Brazil offers various corporate structures for those looking to incorporate a business here, which can be confusing, particularly for foreigners planning to enter the Brazilian market. Among these options, the limited liability companies and the joint-stock companies stand out as the most common corporate types.
The limited liability company is one of the most popular structures in Brazil, frequently used for family businesses, smaller ventures, and investments involving few partners, although large businesses may also be organized using this structure. Its key attributes include:
Capital and Quotaholder Liability
- Its quota capital is divided into quotas, and quotaholder liability is limited to the nominal value of the quotas they hold. This means quotaholders are not personally liable for company debts, except in cases of misuse of company purpose or of asset commingling.
- Limited liability companies’ quotas cannot be traded on stock exchanges.
Corporate Composition
- It can have one or more quotaholders, with no requirement for multiple quotaholders throughout the company’s existence.
Structure and Governance
- It does not require a board of directors. Typically, management is handled by one or more quotaholders acting as officers, without the need for general meetings unless the bylaws stipulate such formalities, streamlining decision-making processes. Additionally, a non-quotaholder may act as the officer.
Financial Statement Publication
- Limited liability companies are not required to publish financial statements or balance sheets in newspapers or public records. However, if a limited liability company is legally classified as a large company (total assets exceeding BRL 240 million or annual gross revenue exceeding BRL 300 million), its financial statements must comply with the same criteria applicable to joint-stock companies’ financial statements but still do not require publication.
The joint-stock company or corporation is the most common structure for large companies or businesses aiming to raise capital in the securities market by trading debt instruments like debentures and promissory notes. This corporate type is more complex and regulated, emphasizing transparency and stricter rules for companies issuing securities.
Share Capital and Shares
- Its share capital is divided into shares, and shareholder liability is limited to the value of the shares they own. Similar to limited liability companies, shareholders’ personal assets are only liable for company debts in cases of misuse of purpose or asset commingling.
- A joint-stock company can be either publicly held, with shares traded on stock exchanges, or privately held, with shares not publicly traded.
Types of Shares
- Shares can be common or preferred. Common shares grant voting rights in corporate decisions, while preferred shares (typically without voting rights) provide certain exceptional rights or advantages defined in the bylaws, such as priority in receiving dividends.
Shareholder Composition
- A joint-stock company must have at least two shareholders unless it is a wholly-owned subsidiary. In this case, it can have a single shareholder, provided that it is a Brazilian legal entity.
Governance Structure
- It features a more rigid governance structure with specific management bodies such as a board of directors (optional), executives, and, in some cases, an audit board. General shareholder meetings are mandatory for certain decisions, including approving the financial accounts of the previous fiscal year.
- For publicly traded companies, additional governance rules must be followed as set by the Brazilian Securities Commission (CVM) and, in some cases, the stock exchange.
Financial Statement Publication
- Joint-stock companies must publish their financial statements in widely circulated newspapers, with a summarized version in print and the full version online. If the joint-stock company has annual gross revenue of up to BRL 78 million, financial statements can be published electronically on the SPED Balance Sheet Center, eliminating the need for print publication.
Corporate Books
- Under Brazilian law, joint-stock companies must maintain the following corporate books:
- Share Registry Book
- Share Transfer Registry Book
- General Meeting Minutes Book
- Shareholders’ Attendance Book
- Board of Directors Meeting Minutes Book (if applicable)
- Board of Officers Meeting Minutes Book
- Audit Board Minutes and Opinions Book
Both the limited liability company and the joint-stock company are effective corporate structures for businesses in Brazil, catering to different objectives and business profiles. The limited liability company offers a more simplified and cost-effective governance structure, while the joint-stock company requires a more robust governance framework with higher maintenance costs but may be more attractive to professional investors.
Understanding these differences is essential for anyone planning to invest or expand their business in Brazil. To choose the ideal corporate type, it is always advisable to seek specialized legal and accounting consultancy to ensure strategic objectives are met and local legal requirements are complied with
