Company Registration Brazil
What is an "Incorporation"
Incorporation is the legal process used to form a corporate entity or company. A corporation is a separate legal entity from its owners, with its own rights and obligations. Corporations can be created in nearly all countries in the world and are usually identified as such by the use of terms such as "Inc." or "Limited" in their names.
Throughout the world, corporations are the most widely used legal vehicle for operating a business. While the legal details of a corporation's formation and organization differs from jurisdiction to jurisdiction, most have certain elements in common.
Organization of Corporations
Incorporation involves drafting legal documents called "Articles of Incorporation" that list the primary purpose of the business, its name and its location, and the number of shares and class of stock being issued, if any. Incorporation also involves jurisdiction-specific registration information and fees.
Companies are owned by their shareholders. Small companies can have a single shareholder, while very large and often publicly traded companies can have several thousand shareholders. As a rule, the shareholders are only responsible for the payment of their own shares. As owners, the shareholders are entitled to receive the profits of the company, usually in the form of dividends. The shareholders also elect the directors of the company.
The directors of the company are responsible for the day-to-day activities of the company. They owe a duty of care to the company and must act in its best interest. They are usually elected annually. Smaller companies can have a single director, while larger ones often have a board comprised of a dozen or more directors. Except in cases of fraud or in some specific tax statutes, the directors do not have personal liability for the company's debts.
Advantages of Incorporation
Incorporation has many advantages for a business and its owners, including protection of the owner's assets, because the company is liable for its own debts. Other advantages include easy transfer of the business ownership to another party through the sale of shares; the possibility of tax planning for the owner through the use of a lower tax rate than ones for personal income; and access to financing for business activities through, among others, the sale of stock.
Incorporation effectively creates a protective bubble, often called a corporate veil, around a company's shareholders and directors. As such, incorporated businesses can take the risks that make growth possible without exposing the shareholders, owners and directors to personal financial liability outside of their original investments in the company.
FAQ's on Starting a Company
What is the Central Bank of Brazil responsible for when it comes to foreign direct investment?
The Central Bank of Brazil is responsible for:
● Maintaining a special registrar of all foreign capital, without taking into account the procedure used to bring it into or out of the Country.
● Records are kept for direct investments and loans in either cash or goods;
● Reinvestments of foreign earnings and capital increase of companies (effective in accordance with the law enforced);
● Values affected as a result of a return in capital, earnings, profits, dividends, interest, amortization, royalties or any other means that represent the transfer of earnings to a foreign country.
Who is able to be a representative of foreign Quotaholders?
Foreign entities or individuals holding shares or quotas in Brazilian companies must maintain a legal representative (attorney-in-fact). Residents in Brazil need to have powers to receive service of process in legal actions involving their holdings of shares or quotas, as well as be enrolled in the Brazilian Internal Revenue Service Agency. However, if one of the Quotaholders/Partners (foreign natural person) applies for a permanent investor visa after an R$ 600k direct investment in the company, this foreign shareholder will be able to manage the company and revoke the power-of-attorney to his former legal representative.
What documents are necessary in order to open a Corporate Bank Account in Brazil?
Mandatory and regulatory requirement:
● Proof of Identity (passport, national ID..)
● Proof of residency (electricity, phone or water bill) Optional: sometimes mandatory and always useful
● Curriculum vitae (CV)
● Marriage certificate
● Birth certificate
What documents are needed for the Company Formation in Brazil?
For personally owned Brazilian Ltda:
● Passport copy
● POA (Setup Global will provide template)
● AOI
● Company Letter (Setup Global will provide template)
● POA (Setup Global will provide template)
In addition, the provision of a Curriculum Vitae/legal entity brochure is sometimes mandatory and always useful. Documents must be notarized, and then registered / apostilled at the Brazilian consulate.
What is the time frame for the company formation process?
The registration process for company formation of Sociedade limitada/LTDA (Limited Liability Company/LLC) take approximately 20-45 days for simple services rendered. For a more complex and/or commercial LTDA formation, it can take up to 4 months. These dates are approximated from the time we receive all of the properly prepared documents.
Can the company be 100% owned by foreigners?
Yes, you don’t need to have a Brazilian partner to start a company in Brazil, however you will need to have a Brazilian Address for the company, Brazilian resident Administrator, and Brazilian resident legal representative, in order to form a Brazilian company (Ltda) and obtain a Corporate Bank Account.
What would cause a dissolution of a LTDA.?
A LTDA may be dissolved... ● At the end of its terms (as stated in the Articles of Association)
● By a unanimous resolution of all quota holders or by the resolution of quota holders representing an absolute majority in a company with an undetermined term of duration
● If there is only one quota holder that exists and the minimum of two quota holders is not reestablished in 180 days
● Filing bankruptcy. The death of a quota holder does not cause a LTDA to dissolve. The quota holder may be help by the diseased heir or the company can continue with the remaining quota holders (provided in the Articles of Association).
What would the Sociedade Limitada (Ltda) be equivalent to?
It is equivalent to a limited liability company (LLC) in the United States, Pvt. Ltd. (Private Limited Company) in India, Private Company Limited by Shares in the United Kingdom. This company formation (LTDA) is most commonly used for foreign businesses in Brazil.
When should a company require amendments to the Articles of Incorporation of LTDA?
● Resolution of the quotaholders by increasing or decreasing the company’s capital
● Extending the term of the company’s duration
● Changing the company’s name
● Changing their head office address
● Changing or adding activities
● Admitting or excluding quotaholders.
Quotaholders who disagree with an amendment to the Articles of Association have the right to withdraw from the company.
What is the definition of foreign capital (as per Foreign Capital Law)?
“Any goods, machines and equipment coming into Brazil with no initial foreign currency expense, for the production of goods or services, as well as financial and monetary funds coming into Brazil to be invested in economic activities, provided that in both cases these assets belong to individuals or legal entities either domiciled or headquartered abroad.”
What are the incorporation procedures/steps?
It’s around ~40-50 Steps process, in brief can be as:
2. Documents translated by a public sworn translator (in Brazil)
3. Documents & Translation registration (in Brazil)
4. We will obtain a CPF/CNPJ (tax payer ID) and draft an AOI.
5. File the Articles of Incorporation with either the Commercial Registry or the Civil Registry office. (ex. Board of Trade)
6. We will enroll the AOI with the Legal Entities Taxpayers Registry of the Brazilian Internal Revenue Service (CNPJ),
7. If your company is commercial, you must also register with the State and Municipal taxpayers’ registry
Is there a difference between local and foreign investment or companies owned by Brazilians and companies owned by foreigners?
● Document preparation (notarized and apostilled by Brazilian consulate).
● A Brazilian resident must be the legal representative for the foreign Quotaholders (partners need legal representative “Attorney-in-fact” temporarily till they obtain residency in Brazil)
● Quotaholders must name a Brazilian resident as the Managing-Director / Administrator for limited liability companies.
But when talking about business; selling, buying, taxation, etc., businesses are 99.99% the same for Local domestic direct investment and foreign direct investment.
How are quotas transferred?
Quotas are not represented by securities or certificates, but their ownership is granted by the AOI. Any transfer of title of the quotas requires an amendment to the Articles of Incorporation. The law requires the approval of quotaholders that hold at least 3/4 of the total company capital to amend the Articles of Incorporation.
What is the minimum startup capital for “LTDA”?
In general, there is no minimum required for start-up capital, however, if you wish to apply for an investor/permanent visa for partner or company officer/administrator, you must invest a minimum of R$ 150K or R$ 600K. To obtain the visa, you will need to show/proof of capital, of at least this amount, in your Brazilian bank account.
What are the foreign capital restrictions imposed by Brazilian law?
There are only a few areas restricted:
● They impose restrictions on financial institutions
● The acquisition of rural and frontier real estate
● Broadcast media content
● Insurance
● Nuclear energy usage
In brief, what are the most important things I need to know about starting a starting a company in Brazil?
Limited liability Company (Sociedade Limitada/Ltda in Brazil) is the most common legal entity for foreigners starting in Brazil.