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 large st economy in South America a nd one of the largest in the world.

This former agric ultural colony has evolved into a power in agribusines s and, more

recently, in the oil and gas sector, with the d iscovery of new oil reserves. T he coun-

try’s modern industries a nd service sector are a lso booming.

Brazil has a population of approximately 202 mil lion inhabitants, which is

concentrated largely in the southeas t region, mainly São Paulo, which is t he largest

city in Brazil a nd in South America.

Over the past 30 years, Bra zil successfully completed its political transit ion

from a military regime to a full democ racy. The government is committed to

strengthening f inancial stabil ity and to assuring t he protection of national and for-

eign inve stments .

Brazil’s major trading partners a re Argentina, Ch ina, and the United St ates.

Brazil is also a member cou ntry of MERCOSU R, an internationa l trade zone with

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

and cultural polic ies. Other MERCOS UR members include Argenti na, 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, a nd the Federal

District. The cou ntry is governed by a presidential system a nd has three branches:

the executive, legislative, and judici ary at the federal, state , and municipal levels.

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

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

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

National Congress, wh ich is responsible for passing proposed legislation before

it receives presidential sanction. T he judiciary system is compos ed of federal and

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

conflicts i nvolving disposable patrimonial r ights.

The Brazilia n legal system is based on civil l aw and is founded on the Brazilia n

Federal Constitution of 1988.

ESTABLISHING A BUSINESS PRESENCE

Permanent Structures

Suitable Corporate For ms

Brazilian law provides for dif ferent forms of association for the conduct of eco -

nomic activities geared to t he production or circulation of goods and ser vices.

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

poration (sociedade anônima or SA) and the limited liabil ity company (sociedade

limitada or LTDA).

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

mum number of partners is t wo in this typ e of company. The capital of an LTDA

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

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

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

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

to the articles of incorp oration. The corporate name may include the na me of the

partners or a fict itious name, but it is always accompanied by the expre ssion lim-

itada or its abbreviation, Ltda. T he corporate name shall also i ndicate the purpose

of the company in summar ized form.

LTDAs are managed by one or more administ rators, who shall be Brazi lian or

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

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

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

regulated in the ar ticles of incorporation.

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

operates under the corporate name i ndicating its corporate purpo se, with the addi-

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

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

Brazil 67

in special cases (for example, f inancial inst itutions and trading compan ies). SAs

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

than the amount authoriz ed by the bylaws. In this scen ario, an increase of the sub -

scribed capital up to the authorized l imit will not be subject to a n amendment to

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

face value. The minimu m number of shareholders is two. Shares may be com mon,

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

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

form. Brazilian l aw prohibits the issuance of bearer shares.

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

or not the securities issue d by them are listed for trading on t he securities ma rket

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

rized to raise fu nds with the investor commun ity and are currently submit ted to

the legislation that disc iplines the capital market, a nd also to the supervision of

and registration with the Brazilian Se curities Comm ission (Comissão de Valores

Mobiliários or CVM), which is a n independent adminis trative authority in charge

of regulating, controlli ng, and supervising t he Brazilian capital m arket.

The administ rative bodies of SAs are the boa rd 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 compa ny’s executive body, with the exclu-

sive responsibility of representing the SA before third parties. T he members of the

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

the members of the board of direc tors may be individuals residing a nd domiciled

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

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

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

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

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

members may reside abroad and be remunerated by the Brazil ian company.

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

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

Shareholders in an SA generally enter into sha reholders’ agreements, which

typically deal w ith such matters as the purcha se and sale of shares, the preemp-

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

with the provisions of the shareholders’ agreement whenever it is reg istered with

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

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

shareholders’ agreements.

Brazilian law considers compan ies regularly regist ered with the competent

public registry offic e as legal entities. Compan ies that develop business activities

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