Portuguese for Articles of Association, this document is the main step to the legal formation of a partnership. Know more about the importance of this contract, its essential clauses and how to amended it when necessary.
What Contrato Social stands for?
Contrato Social is the Portuguese name for Articles of Association, which is a written document, drawn up in a public or private way, that will govern the company, showing the responsibilities, reciprocal rights and duties of its associates. This document will also specify a set of rules for the business operation and protections the associates' capital invested.
The dynamics of companies' partnerships is intense. In a few years, it can happen several significant changes in the market, new business are started, some come to an end, companies merge, friends become enemies, partners begin deceiving or hating each other, associates die, get sick, go crazy, or simply want to drop their deals and do something else.
Hence, the importance of the Articles of Association to reduce the uncertainty of the partnership. As one of the first steps of the company formation process, the Articles of Association must be done carefully, if possible by specialized lawyers or accountants. After its signature by the associates and witnesses, the document must be registered at the Junta Comercial (Board of Trade), from the same state where the company is being started, where it will take 15 to 30 days to be processed.
The Articles of Association will contain a few mandatory clauses required by the Legislation. According to the Brazilian Code of Civil Procedure, the essential provisions that must be present in the Contrato Social are:
- Complete qualification of the partners (name, address, personal documents etc)
- Company name and social object (activities that will be developed by the company)
- Complete location of the headquarters and the partnership's duration
- The capital of the company consistent initially invested money and input/assets held by its associates
- The share or quota belonging to each partner in the company and capital (their percentage in the partnership)
- Specification of the financial year
- Company's administrator’s name, rights and obligations
- In case the administrator’s is not a shareholder, the person must in addition present a declaration to Commercial Registry to be qualified as administrator
- Shareholders rights, interests and obligations
- Jurisdiction and arbitration clause
- City and date the contract was signed
- The participation of each partner in the profits and losses
In addition to the essential clauses (without which the Contrato Social is considered invalid), the partners can enter with other terms in the contract, which will be called accidental clauses.
Amendments to the Contrato Social
Of course the courses taken by the partnership may change and start to disagree from the initial intentions of it. The initial excitement, the trust between its members, the mutual delivery around a common purpose, as well as the whole business itself may need to take other directions.
Any alteration regarding the clauses of the Articles of Association, such as change of associates, company's name, the association purposes and activities, addresses, capital invested, quotas percentage etc. must be registered at the Junta Comercial. Otherwise, the changes will have no legal validity.
The amendments will only be valid after they were properly registered at Junta Comercial. The procedure to alter or insert new clauses to the Contrato Social is rewriting the document and registering it at Junta Comercial again.
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