requires that the services of a Brazilian lawyer to incorporate a Brazilian company

      The constitution of a Brazilian company and appointment of the Director or Manager are two separate things. To be appointed as a director or manager, a foreigner must obtain a permanent resident visa in Brazil.

      Sociedade Anonima (SA): This form of society is not as flexible as Limitada, is considerably more expensive to operate, and is more transparent, as all corporate events and annual financial statements must be published in newspapers. It is governed by statutes (laws) and its capital is divided into one or more classes of shares. An SA is managed by a Board of Directors and Fiscal Council, each consisting of two or more resident Brazilians.

      If an S.A. is listed on the stock exchange or authorized capital, but must also have a management board consisting of shareholders. The tax treatment of the Limited and SA in Brazil is identical.][1]


    • 3-2-3 Procedure after establishment of corporation

       [Once the company has been duly incorporated, the next step is to obtain all necessary registrations, permits and enrolments. The list of the same can be longer or shorter depending on the activities to be conducted. The following chart contains an idea of such registrations, permits and enrolments.


      Fiscal licenses, registrations, permits and authorizations

      Federal taxpayer registration

      State taxpayer registration

      Municipal taxpayer registration

      Invoice registration

      Labour and social security licenses, registrations, permits and authorizations

      Registration with relevant employers' union

      Registration with Accrued Severance Pay Fund (FGTS)

      Registration with Social Security Institute (INSS)

      Registration with Labour Inspection Register

      Maintenance of employee register

      Maintenance of each employee's individual registration file

      Operational licenses, registrations, permits and authorizations

      Sanitary operational registration with state health department

      Municipality license for localization and operation

      Building occupancy permit

      Building permit

      Inspection certificate issued by the fire department

      Permit to operate the plant

      Registration of trademarks with the National Industrial Property Institute

      Registration of domain names with the São Paulo State Foundation for Research Assistance Registration with SISCOMEX (the Integrated Foreign Trade System)

      Registration with RADAR (which tracks the activities of foreign trade players)

      Environmental licenses, registrations, permits and authorizations

      Preliminary environmental license

      Installation license

      Operational license


      It is also essential that foreign individuals and companies willing to set up a company in Brazil register their intellectual property rights (trademarks, patents, domain names, etc.) in Brazil even before the Brazilian company is incorporated. This will prevent third parties from unduly using such intellectual property.][1]


    • 3-3-1 Liquidation of (LTDA)

       When a company goes bankrupt, there is a set of legal processes by which the company is often the case, including liquidating assets and distributing the proceeds to creditors and owners. This whole process is called dissolution. So the biggest difference between liquidation and dissolution is that the agreement is a part of the total process solution.

      [Procedures for corporate bankruptcy/liquidation

      The assets of the bankrupt entity will preferably be sold as a whole or in blocks that preserve the going-concern value as much as possible. Payments to creditors will respect priorities defined by the law, the most common being:

      • labour claims, capped at 150 minimum salaries per creditor, and work related accidents;

      • secured claims;

      • Tax claims; and

      • Unsecured claims.

      (d) Formal corporate rescue processes

      The debtor may file for judicial recovery. If judicial recovery is granted by the court, the debtor will have 60 days to present a recovery plan, showing how and when it plans to recover. The recovery plan may consider a multitude of alternatives such as asset sales, mergers, extended or discounted payment conditions, shutdown of loss-making units and capital increases.

      If no creditor opposes the recovery plan, the debtor is authorized to proceed within its terms. If there is opposition to the plan by any creditor, then the recovery plan shall be voted on in a general creditors’ meeting by up to three classes of creditor:

      • labour and labour-law-related creditors;

      • secured creditors; and

      • Unsecured creditors

      The recovery plan must be approved in each class by the majority of creditors present or represented in the general creditors’ meeting by number (all classes) and value (the first two classes). If the recovery plan is approved by only two of the classes, in certain circumstances the court may rule to approve it. Once the recovery plan is approved, it is binding on all creditors in all classes. Failure to approve the recovery plan results in the debtor becoming bankrupt. Creditors that are related parties to the debtor (eg, significant shareholders, management) do not have voting powers in the general creditors’ meeting, although their claims should be treated in the same manner as other claims within their respective classes.

      Alternatively, a debtor may negotiate extrajudicial recovery with its creditors (a prepackaged deal). Once the terms of this negotiation are complete and the pre-packaged deal has the support of creditors representing 60 per cent or more of each class, it will be binding on all creditors in these classes.

      Only the debtor can file for judicial or extrajudicial recovery. Creditors cannot file for involuntary corporate rescue procedures of their debtors.

      Certain types of debt are not subject to judicial or extrajudicial recovery, such as:

      • Tax claims;

      • Certain types of secured debt (eg, capital or operating leases); and

      • Certain bank loans relating to export finance.

      Labour-related claims are not subject to extrajudicial recovery.

      The inability to include tax claims in corporate rescue processes has been criticized by the insolvency community in Brazil, since it is usual for insolvent companies to have significant tax liabilities outstanding when these procedures are put into place.][1]

      3-3-1-1 Selection of liquidator

      [If, the company has relevant assets to be disposed of and/or outstanding liabilities, a two-step liquidation procedure would be recommended, since it will officially put the company into liquidation and will enable the appointment of a liquidator in charge of the process. In that case, the partners should first convene a meeting and resolve (a) to dissolve the company (i.e., from that date forward, the company should no longer operate), (b) to commence the liquidation process, and (c) to appoint a liquidator to manage the company until all the pending liabilities are paid and assets are sold.  The liquidator shall be in charge of liquidating the company, and, after all the pending issues have been duly resolved, the company shall draw up a final balance sheet.][1]


      3-3-1-2 Dissolution

      [All partners must sign the closure minute and name a liquidator, that can be one of the partners. This liquidator will be in charge of eliminating debts. Then the Distrato Social is elaborated. Distrato Social is a document that establishes that the company has been dissolved and the assets have been divided among the partners.

      This document must contain how much each partner has received and mention the person who will be in charge of the assets and statutory books.

      Once the Distrato Social is signed, all partners must agree with the company dissolution. In case the partners do not agree with it, than it will be necessary to get a negotiator, which can be a lawyer or the company's accountant.

      If still there is no agreement regarding the dissolution of the company, then the situation must be taken to court, making the company dissolution even slower and expensive.][2]


      3-3-1-3 Calling and holding of general meeting, submission of B/S

      [Shareholders of the bankrupt company, as well as affiliates, controlled or controlling entities, may participate in general meetings of creditors, but they are not allowed to vote.

      The filing for in-court reorganization requires the submission of a series of documents including explanations about the financial difficulties encountered by debtor, financial statements, list of creditors with their respective classification and list of employees.

      Debtors shall submit a reorganization plan within 60 days from the publication of the court order authorizing the initiation of the proceeding. If the plan is not submitted, debtors shall be declared bankrupt (forced liquidation). Any reorganization plan must be approved by the following three categories of creditors in a general meeting of creditor.][3]


      N. 10406 código civil:

       Art. 213. Interested parties will be notified to, within sixty (60) days,

      counter-arguments to the appeal.


      3-3-1-4 Division of residual assets and acquittal of debt

      Lei 214  n. 10406 código civil:

      Art. 214. To complement the purpose of the reasons offered by way of appeal,

      INPI can make requirements, which should be met within 60 (sixty) days. Single paragraph. After the lapse of the caption, the appeal will be decided.



      3-3-1-5 Completion of Liquidation

      [When the company is liquidated, the judicial administrator files a final report and requests the court to conclude the case.][4]   

      Art. 216. The acts set forth in this law will be practiced by the parties or their prosecutors, qualified.

      § 1. The power of attorney in original, transfer or certified copy, should be in Portuguese, dispensed the consular legalization and recognition firm.

      § 2. The power of attorney must be filed within 60 (sixty) days from the practice of the first act by the party in the process, independently of notification or requirement, under penalty of filing, being definitive filing of the patent application, the application for an industrial design registration and trademark registration.

      Art. 219. It will be known to the petition, the opposition and the appeal when:

      I - presented after the period provided in this Law;

      II - not having legal basis; or

      III - not accompanied by proof of payment of the corresponding fee.

      [1] Doing Business in Brazil, Nishimura & Asahi. page 10-11



      [4] Brazil Motta, Fernandes Rocha Advogados and PricewaterhouseCoopers

      [1] Brazil Motta, Fernandes Rocha Advogados and PricewaterhouseCoopers