Home 8. Corporate

 

8. CORPORATE

Authors: Loeser e Portela Advogados

In Brazil, the legal entities of private law may adopt three different forms, due to their form of incorporation and purpose sought. Foundation, Association or Company. The foundations and the associations seek common purposes which are not of economic nature, while the Companies are organized to seek economic common purposes.

The corporate types mostly adopted in Brazil are the limited liability company and the joint stock company (also called corporation), since in both types the responsibility of the partners is limited in relation to the company and third parties. However, in addition to the corporations and limited liability companies, Brazilian legislation provides for other legal forms of incorporated and unincorporated companies, as follows: (i) incorporated: simple companies, collective company, simple command companies, share command companies and cooperative company, and, (ii) unincorporated: common company and participation company. It is convenient to note that the so-called unincorporated companies have no legal personality, and thus are not considered legal entities.

Previously ruled by the Brazilian Commercial Code (Law no. 556/50) and by the Decree 3.708 dated January 10th, 1919, the companies are now ruled by the Civil Code (Law no. 10406/2002), which revoked the provisions of Law no. 556/50, related to companies, the Decree 3.708/19, in its totality and unified in one same legislation body the civil and commercial law.

It is important to highlight that joint-stock companies are ruled by Law no. 6.404, dated December 15th, 1976, which remains in effect.

8.1. LIMITED LIABILITY COMPANY

The limited liability company is the mostly used corporate form in Brazil. This preference is supported by some aspects which result in savings and secrecy for the partners, such as:

(i) limitation of the responsibility of the partners;

(ii) more simple and flexible legal structure; and

(iii) non existence of legal obligation of creating a capital reserve fund, being the allocation of the results achieved totally free.

We can also mention anotheraspect to explain the preference for the limited liability company: the non existence of the legal obligation of publishing the financial statements each fiscal year.

However, with the enactment of Law no. 11638, dated December 28th, 2007, a discussion on the existence or non existence of such legal obligation of large size companies has been raised (companies or holdings that have had, during the previous fiscal year, assets in excess of two hundred and forty million reais - R$ 240,000,000.00 - or gross annual income in excess of three hundred million reais - R$ 300,000,000.00 - even if they have not been incorporated under the form of joint stock company (corporation). The same law institutes the requirement of independent audit for large size companies. There is a school of thought which understands that the publication is not mandatory, under the allegation that such duty is not expressly mentioned in the legal text. Still, there are many controversies regarding this issue, and a conclusive position from Brazilian Judiciary and the Public Registry of Commercial Companies is expected.

In limited liability companies, the responsibility of the partners is restricted to the amount of interest held by each of them in the subscribed corporate capital. However, all partners are jointly liable for the complete payment of the corporate capital up to the full payment of the subscribed capital.

The acts of the limited liability companies, related to split ups, mergers and resignation of managers - or yet, capital reduction - shall be published in the State or Federal Official Gazette and in a great circulation newspaper on the company's headquarters area.

The incorporation of a limited liability company occurs by means of the execution of a private instrument of incorporation(articles of association). At this time, it is necessary to define, among other aspects, the following points of the articles of association:

Partners

The Brazilian legislation requires the limited liability company to have at least two (02) partners which, apart from rare exceptions defined by the law and depending on the scope of the company, may or not be Brazilian individuals or legal entities and may or not reside in Brazil.

It is mandatory to indicate the name, nationality, profession and residential address, if individuals, or corporate name, nationality and address of the headquarters, if legal entity.

In case of foreign partner, it must appoint as its attorney-in-fact an individual residing in Brazil, under the terms of the applicable legislation.

Corporate Name

The articles of association shall inform the corporate name, comprised mandatorily of the main activity of the company followed by the expression "Limited" or its short form "Ltda.";

Corporate Capital

The corporate capital shall be divided into quotas (equal or not) with the same par value and may be paid in cash, assets or credits, should the articles of association so provide.

Apart from rare exceptions, there is no legal requirement of minimum capital to be paid at the time of the initial subscription, not even the submission requirement of evidence payment of the corporate capital or minimum term to make such payment. Notwithstanding, the partners shall contribute with funds that shall suffice to enable the company to achieve its corporate purposes.

However, it should be emphasized that there may only occur a new capital increase if the initial subscription has been fully paid-in.

Administration

The administration will always be exercised by individuals, residing in Brazil, which may or not be a partner, depending on what was established by the partners in the articles of association. The appointment of managers may be done in the articles of association itself, or by separate act. The legislation does not present a specific name for the managers, but usually they are designated as Officers (individually), or as Executive Board (collectively).

As a general rule, the foreigner individual is authorized to hold a management position as long as it has the permanent visa for Brazil.

The partners may establish limitations to the actions of the local manager and control its decisions by means of mechanisms provided in the articles of association, such as the requirement of the prior approval of the partners on certain subjects.

Other Relevant Requirements

In addition to the above requirements, the company's articles of association shall indicate the address of the headquarters, the period of duration, corporate capital and corporate scope.

The limited liability companies shall maintain corporate books to record the minutes of the Executive Board, minutes and opinions of the Statutory Audit Committee, if any, and minutes of general partners' meetings.

Another relevant characteristic refers to the requirement of holding, at least once a year, a general partners' meeting within the four (04) months subsequent to the end of the fiscal year, in order to approve the accounts and balance sheet (financial statements), decision on the allocation of the results and distribution of dividends, and appointment of the managers, if necessary.

Should the company be comprised by eleven (11) or more partners, the decisions shall be adopted exclusively by means of General Meetings, under the terms of the Civil Code. Otherwise, should the company have ten (10) or less partners, it may adopt the Partners' Meeting form, whose operation shall be established in the Articles of Association.

The limited liability company gains its own legal personality after the registration of its articles of association with the relevant Public registration of Commercial Companies (Boards of Trade), if it is a commercial company, or with the Civil registry of Legal Entities, if it is a simple company organized as a limited liability company.

8.2. JOINT STOCK COMPANIES (OR CORPORATIONS)

As mentioned above, the joint stock companies (or corporations) are ruled by Law no. 6404, dated December 15, 1976 ("Corporate Law" or "LSA"), which has already suffered amendments, last one in May 27th, 2009Law no. 11.941).
Joint stock companies are legal entities with corporate capital divided into shares, it so being that the responsibility of its shareholders will be limited to the total value of the issue price of the shares subscribed or acquired by each one.

The corporate name of joint stock companies shall be followed by the expression "Corporation" or "S.A." or yet, placing before the corporate name the word "Company" or "Cia.".

The joint stock companies may be divided into publicly-held companies or closed corporations. A publicly-held company has its securities accepted for trade in the stock market or over-the-counter markets and may capture resources before the public for their own funding, and, therefore, shall be registered with the Brazilian SEC - CVM, the federal body responsible for the surveillance of this kind of company.

On the other hand, closed corporations are those which do not have its securities traded in the capital market, thus, is not subject to the regulatory control of CVM, and, consequently, are allowed to adopt a much simpler operation and management form then that of a publicly-held company.

8.2.1. Incorporation

As a general rule, it is necessary to observe the following requirements on the incorporation of a joint stock company:

(i) subscription by at least two (02) persons , of all shares into which the corporate capital is divided;

(ii) payment of at least ten percent (10%) of the issuance price of the shares subscribed, in cash;

(iii) deposit in Banco do Brasil S.A. or another bank authorized to operate by the Brazilian Securities Commission - CVM of the above mentioned 10%; and

(iv) filing of the articles of association with the Public registration of Commercial Companies (Boards of Trade).

Apart from rare exceptions, there is no minimum amount of corporate capital on a joint stock company, nor a term for its full payment, but the partners shall contribute for the corporate capital with enough resources for the achiviment of the company's objectives.

Moreover, the incorporated joint stock company may be of a sole person under the following hypothesis: (i) until the plurality of partners is restored, which must happen before the next General Ordinary Meeting to be held, under the penalty of being legally dissolved; or (ii) if it is declared a fully owned subsidiary .

8.2.2. Fully owned Subsidiary

The fully owned subsidiary is the corporation that consists of one sole shareholder, which must be a Brazilian company, existing according to the laws of Brazil.

The fully owned subsidiary may be created by original organization, by means of a public deed of incorporation or by the conversion of an existing company, when the instituting company shall acquire all existing shares of the company or shall incorporate its shares.

8.2.3. Shares

The corporate capital of the companies is divided into equal fractions, called shares, which assign their owners the condition of corporate shareholders. Depending on the nature of the rights and advantages granted by the shares to their owners as well as on the form of their circulation, they may be classified as ordinary, preferred or fruition.

The common shares are, by definition, shares which grant their holders the rights of a common partner, such as the voting right not subject to waiver, and therefore, its owner has no advantages or restrictions in respect to the shareholders' rights.

The preferred shares, on the contrary of the common shares, are always distinguished, since they assign their holders certain advantages, which shall be defined in the Bylaws. The preferred shares may suffer several limitations, including and most commonly, the restriction of the voting right in the corporate resolutions.

The fruition shares are those which substitute the common or preferred shares when fully amortized. The amortization consists in the advanced payment of the amount that the shareholder would receive, as capital return, if the company was dissolved and liquidated, and which cannot prejudice the corporate capital.

The identification of the shareholder is implemented in the company's corporate books. The company may also choose, observing the conditions imposed by the law, to hire the registration services of a financial institution authorized by CVM.

The shares shall be nominative, taking into consideration that Law no. 8021, dated April 12, 1990, excluded from the Brazilian legislation the endorsable and bearer shares. Therefore, either the shares are recorded in the "Book of Registry of Nominative Shares" on behalf of its owner, and this registration results in the property of the shares, or, in case of registration with a financial institution, the property is defined in the books of the authorized financial institution. The title of the registered shares is evidenced by an extract of the so-called account of deposit of shares.

The shareholders may, by means of a shareholders' agreements, establish rules about the purchase and sale of its shares, first refusal rights on their acquisition, exercise of the voting rights or control power, it so being that, depending on the obligations undertaken in such agreements, they shall be liable of specific enforcement.

Corporations may also have authorized capital, granting the company the possibility of, within a certain limit, increase the corporate capital through the issue of new shares, irrespectively from an amendment of the Bylaws. In this case, however, the company must have a Board of Directors - on this matter, see item 8.2.4.2.1.

8.2.4. Bodies a Corporation

The corporate bodies in charge of the decisions and inspection of a corporation are: (i) General Meeting, (ii) Board of Directors, (iii) Executive Board and (iv) Statutory Audit Committee.

8.2.4.1. General Meeting

The General Meeting is the supreme body of the company and, once duly called and regularly installed, has powers to decide on all corporate matters and adopt all resolutions deemed convenient to the defense and development of the company's activities.

The joint stock companies may hold Ordinary and Extraordinary General Meetings, depending on the matter to be discussed by the shareholders in the Agenda.

The Extraordinary General Meetings shall be held in order to discuss the subjects which are not exclusive of the Ordinary General Meetings listed below, including the amendment of the Bylaws.

All companies must hold an annual Ordinary General Meeting, during the four months subsequent to the end of the fiscal year, in order to:

(i) take the accounts prepared by the management, examine, discuss and vote the financial statements;

(ii) decide on the destination of the net profits of the fiscal year and the distribution of dividends; and

(iii) elect the officers or the members of the Board of Directors and the Statutory Audit Committee, should it be the case.

The officers shall provide for the publication of the announcement calling the General Meetings for three (03) times, at least, in a great circulation newspaper and in the State or Federal Official Gazette. Any company will be released from publishing such call announcement if the totality of the company's shareholders attend the General Meeting. However, irrespectively from that, the minutes of the General Meetings shall be published after filed with the relevant Public registration of Commercial Companies (Board of Trade).

The closed corporations with less than twenty (20) shareholders and net equity inferior to one million Reais (R$ 1,000,000.00) will be legally released from certain formalities, such as, for instance, publication of call notice, management report, etc. according to article 294 of the Corporate Law.

The officers shall notify, up to one (01) month before the date of the Ordinary General Meeting, by means of the publication of notices, that the following documents are at the disposal of the shareholders at the company's headquarters, and they also are incumbent to publish the documents themselves up to five (05) days before the date of the Ordinary General Meeting:

(i) management report on the corporate business and the main facts occurred during the last fiscal year;

(ii) copy of the financial statements; and

(iii) opinion of the independent auditors, if any.

The General Meeting attended by all shareholders may deem as correct the failure to public the notices or the failure to observe the above mentioned terms, but the publication of the above mentioned documents will be mandatory before the General Meeting is held. Alternatively, the publication of the notices will be waived if the above documents are published one (1) month before the date of the General Meeting.

The joint stock companies are obliged, as well as the other corporate types, to maintain in its headquarters, commercial and tax books, in which their transactions are recorded. However, in addition to these, corporations shall keep the corporate books listed under article 100 of the LSA, which are updated to record the minutes of the corporate offices, as well as to record and transfer the securities issued by the Company.

8.2.4.2. Administrative Bodies

The joint stock companies may be managed by a Board of Officers and Board of Directors, or only by a Board of Officers if it is a closed corporation, except for publicly-held authorized capital companies and government-controlled companies, which must have a Board of Directors.

8.2.4.2.1. Board of Directors

The Board of Directors is a collegiate decision body, with features of indirect management and internal organization, comprised by at least three (03) members with a term of office of at least three (3) years, which must necessarily be shareholders of the company, individual persons, residing or not in Brazil and elected by the General Meeting. Reelection is allowed.

The Directors elected by the General Meeting shall take office by means of the execution of a Term of Office in the company's apropriate book, up to thirty (30) days after their election and may be dismissed at anytime, by the General Meeting. The investiture of a foreign counselor which is a non resident is conditional to the constitution of an attorney-in-fact who must be resident in Brazil, with powers to receive summons in suits filed against the Director. The power-of-attorney granted to the legal representative of the foreign Director must be valid for, at least, the next three (3) years from the end of the Director's term of office.

The Board of Directors is the body qualified to establish the economical and financial guidelines and to supervise the action of the company's officers.

The Board of Directors shall elect and dismiss the members of the Executive Board. In case of closed corporations which do not have a Board of Directors, the officers shall be elected and dismissed by the General Meeting.

8.2.4.2.2. Executive Board

The Executive Board is the company's executive body and its members are the exclusive holders of the company's legal representation, that is, its members are incumbent of the direction of the company and, therefore, shall represent it before third parties in acts and/or business required for its regular operation. It shall be comprised by at least two (2) Officers with a mandate of maximum three (3) years, which must reside in Brazil. Reelection is allowed.

The officers are elected and can be dismissed anytime by the Board of Directors, if any, or by the General Meeting. Up to one third of the company's counselors, if any, may be elected as officers.

The officers shall take office by means of the execution of a term of office in the company's appropriate book, up to thirty (30) days after their election.

8.2.4.3. Statutory Audit Committee

The Statutory Audit Committee is the company's body in charge of inspecting the managers and shall report directly to the General Meeting. The Statutory Audit Committee shall perform the following acts: check the regularity of the Officers' performance and verify the accomplishment of their duties, issue its opinion on the management report, inform to the shareholders' meeting the mistakes, frauds, or crimes that may have acknowledgment, call the shareholders' meeting for urgent matters, periodically analyze the company's financial statements, analyze the financial statements regarding the end of the fiscal year and issue its opinion, analyse the financial statements during the company's winding up.

Its existence is mandatory, but its operation may be permanent or eventual, taking into consideration that its installation depends on the necessity of the company to establish higher inspection regarding the activities executed by the managers.

The operation of the Statutory Audit Committee is mandatory in two situations only: in government-controlled companies and when its operation is ruled in the By-laws of the company.

Its installation shall occur with the constitution of at least three (03) and a maximum of five (05) members which may or not be shareholders of the company, with an equal number of alternates chosen by the General Meeting.

As the members of the Board of Officers, only individuals resident in Brazil may be elected as a member of the Statutory Audit Committee.

8.2.5. Arbitration

Law no. 10303 dated December 31, 2001, which amended the Corporate Law, determined that, in case of divergence between the shareholders and the company (article 109, paragraph 3 of LSA), or among the controlling shareholders and minority shareholders, such divergences may be submitted to the analysis of an Arbitration Chamber, provided this type of solution of controversies is established in the company's By-laws.

Publicly-held companies (see item 8.2.6 below), listed in Novo Mercado, Level 2, and BOVESPA Mais (BMF&BOVESPA segments) according to the regulation issued by the Stock Exchange of São Paulo - BMF&BOVESPA, are obliged to solve all and any dispute or controversy by means of arbitration.

8.2.6 Publicly-held Companies

Corporations with securities traded in the stock exchange or in the over-the-counter market are deemed publicly-held companies and, therefore, are subject to the special regulation of the Brazilian SEC (CVM), which is not applied to closed corporations.

In order for a business corporation to be able to capture resources before the investors, it is necessary, in first place, to obtain the prior authorization and, therefore, submit itself to CVM's surveillance.

One of the obligations of a publicly-held company is the election of a director of an office who shall coordinate the relationship between the investors end the company (DRI). This is one of the requirements imposed by CVM for the trade of securities in the market, and the DRI shall be responsible for providing information to the company's investors, to CVM and to the stock exchange.

8.2.6.1. Securities

Securities are instruments that have the purpose of capturing funds which shall finance the companies (publicly-held companies). Law no. 6385, dated September 7, 1976, establishes a few types of securities, which are:

(i) shares, debentures and subscription bonus;

(ii) coupons, rights, subscription receipts and split up certificates regarding the papers referred in the item above.

(iii) certificates of deposit of securities;

(iv) debenture cells;

(v) quotas of security investment funds or investment clubs in whatever assets;

(vi) commercial notes;

(vii) future agreements, options and other derivatives for which the underlying assets are securities;

(viii) other derivatives independent of the underlying assets; and,

(ix) when object of a public offer, any security or investment agreement of participation, partnership or compensation, including those resulting from service provisions, which incomes arise from the efforts of the entrepreneur or of third parties.

8.2.6.2. The Securities Market

The financial instruments of publicly-held companies are traded in the securities market. All trades shall be performed in the stock exchanges, in the organized over-the-counter market or in the non organized over-the-counter market.

The capital market (lato sensu) is subject to the supervision and audit of BACEN (Brazilian Central Bank) and, regarding the portion of such market that corresponds to the securities issued by the joint stock companies, to CVM (strictu sensu capital market).

The stock exchanges are ruled by CVM, and, in order for companies to have access to such market it is also necessary to be registered before the relevant stock exchange, in addition to the enrollment with CVM.

The over-the-counter market comprises all capital market transactions performed outside the stock exchanges, and may be either organized or not. The organized over-the-counter market comprises the transactions made by means of a system maintained and ruled by an entity operating under CVM's authorization. The non organized over-the-counter market, on its turn, concentrates all other transactions.

8.2.6.3. Periodic information and other type of information

All publicly-held companies are obliged to provide CVM and the stock exchange, from time to time, information related to the transactions performed with the securities issued thereby, including, in addition to the financial statements and information, without limitation thereto, quarterly information (ITR), minutes of general meetings and several acts performed by the company deemed as a relevant act or fact, and all information which may significantly influence the quotation of the company's securities or even the decision of the investors.

CVM and the stock exchanges or entities that operates in the over-the-counter market where the securities issued are accepted for trade shall also be notified of all public offers of shares.

On December 7th, 2009, CVM issued the Normative Rule n° 480, revoking the Normative Rule CVM n° 202/93. Among the inumerous changes made by this new Normative Rule, were changed the procedures for the rendering of periodic information by the companies, being required a greater quantity and quality of information.

Among the changes made by the Normative Rule CVM n° 480/09, we stress out the implementation of the reference form (formulário de referência), electronic document through which the company shall keep its information updated, such as: the member of the companies' management, rights and privileges of the securities issued, controlling shareholders, direct or indirect, holders of more than five per cent (5%) of the same character or class of the company's shares, change or disclosure of new projections or estimative, among other information that may be important for the investors' acknowledgement.

All above mentioned disclosures shall also be published in the company's website, in the official gazette and in a great circulation newspapers of the area where the Company is headquartered and shall remain at the disposal of the shareholders and of the public. Exception is made for information deemed as confidential or information that may affect the company's business, and, for such purpose, a justification of the non publication of such documents shall be presented to CVM.

8.2.6.4. Concept of Public and Private Offer, Distribution of Securities and Public Offer for Acquisition of Shares ("OPA")

CVM's Instruction no. 400/03, amended by CVM's instructions nos. 429/06,442/06, 472/08 and 482/10, defines as acts of public distribution of securities the sale, promised sale, offer for sale or subscription, as well as the acceptance of sales order or subscription of securities, that contains any of the following elements:
I - the use of sale or subscriptions lists or bulletins, leaflets, prospectus or ads, in any way destined to the public;
II - the full or partial search for undefined subscribers or buyers for the securities, even if it is done through standardized notices addressed to consignees individually identified, by means of employees, agents or any individuals or legal entities, whether or not they are part of the securities' distribution system;
III - the trade made in store, office or premises open to the public, partially or totally destined to undetermined subscribers or buyers; or
IV - the use of verbal or written advertising, letters, announcements, notices, specifically through massive or electronic communications means, being understood as such any kind of communication addressed to the general public for the purpose of promoting, directly or through third parties on behalf of the offerer or issuing entity, the subscription or disposal of securities.
The offer of securities to the primary or secondary market has the purpose of assuring the protection of the investors and its interests as well as of the general market, through the equitative treatment of the offerers and requirements of ample, transparent and suitable disclosure of information on the offer, the securities offered, the issuing company, the offerer and other persons involved. All public offers of distribution of securities to the primary and secondary markets, within the Brazilian territory, shall be previously submitted for registration with CVM, under the terms of Instruction no. 400/03.

On the other hand, the private trading is that performed between private parties, without the presence of the participants of the securities distribution system, listed under article 15, of Law 6385/76.

The Public Offer for Acquisition of Shares ("OPA") is ruled by CVM's Instruction no. 361/02, amended by CVM's Instruction no. 436/06 and 480/09, and may be one of the following types: OPA for cancellation of registration, OPA due to the increase of participation, OPA due to the disposal of control, OPA for the acquisition of control of publicly-held companies, voluntary OPA or competitive OPA.

The OPA will be mandatory in the following cases: (i) to cancel the registration, by force of paragraph 4 of article 4 of the Corporate Law and paragraph 6 of article 21 of Law 6385/76; (ii) to increase the controlling shareholder's interest in the corporate capital of a publicly-held company, by force of paragraph 6 of article 4 of the Corporate Law; and (iii) to dispose of the control of a publicly-held company, by force of article 254-A of the Corporate Law.

The OPA will be voluntary in the following cases: (i) for the acquisition of shares issued by a publicly-held company, as long as it is not enclosed in any of the mandatory hypothesis mentioned in the previous paragraph; and (ii) for the acquisition of control of a publicly-held company, under the terms of article 257 of the Corporate Law. Competitive OPA is that formulated by a third party who is not the offerer or a person related thereto and only shares covered by an OPA already submitted for registration with CVM, or by an OPA not subject to registration and which is in course.

There will only be subject to registration before CVM the mandatory types of OPA previously mentioned, the voluntary ones for the acquisition of shares issued by a publicly-held company (when they involve exchange for securities) and those which compete with OPA subject to registration before CVM.

8.2.7. Corporate Governance

Corporate Governance is a system through which the companies are governed, monitored and stimulated, developing the relationship between its partners, Board of Directors, Executive Board and controlling bodies. The good practices transform principles into objective recommendations, combining interests with the purpose of preserve and optimize the companies' value, making easier its access to funds and contributing to its longevity.

We can quote as reference in Brazil the responsibilities undertaken by the companies registered with Novo Mercado (São Paulo Stock Exchange segment). Among such responsibilities, we stress out the following: exclusive issue of common shares, being conferred to every shareholder the right to vote; minimum of five (5) members in the Board of Directors, being the maximum term of office of two (2) years; solution of disputes related to the listing rules mandatorily by arbitration.

8.3. OTHER TYPES OF COMPANIES

Even though the corporate forms mentioned below are not usually adopted by Brazilian companies, their corporate structure may serve some specific purposes, reason why they will be summarized:

8.3.1. Incorporated Companies

8.3.1.1. Simple Company

The simple companies are, in their essence, the cooperatives and the professional partnership whose corporate scope is limited to the exercise of intellectual activity of scientific, literary or artistic nature, without constituting the exercise of the profession an element of the corporate structure (article 966, sole paragraph of the Civil Code).

The simple company may be incorporated according to the corporate type of the companies with collective name, simple command or limited liability, provided that their partners so decide. In case one of those corporate types is adopted, the simple company will be submitted to its specific rules.

In a simple company, the modification of the essential elements of the articles of association such as partners, corporate name, corporate scope, headquarters, duration, capital, capital interest, management and liability of its partners will always depend on the unanimous approval of the company's partners.

Since the enactment of the current Civil Code, the capital and industry company no longer exists. However, the rules applicable to the simple companies, in its own form, accept industrial partners in simple companies, that is, partners whose contribution consists in the rendering of services, as long as articles of association expressly mentions the services to which such partner is committed.

8.3.1.2. Collective Name Company

Only individuals may be partners of a collective name company. The partners will bear joint and unlimited liabilities for the corporate obligations and shall perform the management of the company.

Therefore, there is no possibility of appointing as the company's manager an individual who is not a partner, even though it may be agreed among the partners that only one of them or some of them will exercise the company's management and will use the corporate name.

The partners may also determine that the liability will be limited amongst them by contractual provision or by a unanimous decision, although unlimited before third parties.

The company will adopt the corporate name comprised by the name of one or more partners, under which it will exercise its activities. In addition to the rules provided by the Civil Code, the collective name companies will be subsidiarily subject to the rules of the simple companies.

8.3.1.3. Simple Command Company

The main characteristic of the simple command company is the existence of two (2) levels of partners: partners who have unlimited liabilities for the corporate obligations and partners whose liability is limited to the value of their own quotas. Those will always be individuals and will be named commanding partners while these may also be legal entities and will be called commanded partners.

The commanding partners shall manage the company, but may, delegate to the commanded partners special powers to perform specific deals.

The articles of association shall always indicate the partners of one and another class. The further absence of partners of one of the classes of this corporate type does not dissolve it, which shall only occur if, within one hundred and eighty (180) days such duplicity is not recovered. During this period of one hundred and eighty (180) days, if the absence affects the commanding partners, the commanded partners may appoint a non partner manager who shall act for a determined period of time.

The rules of the collective name companies shall apply to the simple command companies, whenever they are compatible therewith.

8.3.1.4. Joint Stock Command Company

Its operation is similar to the business corporation's and it is guided by the rules related to that type of company on the Civil Code, except for specific rules duly provided by the Corporate Law. It's corporate capital is divided into shares, representing the corporate interest of the partners.

The main difference between this corporate type and the corporation consists in not having a Board of Directors, in any case, since the managers of a joint stock command company must be shareholders of the company who shall exercise the role of Directors, and will bear subsidiary, unlimited and joint liability for the corporate obligations incurred during their management.

The managing partners shall be called Directors and their appointment must occur in the Bylaws. Their mandate is for an undefined term and their dismissal can only occur by decision of partners representing two thirds (2/3) of the corporate capital.

The corporate name may also be constituted as a company (see definition of item 8.3.1.2), followed by the expression "Share Command" or "C.A."

The general meeting may only approve certain matters upon the consent of the directors or managers, such as change of the main scope of the company, extension of the duration, capital increase or reduction, issue of debentures or beneficiary parts.

The command shares may be common or preferred, as business corporations. The command company may be a publicly-held company for the purpose of capturing funds in the capital market and, in such case, must obtain its enrollment with CVM.

8.3.1.5. Cooperative Company

The cooperative company has as some special characteristics:

(i) dismissal or variability of the corporate capital;

(ii) contribution of cooperative members in a minimum number required to comprise the administration, without limitation of a maximum number;

(iii) limitation of the amount of the capital quotas which each cooperative member may acquire;

(iv) impossibility of transferring the quotas to third parties who are not members of the company, even if it occurs due to a succession;

(v) decision quorum and installation of the general meeting grounded on the number of attendees and not in the represented corporate capital;

(vi) voting rights to cooperative members in the corporate decisions;

(vii) distribution of the results pro-rata to the value of the transactions made by the cooperative member with the company;

(viii) impossibility of dividing the reserve fund among the cooperative members, even in case of dissolution.

The liability of the cooperative members may be limited or unlimited, depending on what is established in its articles of association. Even if the law is ommissive, the provisions related to simple companies apply.

8.3.2. Unincorporated Companies

8.3.2.1. Special Partnership Company

Even though appointed as a corporate type, the special partnership has no legal personality, and does not require articles of association for its constitution, which may be proved by all means allowed by the law.

The partners may be of two classes: ostensive partner and participating partner (previously called hidden partner). The ostensive partner shall be the only to do business related to the corporate activity, managing the company, negotiating, in its own name, with third parties and being liable for such business in a personal and unlimited manner.

The participating partner is only liable before the ostensive partner, according to the definitions of the articles of association (if any) which may or not be taken for registration. However, the participating partner becomes jointly liable for the obligations incurred by the ostensive partner on behalf of the company if it acts jointly therewith, whether in prior negotiations or in the negotiation of the agreements themselves.

The rules provided for simple companies, if compatible, will be subsidiarily applied to the special partnership.

8.3.2.2. Common Company

The Common Company is a company whose articles of association are not yet duly registered with the relevant Board of Trade, being also called an irregular company. However, its existence may be proven by the partners through written documents, and by any means in case of third parties (article 987 of the Civil Code). The corporate assets are responsible for the management acts performed by any of the partners, except as otherwise agreed by the partners in the articles of association, which will only become effective against third parties which are or should be familiar with it.

All partners of a common company are jointly and unlimitedly liable for the corporate obligations, in addition to being subject to other penalties raised from such irregularity. Also, the partners who executed any agreement on behalf of the Company can not be beneficiary of the privilege of order established by article 1024 of the Civil Code.

8.4. FOREIGN COMPANY

The foreign company may only legally operate in Brazil, irrespectively of its corporate scope, after obtaining the authorization of the Brazilian Government (Federal Executive Power), even if it intends to operate though subordinated agencies (branches, affiliates),. The authorization requirement shall be addressed to the Ministry of Development, Industry and Foreign Trade and shall be processed and analyzed by the National Department of Trade Registration - DNRC, body subordinated to such Ministry (article 1134 of the Civil Code).

The application for the authorization of a branch or affiliate of a foreign company in Brazil shall not be confused with the incorporation of a Brazilian company whose partners are foreign companies (subsidiaries), even if these are the majority partners.

The application for the authorization shall be delivered with documents which evidences, in a general way, that the foreign company was incorporated with observance of the laws of their original State, that it is authorized to open a branch in Brazil and that it has appointed a legal representative who must be resident in Brazil.

All documents required by law must be notarized by the relevant authorities, legalized by the Brazilian Embassy or Consulate located in the same place of the headquarters of the foreign company, translated into portuguese language by a sworn translator and then registered with the Registry of Deeds and Documents.

Once such request is granted and the decree is consequently issued by the Federal Executive Branch, the company must publish the authorization documents in the official gazete and, afterwards, take actions in order to have the branch registered with the relevant Public Registry of Commercial Companies (Board of Trade).

Funds must be sent to Brazil to pay for the corporate capital of the branch, which will be used thereby to develop its operations. It is important to note that Brazilian legislation considers the Brazilian branch as an extension of the head office of the foreign company and, therefore, its liability before third parties in Brazil may reach not only its own corporate capital but that of the head office of the foreign company as well.

Moreover, the company shall always maintain a legal representative in the country, to which will be assigned powers in order to solve any issues involving the company, as well as to receive summons on its behalf.

Possible amendments to the articles of association or bylaws of the foreign company shall always be approved by the Brazilian Government in order to produce its effects in the Brazilian territory. We must emphasize that the foreign company is obliged to publish in Brazil the financial statements and/or acts of its administration which are published in its country of origin due to legal provision thereof, or the authorization can be cancelled. Additionally, it must also publish the financial statements of the branch itself.

8.5. CONSORTIUM

The consortium, under the terms of the current legislation, aims for the facilitity of the development of joint projects without actually incorporating a regular company, since it may be formed by business corporations and/or other types of companies. Also, since it does not constitute a new company, it has no individual legal personality and is ruled by an Agreement duly executed by the parties and which establishes the conditions for the conduction of the business and implementation of the project (articles 278 and 279 of Corporate Law).

The companies which take part in a consortium have no joint liability and each one is liable for the obligations incurred by them, except if otherwise expressly determined by the consortium agreement. Also, there is no reason to discuss corporate capital. However, the associated companies may constitute a consortium fund in order to implement the project or to pay for common expenses. They usually count on a leading company which acts as a kind of legal representative, managing, representing and administrating the consortium.

The consortium may also adopt its own name and the agreement shall indicate the scope of the project developed by the consortium, as well as its duration, address and court. The agreement shall also establish the conditions to receive incomes and profit shares.

The consortium agreement shall be registered with the relevant Public Registry of Commercial Companies (Board of Trade) allowing the associated companies to protect themselves from any risks which may arise from the development of the joint project. Afterwards the certificate of registration must be published in the official gazete and in a wide circulation newspaper.

8.6. JOINT VENTURES

Joint ventures are formed by companies seeking for a common project as a consequence of business transactions. The main purpose of the companies associated as joint ventures is to develop new projects and business opportunities by sharing specific knowledge and technical cooperation between them.

The partners of the joint ventures may be local and/or foreign companies, which contribute to the development of the project by means of mutual cooperation.
Even though the joint ventures ordinarily use the form of a capital company, in fact there is no rule that guides their incorporation, and so they may be a business corporation or a limited liability company, being implemented by a formal agreement (contract).

It is very common for partners of a joint venture to execute a Shareholders' Agreement, instrument by which is established important issues regarding the partners' relationship, such as the appointment of officers, right of vote in decisions deemed important, right of first refusal, tag along, and solution of controversies, among others.

The joint venture agreement aims for a close relationship between the associates in order to achieve common commercial goals, with or without financial contribution or the incorporation of a new company. Also, there are no rules regarding the participation of companies in the constitution of the capital, which may be different according to the interest in maintaining the corporate control.

8.7. CONVERSION, MERGER, CONSOLIDATION, AND SPLIT-UP

As legally provided, there are four (04) types of corporate transactions which can change the structure of the companies and which have an enhanced role as techniques of corporate reorganization, as follows: the conversion, consolidation, merger and the split-up.

Before the current Civil Code, only the Corporate Law established rules applicable to such transactions and therefore were adopted by all corporation types. After the enactment of the new Civil Code the incorporated companies, including the limited liability company, have now their own rules, even though such provisions are very similar to those of the Corporate Law.

It is important to emphasize that it is necessary to submit debt clearance certificates depending on the corporate transaction, which are issued by the main public bodies for the implementation of the transaction of conversion, merger, consolidation and split up, including a capital reduction for any purpose (see Regulatory Instruction no. 105/2007, issued by DNRC).

8.7.1. Conversion

Conversion is a transaction through which the company undergoes, irrespectively of dissolution and liquidation, from one corporate type to another.

Conversion aims at meeting the criteria of convenience of the partners and is defined as the transaction that modifies the legal structure of the company without interrupting the continuity, dissolving or liquidating the converted company, but continuing with the converted company's legal personality, corporate structure, assets, credits and debts. The partners who, at the time of the company's incorporation, have chosen one legal type may decide that the type chosen no longer meets the interests of the company and, for such reason, may approve its conversion into another corporate type. Although usually the mostly used type of company elected by those who decide to enter into a partnership is the limited liability company and business corporation, the conversion may occur with any type of company legally provided, with limited or unlimited liability: simple company, collective company, simple command company, limited liability company, joint stock command company and business corporation.

This type of transaction must be submitted to the unanimous approval of the partners since it substantially changes the existing corporate structure and, occasionally, the level of liability of the partners, However, the articles of association or bylaws of the company to be converted can establish its own rules about this subject. The partners or shareholders who do not agree with the conversion shall have the right of withdrawing from the company (recession right). It is important to mention that, in regard to the procedures of incorporation and register, the conversion shall observe the formalities of the corporate type that will be implemented.

The conversion does not affect the right of the creditors since up to the full payment of their credits they will have the same guarantees assured thereto by the former type of company.

8.7.2. Merger

According to Brazilian Law, merger is a transaction through which one or more companies are absorbed by another, which shall succeeds it/them in all rights and obligations. From this definition one can infer that the acquired company is always extinguished since its assets and liabilities are fully transferred to the acquiring company. Therefore, there will always be at least two companies involved in a merger transaction: the acquired company and the acquiring company, which may or not adopt the same legal structure.

Both the partners of the acquiring company and those of the acquired company shall approve the transactions' conditions as legally determined for each type of company (minutes of meeting/General Meeting or amendment of the articles of association). In addition to the approval of the transaction, the partners of the acquiring company shall also appoint the experts who shall evaluate the net equity of the acquired company. Although the extinguishment of the acquired company is a logical consequence of the transaction, the acquiring company shall expressly declare it.

The preparation of a protocol of merger and justification is mandatory. This document shall establish the conditions and grounds of the transaction, which shall be agreed between the companies' officers, subject to the approval of the partners/shareholders

It is also mandatory, whatever the company types involved, to prepare an evaluation report of the net equity of the acquired company, since it will be fully absorbed by the acquiring company. The evaluation report may take into consideration the accounting or market value of the acquired company.

One should observe that if the company to be acquired is a publicly-held company, the acquiring company shall also be one.

8.7.3. Consolidation

Consolidation is the transaction through which one or more companies get united, constituting a new company which will succeed both companies in all their rights and obligations. In this way, the companies involved are extinguished in order to create a new one.

As in merger transactions, the consolidated companies shall approve the transaction according to the rules established by law for each legal type (minutes of meeting/General Meeting of partners or amendment of the articles of association) for the purpose of approving the protocol and justification of the transaction, as well as appointing experts who will evaluate the net equity of the other companies.

After the preparation of the evaluation reports, the partners of the companies involved must approve them, being prohibited of approving the report regarding the company in which they participate. After the approval of the reports, the partners shall finally approve the merger and consequent incorporation of the new company.

The registration of the articles of association shall be made by the management of the newly incorporated company, together with the other acts related to the merger.

The preparation of a protocol of consolidation and justification is mandatory and shall establish the conditions and grounds of the transaction, which shall be agreed between the companies' officers, subject to the approval of the partners/shareholders..

For companies which the Corporate Law is not applied, the provisions of articles 1120 to 1122 of the Civil Code must be observed.

8.7.4. Split-up

The split up may be defined as a transaction whereby a company transfers a portion of its assets to one or more companies, whether they are specially incorporated for this purpose or not. The total split-up occurs when all assets of the transferee are absorbed by other companies. On the other hand, a partial split up occurs when only part of the assets are assigned. In the first case, the transferee will be extinguished; in the second case, the corporate capital of the transferee will be reduced pro-rata to the assets transferred.

The current Civil Code has very little provisions on this matters, even though it makes reference to this type of corporate transaction. Therefore, possible gaps may be filled up by rules of the Corporate Law.

The company to which the assets are transferred to shall succeed the transferee in all rights and obligations related to the acts concerning the split up. Other kinds of obligations and rights shall remain with the transferee. In case of a total split up the company to which the assets are transferred to shall succeed the transferee in all rights and obligations pro rata to the transferred assets, since the transferee shall be extinguished.

The approval of the split up transaction shall be operated according to the legal form provided for each legal type of company (minutes of meeting/general partners' meeting or amendment of the articles of association).

The preparation of an articles of association is mandatory whenever part of the net equity of a company is split up in order to incorporate a new company. In case of absorption of the split up assets by an existing company, the provisions of the Corporate Law regarding merger transactions shall be applied .

Such as the transactions mentioned above, the preparation of a protocol of consolidation and justification is mandatory, and shall establish the conditions and grounds of the transaction, which shall be agreed between the companies' officers, subject to the approval of the partners/shareholders.

The evaluation report is mandatory in split up transactions in order to determine the suitable value of the split up net equity, which may be calculated according to the accounting, economic criteria.

8.8. HOLDING

The "holding" is a Brazilian company whose purpose is to participate in the corporate capital of other companies, whether incorporated or not, for the purpose of holding the corporate control. This is a participation company.

A holding company may adopt any corporate form (e.g. limited liability company, corporation or joint stock command company). It can be classified as a pure holding when it does not develop any other activity but the participation in other companies.

Holding companies are largely used in Brazil. Medium and large size groups usually adopt the holding structure in order to organize their control power, submitting the whole conglomerate of companies to its indirect control and constituting a command integration pole between the companies, which ends up allowing a better organization and, specially, the harmonization of the activities of the group's companies.

8.9. LIABILITIES OF PARTNERS AND MANAGERS

The liability of the partners or shareholders in regard to the obligations undertaken by the company's is directly related to the corporate type adopted. Regarding Brazilian limited liability (LLC) and joint stock companies, for example, the liability is limited to the partners contributions to the corporate capital, being the partners of the limited liability company, specifically, also jointly liable for the payment of the corporate capital.

However, there are exceptions to the general rule mentioned above, and the partners may be deemed liable for the company's obligations in the following cases: abusive exercise of vote, conflict of interest, power or control abuse, excess of powers, offense to the law or to the articles of association/By-laws.

Additionally, the partners or shareholders may be held liable for the abuse of the corporate entity, which is characterized by the misuse of the company's purpose caused by acts or ommitions, or by the connection of the company's and the individual's assets, pursuant to Civil Code, article 50. In this case, should the existence of negligence, gross negligence or intention of the partners be verified, the company's corporate veil may be pierced (disregard doctrine) in order to enable the access to the partners' assets.

Environmental and consummer's legislations also prescribe the possibility of disregarding the corporate veil for the indemnification of the damages caused by the company. In these cases, the verification of intention or negligence is not mandatory, because the liability is directly connected to the existence of damages. Labor court precedents also adopt the rationale of the environmental and consummer's legislations, that is, it holds the partners or shareholders liable for the damages caused by the company in labor cases, regardless of the existence of neglicence or intention on their part.

As a general rule, managers shall not be held liable for the obligations they undertake on behalf of the company within the normal course of business, unless they act negligently or willfully to cause damages, or when they violate the law or the terms of the Articles of Association/By-Laws.
For the verification of willful or negligent conduct, it is necessary to analyze the conduct of the managers vis-à-vis their duties, established in the company's Articles of Association/ By-Laws, as well as the standards prescribed in the law, such as: to act diligently, with loyalty, to act purposefully, to inform, to refrain from performing acts in disaccordance to the company's interests.

The managers of joint-stock companies shall not be liable for the illegal acts performed by other managers, except when connivent to them, or when negligent to discovering them, or having knowingly failed to hinder its performance. In this sense, shall be held harmless from liability the Officer that communicates its divergence in the minutes of the meeting or in a document apart, as well as when he/she communicates in writing, the Board of Directors, Statutory Audit Committee, or general meeting.

The managers of limited liability companies are jointly liable for the illegal actions of other managers.However, the judge may exclude the manager's liability if convinced that the individual acted in good faith, aiming the company's interest.

8.10. PUBLIC REGISTRY OF COMMERCIAL COMPANIES AND CIVIL REGISTRY OF LEGAL ENTITIES

As explained in the previous items, companies can be classified into business and simple companies. The first ones are those which develop a professional economic activity for the production or circulation of assets or services, while the last ones are the cooperatives or the professional partnerships whose corporate scope is limited to the development of intellectual activity of scientific, literary or artistic nature, as long as the exercise of the profession does not constitute an element of corporate structure.

The businessmen and the business companies are subject to the registration with the Public Registry of Commercial Companies which is performed by the Boards of Trade, while simple companies are subject to the registration with the Civil Registry of Legal Entities. It is due to the above mentioned registrations that the legal acts related to the companies acquire legitimacy, effectiveness and validity and the publicity of these acts are an essential element to safeguard the interests of third parties.

According to Brazilian legislation, the companies can only be considered legal entities after the registration of their articles of association/bylaws before the relevant authorities, i.e., the Boards of Trade or the Civil Registry of Legal Entities, depending on the case.

The registration service of the business companies is performed uniformly throughout the country by the National System of Commercial Registrar (SINREM) which embraces the National Department of Business Registration (DNRC) and the Boards of Trade of each federative unit. The competence of each Board of Trade is bound to the federative unit where the company is headquartered.

As for the simple companies, the registration is executed by the Public Notaries of Civil Registry of Legal Entities and their competence is bound to the municipality where the head office is located.

8.11. DISSOLUTION, LIQUIDATION AND EXTINGUISHMENT

Business companies and simple companies have their dissolution ruled either by the Corporate Law or by the Civil Code, depending on their corporate form. The dissolution may be total or partial (with the withdrawal of one of its partners) and performed through two different forms: judicial or extrajudicial, Should the partners agree that their business have become unfeasible, the company may be dissolved extrajudicially; however, should the interest in dissolving the company be only of the minority, the dissolution shall be done judicially.

The hypothesis of dissolution are the following: (i) by will of the partners; (ii) by the end of the determined term; (iii) bankruptcy; (iv) unipersonality; (v) corporate scope is no longer achievable; or (f) by the end of the term established in the certificate of authorization for its operation.

Note that simple companies, limited liability companies and the other corporate types can not remain with one sol partner for over one hundred and eighty (180) days, in case which it shall be deemed legally extinguished. Regarding the business corporations, if the general shareholders' meeting define that the company has only one shareholder, the plurality thereof shall be rebuilt until the General Ordinary Meeting of the subsequent year, under the penalty of dissolution.

8.12. PARTNER, ATTORNEY IN FACT, CNPJ (CORPORATE TAXPAYER REGISTRY) AND CPF (INDIVIDUALS TAXPAYERS REGISTRY)

The individuals and legal entities that get together in order to organize a new legal entity and join efforts and resources to achieve the objective which they agreed to seek, enjoy the capacity of partners. Their main obligation is to pay for the subscribed corporate capital and share the corporate losses, according to their liability (limited or unlimited) due to the corporate type chosen by them.

The rights of the partners are, among others:

(i) to share the corporate results;

(ii) to manage the company and/or audit its administration;

(iii) to withdraw from the company; and

(iv) to vote in the corporate decisions.

As a general rule, there are no restrictions to the participation of foreign individuals or legal entities (non resident) in a Brazilian company. However, the Federal Constitution and specific laws establishe exceptions, in which the activity to be developed is of exclusive exploitation of Brazilian citizens, either born or naturalized, or when the participation of foreign investors as partners is limited.To the activities described below are imposed limits in various levels:

(i) health care;

(ii) coastal navigation;

(iii) journalism and radiobroadcast of sounds and images;

(iv) cable TV Service;

(v) mining and hydraulic energy;

(vi) road cargo transportation;

(vii) national air transportation;

(viii) companies headquartered in the country's border lines; and

(ix) colonization and rural developments.

Foreign partners, whether individuals or legal entities, shall appoint an attorney-in-fact, who must be resident in Brazil, with powers to receive summons. Further, in addition to the powers to receive summons, the attorney-in-fact may also be granted powers to represent the partner before authorities, institutions and government controlled companies, to execute acts and corporate instruments or yet, exercise rights and comply with the duties of a partner, among other.

Additionally, the individuals and legal entities residing and domiciled abroad, partners of Brazilian companies, shall be duly enrolled with the Federal Revenue of Brazil.

Regulatory Instruction no. 1.005/2010, issued by the Brazilian Federal Revenue - RFB, does not require a power of attorney granted by the foreign legal entities to an individual residing in Brazil, for the CNPJ done through CADEMP (Brazilian Central Bank of Company's Register) in the Electronic System of the Brazilian Central Bank (SISBACEN).

The obligation of being registered before RFB applies not only to the cases of corporate participation but also in case foreign legal entity that acquires or holds in the country the following assets:

(i) real estate properties;

(ii) vehicles, vessels and aircraft;

(iii) bank accounts;

(iv) investments in the financial market;

(v) investments in the stock market;

(vi) intangible assets with payment term exceeding three hundred and sixty (360) days;

(vii) finance, and

(viii) or, yet, in case of performing or hiring transactions of (a) financed import; (b) external commercial lease ("leasing"); (c) simple lease, rent of equipment and charter party of vessels; (d) import of assets without exchange coverage, destined to capital contribution in Brazilian companies; (e) currency loans granted to residents of the Country; (f) investments; and (g) other transactions and rules by the Special Coordination of Records of the Federal Revenue (COCAD), which is an administrative unit of the Federal Revenue.

 

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