This article will give you a general overview of the two most common company forms in Brazil and outline the advantages and disadvantages of both of them.
Choosing the correct company form in Brazil is not very difficult; the "Sociedade limitada" (Ltda) is for the large majority the best choice, it's the most widely used company form in Brazil and serves businesses of all sizes, from small design firms to large multinational companies.
What are the choices?
When first starting the process of forming a company in Brazil you can choose between seven different organization forms:
- Non-profit company (Sociedade simples)
- General partnership (Sociedade em nome coletivo)
- Limited partnership (Sociedade em comandita simples)
- Limited partnership by shares (Sociedade em comandita por ações)
- Overt/covert partnership (Sociedade em conta de participação)
- Limited liability company (Sociedade limitada / Ltda.)
- Corporation (Sociedade anônima / S.A.)
The non-profit form together with the four different types of partnerships that committing the owners to an unlimited liability for the organization are not commonly used by foreign businesses.
Brazilian Ltda. in a Nutshell
It's possible to write hundreds of pages about Ltda. and how the legal constitutions are built around this form of organization; however, we prefer to simply outline the key points as follows:
- Limited liability for the partners
- Simple to form and operate
- Normally no minimum capital requirement
- No obligation to constitute a capital reserve
- No obligation to publish annual financial statements
- Can be converted to a Corporation / S.A.
The company needs to be founded with at least two partners but neither of them needs to be Brazilian. A partner can be either an individual person or a legal organization.
A Ltda. must be managed by an individual residing in Brazil; it can either be a Brazilian citizen or a foreign citizen with a Brazilian work permit. In the case of having a foreign manager relocating to Brazil in order to manage the company, an interim manager is required for the period between the opening of the company and the obtaining by the foreign manager of the Brazilian work permit based on the newly formed company.
Brazilian S.A. in a Nutshell
This is the most complex organization form when it comes to legal constitution and it is mainly designed to allow a greater financing flexibility than the Ltda. Before choosing to open a S.A you should carefully ask for advice from trustworthy advisors.
The corporations are characterized by the following key points:
- Limited liability for the share holders
- Detailed regulatory framework for corporate activities
- Obligation to publish annual financial statements
- A reserve of 10% of the total capital must be kept in a bank account
- Requirement of a Board of Directors (minimum two Brazilians)
- Requirement of an Audit Committee
The Corporation needs at least two shareholders and, due to the required capital reserve, at least 10% of the shares must be paid in, in cash.
If you are planning to have the stock negotiated at a stock exchange, the organization must be registered as a public corporation and it is required to registered with the Brazilian Stock Exchange Commission (Comissão de Valores Mobiliários / CVM)
Comparison of Ltda. and S.A.
There are many individual aspects that are different at the two company forms but the table under gives an executive compression of the practical differences between the two company forms.
|Responsibility||Limited to the value of shares||Limited to issuance of price shares|
|Name requirement||Organization name followed by the expression "Ltda"||Organization name followed by the words "Sociedade Anônima" or "S.A." or placing before the organization name the word "Companhia" or its abbreviation "Cia"|
|Types||-||Public or Private|
|Form of organization||Articles of Association||Corporation’s articles|
|Registration||Local "Junta Comercial"||Local "Junta Comercial"|
|Owner changes||Changes in the Articles of the Association registered with the local "Junta Comercial"||Simple transference of shares|
|Mandatory books||Besides the regular ones used for commercial practices, there must be: ||Besides the regular ones used for commercial practices, there must be: |
|Management||Appointed administrator||Board of Directors|
|Official body|| ||General Meeting|
|Including new partners||Need 75% approval from the existing partners||-|
|Mandatory Audit||No||Only Mandatory for Public Companies|
|Board of Directors||No||Minimum of 2, who must necessarily reside in Brazil|
|Administrative Council||No||Minimum of 3 shareholders who don't need to reside in Brazil|
|Audit Committee||Optional||Minimum of 3 and maximum of 5 members; plus an equal number of substitutes|
Joint ventures are very common in Brazil, as a way for foreign firms to compete for government contracts or in regulated sectors, such as telecom and energy.
Both the Ltda. and the S.A. models are suitable to preform joint ventures between a foreign and a Brazilian company, there are no rules that instruct as to its incorporation.