Brazil

• Author: Ricardo Barretto Ferreira da Silva - Paulo Marcos Rodrigues Brancher - Carla Amaral de Andrade Junqueira Canero
• Pages: 65-101

65

Brazil

Ricardo Barretto Ferreira da Silva

Paulo Marcos Rodrigues Brancher

Carla Amaral de Andrade Junqueira Canero

Barretto Ferreira e Bran cher—Sociedade de Advogados (B KBG)*

CHAPTER 3

COUNTRY OVERVIEW

Brazil is the largest economy in South America and one of the largest in the world.

This former agricultural colony has evolved into a power in agribusiness and, more

recently, in the oil and gas sector, with the discovery of new oil reserves. The coun-

try’s modern industries and service sector are also booming.

Brazil has a population of approximately 202 million inhabitants, which is

concentrated largely in the southeast region, mainly São Paulo, which is the largest

city in Brazil and in South America.

Over the past 30 years, Brazil successfully completed its political transition

from a military regime to a full democracy. The government is committed to

strengthening financial stability and to assuring the protection of national and for-

eign investments.

Brazil’s major trading partners are Argentina, China, and the United States.

Brazil is also a member country of MERCOSUR, an international trade zone with

an extensive agenda that includes not only trade but environmental, educational,

and cultural policies. Other MERCOSUR members include Argentina, Paraguay,

and Uruguay.

* The following additional memb ers of Barretto Ferreira e Brancher—Sociedade de

Advogados (BKBG) have contributed to this chapter: A ndré Fernandes, Luiz Eduardo Salles,

Cristiane Costa, L ionel Zaclis, Flávia Scabin, Rafael Schlik mann, Danielle Cavalcante;

Juliana Hansen, Camila Guglielmo, Carolina Gazoni, Fernanda Santos, Juliana Oshima,

Ingrid Santos, Michel le Bispo, Luciana Brandão, Lucas Bianchin i, Carolina Machado,

Isabella Vidigal.

66 Chapter 3

Brazil is a federative republic comprising states, municipalities, and the Federal

District. The country is governed by a presidential system and has three branches:

the executive, legislative, and judiciary at the federal, state, and municipal levels.

The president is elected for a four-year term (reelection being permitted) and

is the head of the executive branch, which is the government branch charged with

direct and indirect administration. The legislative branch is formed by a bicameral

National Congress, which is responsible for passing proposed legislation before

it receives presidential sanction. The judiciary system is composed of federal and

state courts. In addition, Brazil has a federal law that permits arbitration to solve

conflicts involving disposable patrimonial rights.

The Brazilian legal system is based on civil law and is founded on the Brazilian

Federal Constitution of 1988.

ESTABLISHING A BUSINESS PRESENCE

Permanent Structures

Suitable Corporate Forms

Brazilian law provides for different forms of association for the conduct of eco-

nomic activities geared to the production or circulation of goods and services.

Among the corporate-entity types of companies, the most common are the cor-

poration (sociedade anônima or SA) and the limited liability company (sociedade

limitada or LTDA).

LTDAs are disciplined by the Brazilian Civil Code (L aw 10,406/02). The mini-

mum number of partners is two in this type of company. The capital of an LTDA

is divided into proportional parts (quotas), distributed among the partners (quota-

holders), and not represented physically by certificates. The number of quotas held

by each partner is established in the company’s articles of incorporation, and any

transfer or assignment of ownership over the quotas is subject to an amendment

to the articles of incorporation. The corporate name may include the name of the

partners or a fictitious name, but it is always accompanied by the expression lim-

itada or its abbreviation, Ltda. The corporate name shall also indicate the purpose

of the company in summarized form.

LTDAs are managed by one or more administrators, who shall be Brazilian or

foreign individuals residing in Brazil (with a permanent work visa) and who need

not necessarily be partners. Brazil ian law permits the creation of an advisory board

and audit committee for the LTDA, whose respective duties and operation shall be

regulated in the articles of incorporation.

SAs are governed by Law 6,404/76 (the Brazilian Corporation Act). An SA

operates under the corporate name indicating its corporate purpose, with the addi-

tion of the expressions sociedade anônima or companhia in full or in abbreviated

form. There is no minimum capital requirement for the formation of an SA, except

Brazil 67

in special cases (for example, financial institutions and trading companies). SAs

may be organized with “authorized capital”—that is, with less subscribed capital

than the amount authorized by the bylaws. In this scenario, an increase of the sub-

scribed capital up to the authorized limit will not be subject to an amendment to

the bylaws. The capital stock is divided into shares, which may or may not have a

face value. The minimum number of shareholders is two. Shares may be common,

preferred, or fruition shares according to the nature of the rights or benefits that

they confer on their owners, and registered or book entry, with respect to their

form. Brazilian law prohibits the issuance of bearer shares.

SAs may be of two kinds: publicly held or closely held, depending on whether

or not the securities issued by them are listed for trading on the securities market

(stock exchange or over-the-counter market). Publicly held corporations are autho-

rized to raise funds with the investor community and are currently submitted to

the legislation that disciplines the capital market, and also to the supervision of

and registration with the Brazilian Securities Commission (Comissão de Valores

Mobiliários or CVM), which is an independent administrative authority in charge

of regulating, controlling, and supervising the Brazilian capital market.

The administrative bodies of SAs are the board of directors (conselho de

administração), which is mandatory for publicly held companies and for those with

authorized capital, and the board of executive officers (diretoria). The board of

directors is responsible for determ ining the company’s general business orientation;

the board of executive officers is the company’s executive body, with the exclu-

sive responsibility of representing the SA before third parties. The members of the

board of executive officers (diretores) will be individuals residing in Brazi l, whereas

the members of the board of directors may be individuals residing and domiciled

abroad, provided that they are represented by an attorney-in-fact residing and

domiciled in Brazil, duly empowered to receive summons. The board of directors

shall be composed of at least three members, who may be shareholders or not, and

the board of executive officers shall be composed of at least two officers, who may

be shareholders or not. The SA may optionally have an advisory committee, whose

members may reside abroad and be remunerated by the Brazilian company.

SAs shall have an audit committee, whose formation, when its operation is not

permanent, may be called for at any shareholders meeting, as provided by law.

Shareholders in an SA generally enter into shareholders’ agreements, which

typically deal with such matters as the purchase and sale of shares, the preemp-

tive rights related thereto, and exercise of voting rights. The company must comply

with the provisions of the shareholders’ agreement whenever it is registered with

the company’s head offices. The protection of minority shareholders is provided

for by law and may be extended through provisions in the corporate bylaws and

shareholders’ agreements.

Brazilian law considers companies regularly registered with the competent

public registry office as legal entities. Companies that develop business activities

are subject to registration with the Board of Trade (Junta Comercial).