Incorporating in Procedures and timeframe
- Brazil
- 12/12/2001
- Azevedo Sette Advogados
This Legal Opinion and Law Article contains a brief description of the procedures to incorporate a company in Brazil and timeframe.
I. INCORPORATING IN BRAZIL
1.1 GENERAL ASPECTS
In order to incorporate and regularly operate in Brazil, a company must fulfill several requirements and perform its registration before many government departments. We present below a brief description of such requirements and conditions according to the Brazilian legislation.
Regardless Brazilian economy and legislation are becoming more attractive and open to private foreign investors, please note that still some strategic activities are restricted to foreign companies and individuals.
1.2 REGISTRATION BEFORE PUBLIC AGENCIES
The incorporation of a company in Brazil necessarily involves at least three phases: (i) the registration of the company’s Articles of Association or By-laws before the State Board of Trade or Public Notary, (ii) the enrolment before the Federal Tax Payer Register and (iii) the enrolment and registration before the State and/or local municipality.
Further registrations before other public agencies may also be required according to the company’s objectives and activities.
1.3 CORPORATE STRUCTURES
There are two types of corporate structures mainly used by foreign companies when incorporating in Brazil, which are: Limited Liability Companies and Joint Stock Companies. We present below a brief explanation of each one of them.
1.3.1 Brazilian Limited Liability Companies
The Sociedades por Quotas de Responsabilidade Limitada (“limitada”) are governed by Decree no. 3708 of January 10th, 1919.
A limitada is required by law to have at least two partners (who are named quotaholders), who, with few exceptions such as airway transportation companies, do not need to be Brazilian nationals, and may be either corporate or natural persons. In fact, the quotaholder does not need even to be resident in Brazil, provided that maintain a representative in Brazil.
The capital of a limitada is divided into quotas, which are subscribed by each of the quotaholders at the moment of its incorporation. The subscribed quotas may be paid up at the moment of the incorporation or in a term established by the quotaholders. There is no requirement as to the minimum capital that must be paid up on initial subscription or subsequent capital increases, except for certain types of companies for which the law provides for a minimum capital requirement (export/import and trading companies).
When the capital is not yet fully paid up, the liability of the partners is limited to the total capital of the company. Once the capital is paid up, liability is limited to the amount of each partner’s participation.
The Articles of Association of a limitada must state its name; the period for which the limitada is established; the company’s main activities; its administration; the principal place of business; the name and personal details of each quotaholder; and the amount of the capital and its distribution among the quotaholders.
Holdings in a limitada are reflected in the company’s Articles of Association, since the quotas representing the division of capital are not represented by certificates as in the case of shares. The articles must therefore be amended whenever quotas are assigned, transferred, or increased, so as to accurately reflect the ownership of the company’s capital.
The limitada may be managed by all the quotaholders, by some quotaholders, or by only one quotaholder. The articles of association must state who is to be the managing quotaholder. Should the managing quotaholder be a legal entity or an alien resident abroad, the delegation of administration and management powers to one or more individuals resident in Brazil is required. The quotaholders may, however, retain control over certain decisions by reserving certain rights in the Articles of Association.
Profits and dividends in a limitada may be distributed and paid according to each quotaholder participation in the company’s capital stock.
1.3.2 Brazilian Joint-stock Companies
The sociedade anônima is the corporate form which most closely resembles a joint-stock company or corporation. It is governed by Law no. 6404 of December 15th, 1976 (the Corporation Law).
A joint-stock company must in principle have at least two shareholders, who are liable only to the extent that the share capital for which they have subscribed remains unpaid.
A joint-stock company may be formed by public or private subscription. In either case, all the shares must be subscribed for by at least two persons, and a minimum of 10% of the share capital must be paid up. The paid-up share capital must be deposited with a commercial bank until all formalities for formation of the company have been completed.
Formation by private subscription may take place at a general meeting of the founders, or by a public deed of incorporation published simultaneously with the subscription of the shares. If any of the shares are paid up other than in cash, a general meeting must be called to value the assets contributed.
All documents relating to the formation of the company must be filed at the commercial registry, and subsequently published in the Official Gazette and in another widely circulated newspaper published where the company has its principal place of business.
The capital may be either subscribed or authorized. In the case of a company with subscribed capital, the company’s bylaws state the amount of capital actually subscribed for by the shareholders, although this capital need not necessarily to be paid up. The bylaws of an authorized capital company establish the limit up to which the capital actually subscribed for by the shareholders may be increased without the obligation of executing an amendment to its bylaws. The authorized capital limit may also consist of a number of shares, rather than an amount expressed in currency.
Company’s capital may be divided into several kinds of shares, all of which have different advantages, rights or restrictions attributed to them.
Common shares in a closely held company may belong to different classes, depending on:
· their non-convertibility into preferred shares;
· the requirement that the shareholder be Brazilian; or
· the right to vote separately for election of certain officers of the company.
Preferred shares in a publicly- or closely-held company may belong to one or more classes, and carry rights and/or privileges that may include the right to elect certain members to the company’s administrative bodies, even should the preferred shares be granted no other voting rights. Other privileges that may be granted to the holders of preferred shares are priority in the distribution of dividends by way of a fixed or minimum dividend, or priority in reimbursement of capital, or both.
The amount of preferred shares issued by the company may not exceed two-thirds of the company’s total issued shares.
Shares need not have a par value, and may be represented by certificates.
Shares may be paid up in cash or in assets capable of being valued in cash. Appraisal of the assets is obligatory, and the evaluation report must be approved by the shareholders in a general meeting.
The bylaws of a closely held company may restrict the circulation of shares, provided they do not prevent their transfer. Should such restrictions be imposed by means of an amendment to the bylaws, they will only apply to the shares of those holders who expressly agreed to them.
The Sociedade Anônima shall be managed by the Board of Officers, constituted by at least 2 (two) members, and the Board of Directors (if established in the company’s by-laws), constituted by at least 3 (three) members that shall bear at least one share. The officers shall necessarily be residents in Brazil. The Directors may reside abroad, provided that they maintain a representative in Brazil.
The sociedade anônima is free to establish the procedure for dividend payments. However, such procedure must be stated in the company’s bylaws. In the event the bylaws are suppressive with regards to the dividend payment, the Corporation Law establishes the minimum amount of half of the net profit obtained during the fiscal year to be distributed to the shareholders.
1.1 LIABILITIES OF THE OFFICERS FOR BOTH TYPES OF ORGANIZATIONS
In a Sociedade Anônima, the members of the Audit Committee, Board of Directors and Officers, and in a Limitada, the Quotaholder Manager and the General Manager, will be liable for any damages resulting from omission in performing their duties and from acts performed negligently or maliciously, or that violate the law or the company’s bylaws or Articles of Association. They will not be held liable for unlawful acts carried out by other members, except if they act in collusion with them or in fact participate in such act.
1.2 VISA REQUIREMENTS FOR FOREIGN OFFICERS OF THE COMPANY
A foreign citizen to be an officer of a Brazilian company and have signature and representation powers should be a permanent resident in Brazil and bear a Permanent Visa authorized by the Brazilian Immigration Coordination of the Ministry of Labor.
This type of visa application requires that the foreigner is appointed in the Brazilian company’s By-laws or Articles of Association as its legal representative upon issuance of the permanent visa. The private instrument appointing the foreigner to the statutory managing position must be duly registered before the Public Notary or Board of Trade.
In addition, it is also required a minimum direct investment of US$200,000 (two hundred thousand dollars) in such Brazilian company, which shall also have experienced an increase of employment of Brazilian nationals and demonstrate a growth strategy. Please note that the investment must be regularly registered before the Central Bank of Brazil
The Permanent visa holder is not bound to a limit time of stay. The permanent visa shall be valid for as long as the managing indication is maintained in the company’s statutes.
These are the two main requirements for the permanent visa application for statutory manager. However, the Brazilian company shall also comply with other requirements, such as the presentation of the Brazilian company corporate documents and inform the foreigner’s salary abroad, among others, which we would opportunely forward to you, in case it is convenient.
In addition, foreigners may work in Brazil (with no representation powers) under a temporary work visa, in which case the sponsoring company and the foreigner shall comply with other specific corporate, professional and educational requirements. In fact, the requirements for this category of visa depends on the activity and purpose of the foreign’s work in Brazil, which we could forward you accordingly.
1.3 TIMEFRAME FOR INCORPORATION OF A LIMITADA.
In both cases, i.e., for Limitadas and Sociedades Anônimas, the Articles of Association or By-laws of the company shall be registered before the local Board of Trade or Public Notary. Following that, the company shall also enroll in the Federal, State and Municipal Tax Payers Registry, if applicable.
Please, find below, a chart of the estimated length of time. Please note that such estimations shall be considered after we receive all the original foreign documentation (e.g. Certificate of Incorporation, Power of Attorney, etc.) and have all national documents signed and prepared (e.g. Articles of Association, forms, etc.).
We advise you that all foreign documents must be legalized and translated by sworn translator in order to have validity in Brazil. In that order, you will need to send us the documentation duly legalized at a Brazilian Consular Department abroad and we will manage the sworn translation in Brazil.
STAGE NORMAL
Sworn Translator 10 to 15 days
Board of Trade 7 to 10 days
Brazilian IRS (“CNPJ”) 5 to 10 days
TOTAL 22 to 35 days
After enrolling before the Federal Tax Payers Registry (“CNPJ”) the company may open a bank account, contract, hire and operate, but may not invoice or import equipment before getting the State and City License which normally take another 30 days.
1.4 NECESSARY DOCUMENTS TO INCORPORATE THE COMPANY :
The documents listed below are generally required for the incorporation of a company, either Limitada or Sociedade Anônima, before the Board of Trade or Public Notary and before the Federal Tax Payer Registry office:
· Power of Attorney from each shareholder/quotaholder and directors (if any) to a citizen resident in Brazil with, at least, powers to receive citation, duly signed, notarized and legalized by the Brazilian Consulate.
· Copy of the Certificate of Incorporation from each Shareholder (if corporation) duly notarized and legalized by the Brazilian Consulate.
· Copy of the Passport of the Shareholder (if person) duly notarized and legalized by the Brazilian Consulate
This list shall not be considered all inclusive. Brazilian public agencies reserves the right to require addition documentation if deemed necessary, including for enrollment before the State and Municipal Tax Payers Registry.
II. FOREIGN INVESTMENT REGULATION
2.1.1 Registration of Foreign Capital
Foreign capital should be registered before the Central Bank of Brazil within 30 days of the execution of the exchange contract, subject to penalties and fines imposed by the Central Bank that may reach the amount of R$100,000 (one thousand reais).
The registration of foreign capital is required when the commercial/financial exchange rate is to be used for the remittance of profits abroad, the repatriation of capital, and the registration of the reinvestment of profits.
Funds will always be registered in the foreign currency in which actually made.
2.1.2 Remittance of Profits and Treaties to Avoid Double Taxation
Profits and dividends posted and distributed as from 1996 are exempt from income tax. There are normally no restrictions on the distribution and remittance of profits abroad.
It is important to point out that Brazil has not signed double-taxation avoidance treaties with the United States of America. Otherwise, there is an administrative regulatory that allow the deduction of the income tax according to the reciprocity principle.
2.1.3 Reinvestment of Profits
According to the Foreign Capital Law, reinvestments are profits “made by companies established in Brazil and assigned to persons or companies resident or domiciled abroad, which have been reinvested in the company that produced them or in another sector of the domestic economy.
Should the foreign investor decide to reinvest rather than remit profits, such profits are eligible for registration as foreign capital along with the original investment, thereby increasing the basis of calculation for future capital repatriation.
2.1.4 Repatriation
Foreign capital registered before the Central Bank may be repatriated to its country of origin at any time without authorization. Returns in excess of the registered amount will be considered capital gains for the foreign investor, and thus subject to 15% withholding income tax.
In the specific case of repatriation of capital, the Central Bank will normally examine the net worth of the company involved, as shown on its balance sheet. If the net worth is negative, the Central Bank may decide that there was dilution of the investment, and may deny authorization for repatriation of a part of the investment in proportion to such negative result.
2.1.5 Remittances Abroad
Remittance of funds abroad in foreign currency using the commercial/financial exchange rate is restricted when such funds are not registered with the Central Bank, since the remittance of profits, repatriation of capital, and registration of reinvestment are all based on the amount of foreign investment registered.
The international transfer of funds in Brazilian currency between residents (including subsidiaries of foreign companies) and nonresidents provided that the transactions are carried out through banks authorized to deal in foreign exchange in Brazil is expressly free and does not require prior approval.
Local currency transferred abroad is converted into foreign currency through a number of mechanisms, one of them being interbank foreign exchange transactions on the tourism exchange market.
The remittance of foreign currency abroad for investment purposes (up to US$ 5 million per year) is entirely free. Transactions in excess of such value require preliminary approval from the Central Bank of Brazil. In any event, it is required that the remittances be made on the tourism exchange market, and carried out through banks authorized to deal in foreign exchange in Brazil. Certain formalities have to be complied with.
The rules in force reflect the trend towards greater flexibility in the area of foreign exchange. This may be viewed as the first step towards the unification of the exchange markets, to be followed by total freedom in foreign exchange.
