The Creation of Legal Entity (domestic or foreign) in Brazil

Overview

This QuickCounsel intends to clarify the process of creation of a Brazilian or foreign legal entity in Brazil. We will discuss how create a legal entity in Brazil, ways for foreign partners to open a business in Brazil and also how to implement a foreign subsidiary on Brazilian soil.

According to article 1126 of the Brazilian Civil Code, all companies that are created according to Brazilian laws and that have Brazil as its headquarters are considered Brazilian entities. It is extremely important to clarify that having non-Brazilian citizens or non-Brazilian companies as partners does not prevent a company to be a Brazilian company, as long as they have a representative that is either Brazilian resident in Brazil or that holds a permanent resident Brazilian visa.

How to create a Brazilian company

To create a legal entity in Brazil, it is necessary to register the bylaws with the Board of Trade (Junta Comercial), at the state level, and the Business Registration Department and Integration (Departmento de Registro Empresarial e Integração), at the federal level.

For the registration, it is necessary to present the following two documents at the Board of Trade:

i) Bylaws;

ii) Personal documents of each partner. If the partners are not Brazilians, the document is a passport. If the partner is foreign legal entity, the document will be a translated and consularized version of the bylaws. In both cases is required proxy to a Brazilian or foreign resident in Brazil.

The bylaws need must contain:

1) interest of the parties;

2) company objective, scope and the planning;

3) description of corporate rules and the how the quotas will be paid for; and

4) signature of an attorney.The Board of Trade will check to see if there aren't any other companies with the same name (this is called Availability Consultation test). Some Brazilian states already offer this service online.

After the Availability Consultation test, the following will be required:

i) Three (03) copies of bylaws;

ii) One (01) certified copy of the personal documents of the partners;

iii) One (01) copy of the Standard Board of Trade application;

iv) National Register application;

v) Payment of fees with DARF - Document of Collection of Federal Revenue - and GA - Document of State Collection (the fees vary from state to state, check the Board of Trade website of the respective state).

Also, some Boards of Trade require that the application to CNPJ (National Register of Legal Entities) is made prior to the filing with the Board. In this case, the DBE (Basic Entry Document for the CNPJ with the Federal Tax Authority) also must accompany the documentation file with the Board.

The application for a CNPJ can be made in the Federal Tax Authority website, which provides an automated approval, generating the DBE. The DBE must be signed by the representative of the future company and then delivered to the Board in the same act of submission of the documentation mentioned above.

After the register is made, a Company Registration ID (NIRE) will be generated. The Board of Trade will provide this number to the partners.

In case the Board of Trade does not require the DBE to be filed with the initial application, after receiving the NIRE, the future company should apply for a CNPJ and file the DBE to the Board of Trade.

After the CNPJ is created, an application for the Permit to Operate with the Municipal Authorities of the location where the company will operate is necessary. The following documents are required to apply for the Permit to Operate:

i) Filled Municipal Authorities form;

ii) Prior consultation to verify the address;

iii) Copy of the CNPJ card; and

iv) Copy of the bylaws registered with Board of Trade.

After the Permit is issued, the next step is to register the company with the state tax authority, through the State Department of Finance. The State Registration is mandatory for companies in the sectors of trade, industry and intercity and interstate transport services. Also included are communication and energy services. It is necessary to obtain the registration in the ICMS (State Tax on Goods and Services).

Most states have an agreement with the Federal Tax Authority, which, in turn, makes the registration with the CNPJ with the State Tax Authority. The following documents required are:

i) Three (3) copies of the Unified Registration Document (form necessary to obtain the registration in ICMS);

ii) One (1) copy of the Additional Registration Document (form necessary necessary to obtain the registration in ICMS);

iii) Proof of address of the partners;

iv) Certified copy of the deed of the property where the company will operate;

v) Tax registration number of the accountant;

vi) Copy of the bylaws;

vii) Copy of the CNPJ card;

viii) Copy of the Permit to Operate; and

ix) ID of the partners.

Finally, you need to apply for the Tax Apparatus, to be able to print of invoices and authenticate tax books. This can be done with the Municipal Authorities.

After following all the steps above, the company is officially created.

How to open a branch in Brazil

Another option for foreign investors is to open a branch in Brazil. The company can keep in Brazil the same business name, they are both considered to be the same legal entity and CNPJ (see below).

To start the process the foreign company needs to apply for a CNPJ, which will then be shared with its Brazilian branch.

According to article 1134 of the Civil Code, a foreign company can only operate in Brazil after getting permission from the Executive branch of the Brazilian government, except as shareholder or partner, as discussed before.

In practice, it is common for the Brazilian Executive Branch to require changes in the capital to be brought into the country to create the branch of the company. Since the Brazilian Civil Code does not specify the amount, either an increase or decrease may be requested at the discretion of the Brazilian government.

The requirements to create a branch are listed on article 1134 of the Civil Code:

i) Proof that the company is incorporated according to the laws of its country of origin;

ii) Complete copy of its bylaws and/or article of incorporation;

iii) List of members of all directors of the company, with name, nationality, profession, domicile and, except for the bearer stock, the amount of the participation of each in the capital of the company;

iv) Copy of the act that authorized its operation in Brazil and determined the capital for the operation in the country;

v) Proof of the appointment of a representative in Brazil, with specific powers to accept the conditions for authorization to operate in Brazilian territory; and

vi) Last financial statement.The documents must be certified and consularized in the Brazilian consulate that has jurisdiction over the foreign company and must also be accompanied by certified translation to Portuguese.

The Executive Branch of the Brazilian government has discretion to establish conditions to foreign companies as it sees fit to protect national interest, for example it may require change in the capital brought to Brazil, as already mentioned and/or the company's legal representative in Brazil (Article 1135, Civil Code). If the company accepts the conditions, the Executive Branch will issue an authorization decree. The authorization decree will include the amount of capital for operations in Brazil. It is the company's responsibility to publish (for example, in a newspaper) of the authorization with copy of the bylaws, signed by all the members, or, if it is a corporation (not partnership), a copy signed by the founders together with documents required by Law 6.404 of 1976 and possibly the changes required by the Executive Branch, pursuant to article 1129 of the Civil Code, within 30 days.

Finally, it is necessary to register with the Board of Trade of the respective state to be able to operate (Article 1136, Civil Code).

The registration application shall be accompanied by copy of the publication of the decision from the Execute Branch to either authorize or deny the creation of the branch of the foreign company, accompanied by proof of payment of an application fee in official banking institution.

After these documents are filed, the registration will be made in a special book for foreign companies. This registration will include:

i) The name, scope, duration, and the company headquarters in Brazil;

ii) Location of the branch;

iii) The date and number of the authorization decree;

iv) Capital for the operations in Brazil; and

v) Name of the permanent representative.

After the registration, a publication in a in the Federal Official Gazette will be made within 30 days.

The foreign company will operate in the country with the same name that has abroad and may only add "of Brazil" ("do Brasil") or "Brazil" ("para o Brasil").

The company has to maintain during all times a representative in Brazil with powers to resolve any issues and receiving summons.

Any amendment to the bylaws is subject to authorization of the Executive.

The foreign company, under penalty of forfeiture of authorization, should make, in the federal and state official offices that have jurisdiction over its location, the publications that, under the law of its country of origin, is obliged to make related to its financial statements and the results, as well as the acts of his administration.

Conclusion

Finally, after the presentation of the different ways to open a Brazilian legal entity or to open a branch of a foreign company in Brazil, is of paramount importance to assess the pros and cons of each option, always seeking the option that best meets the investors' needs.

Additional Resources

• Articles 1126 and following of Civil Code http://www.planalto.gov.br/ccivil_03/leis/2002/l10406.htm Articles from Law 6.404/76 http://www.planalto.gov.br/ccivil_03/leis/l6404compilada.htm "Opening the capital of your company?", from Bovespa http://www.bmfbovespa.com.br/pt-br/educacional/download/BMFBOVESPA-Como-e-por-que-tornar-se-uma-companhia-aberta.pdf IRS website http://idg.receita.fazenda.gov.br/ Articles 89 and following of Process Civil Code http://www.planalto.gov.br/ccivil_03/leis/l5869compilada.htm