In Brazil, there is a distinction between business companies and simple companies that resembles the difference between commercial companies and civil companies found in other countries with Roman-Germanic legal traditions, such as France or Germany.
Simple companies are the exception, as they pertain only to rural, intellectual, scientific, literary, or artistic activities. However, when the purpose of simple companies is part of a broader economic activity, they must be considered as business companies. Thus, internal scientific research departments of companies would not, in principle, be engaged in business activities. However, if they are part of a larger venture (such as scientific research for the subsequent production and sale of medicines), the company conducting such research will be considered as a business company.
Furthermore, although rural companies are theoretically regarded by law as simple companies, they may be registered with the Board of Trade as business companies, in which case they are then equated to business companies for all legal purposes.
The most significant differences between simple companies and business companies are as follows: (i) simple companies are registered in the Civil Registry of Legal Entities, whereas business companies are registered in the relevant Board of Trade; (ii) the corporate purpose of simple companies, as mentioned above, is restricted to rural, intellectual, scientific, literary, or artistic activities, whereas business companies can engage in other economic activities; (iii) in simple companies, quotaholders may contribute services to the company’s activities, which is not allowed in business companies; (iv) in pure simple companies, the decision-making quorum is higher, requiring unanimity between the quotaholders in various circumstances; and (v) simple companies are subject to civil insolvency proceedings, whereas business companies are subject to bankruptcy proceedings and may seek judicial or extrajudicial reorganization.
However, in general, simple companies can adopt the legal form of limited liability companies, so any potential issues regarding the corporate purpose or any special decision-making quorums are resolved by the adoption of the limited liability company structure.
Despite these considerations, which largely bring simple companies closer to business companies, the specific rules for simple companies are still relevant in some cases, particularly regarding quotaholders’ contributions in the form of services, as this is not legally permissible for simple companies that adopt the limited liability company form. Additionally, there are cases in which the law mandates the application of simple companies’ rules, such as the law for cooperatives and for law firms, which are always considered as simple companies.
Corporate Law Practice of Franco Advogados
