How to choose a corporate type for a company in Brazil?

Companies that want to start their operations in Brazil can face a sea of information when they start planning the business that will be developed. Among the many aspects to be decided, there are the corporate types. After all, how to define a corporate type for the company and what is the importance of this choice?


Each corporate type has its own characteristics, and, depending on each singular situation, one or the other will be the most appropriate type for the business that is intended to be developed by the individual or legal entity. Thus, to better satisfy the wishes of the future corporation, full attention is required while adopting the correct corporate model.


Among the main characteristics to be evaluated are, for example:


1) the liability of the partners, since certain types of companies do not separate their assets from the company;

2) the need to raise financial resources through other sources in addition to the initial investors;

3) the ease to manage and register the business;

4) higher frequency of partner’s participation in company’s the daily life.


Companies should pay close attention while choosing the corporate type

Main corporate types in Brazil:


Initially, a distinction should be made between Simple Organization and Business Organization. Through art. 966, BrazilianCivil Code defines the meaning of entrepreneur: “an entrepreneur is considered to be one who professionally carries out organized economic activity for the production or circulation of goods or services”. Thus, it ends up excluding some activities that are not considered entrepreneurial activities


Therefore, the “organization” of these non-business activities will be called a simple organization, as follows below:


Simple partnership

Simple Partnership has personal character and is not used by companies, as it consists of individual professionals in the exercise of their functions as an end activity of an artistic, literary, scientific nature, that is, non-market areas, and plurality of partners, provided they are aimed at such activities.


Regarding partners’ liability, Simple Partnership, as a rule, provides for their unlimited liability concerning the obligations of the partnership.

In addition, Simple Partnership are not registered before Commercial Registry (Junta Comercial), but before the Civil Registry of Legal Entities.


Company partnership

Company partnership, on the other hand, occurs with or without the plurality of people whose objective is to carry out an organized economic activity for profit in accordance with the provisions of art. 966 of Brazilian Civil Code. This type of company is divided into other corporate types as follows below.



The corporate society aims to carry out an organized economic activity for profit


Among the corporate types for companies, we have:


1. Private limited company

It is the most used corporate type in Brazil. Through the changes made by Law 13,874 / 2019 in Brazilian Civil Code, private limited company, that previously was restricted to a minimum structure of two or more partners (individuals or legal entities), has now become accessible to the entrepreneurs who intends to exercise economic activity in production or circulation of goods and services, but does not wish to have a partner at their side, even if minority.


Thus, both single-person and multi-person private limited companies do not have a pre-established minimum or maximum value for share capital.

This capital is divided into share and each partner will have its liability limited to the amount corresponding to its share.


However, even with this limitation, all partners are jointly liable for the payment of the share capital, that is, for the capital subscribed by one of the partners but who for some reason did not pay this amount to the company's equity;


2. Joint-stock company

Regulated by Law 6,404 / 76 (Brazilian Corporation Law), this type of company will divide its share capital into shares and its shareholders (individuals or legal entities) will be held responsible to the extent of their participation in the shares.


According to the forementioned law, this liability will be limited to the issue price of the subscribed or acquired shares. With this, there is no patrimonial confusion between the private assets of the shareholders and those of the organization. The minimum for the payment of the share capital is the entry, 10% (ten percent), at least, of the price issued of the shares subscribed in cash (Law 6,404, art 80, II).


There are two types of joint stock company:

  • The privately held companies that, even for profit, do not have the possibility of trading shares on the capital market, so shareholders / investors must be found privately; and

  • The publicly traded companies that, with the authorization of the Securities and Exchange Commission (CVM), make it possible to trade their shares on the capital market.


3. General partnership

It is the corporate type that must be formed only by individuals who will have joint and unlimited liability in society, thus being able to have their personal assets affected. The capital can be made up of money, goods and / or services. In addition, only partners can manage the organization.



It is possible to have a company with or without the characteristic of plurality of people


4. Simple Limited Partnership

In this company, partners are subdivided into general partners and silent partners. The first concerns the partners that make up the capital and the management of the company, their responsibility is unlimited; Commanders are those who make up the company's share capital without exercising administrative activity, and have limited liability.


However, both general and silent partners have the right to supervise the management of the company since they participate in the distribution of profits in proportion to their shares.



5. Limited Partnership with a Share capital

Company in which the capital is divided into shares, and as in the case of a limited partnership, the liability of the shareholders is mixed. Thus, part of the shareholders responds in a limited way to the price of the subscribed or acquired shares, while the administrator / director shareholder chosen in the incorporation minutes responds unlimitedly and jointly for the company's obligations. This type of company has similar characteristics to joint-stock companies since the provisions of Law 6,404 / 76 combined with Brazilian Civil Code are applicable.


If there is an idea of entrepreneurship, but without the characteristic of plurality of people, there are still other types of companies that authorize the creation of legal entities individually, namely:


Individual microentrepreneur (MEI)

To fit into this type of company that promises to be a legal person without complications, it is necessary to fulfill the following requirements:

  • Revenue limited to R$ 81,000.00 per year;

  • Absence of participation by the small individual entrepreneur as a partner, owner, or administrator of another company;

  • Maximum limit of 1 employee;

  • To exercise the activity provided for in the list in Annex XI, of Resolution CGSN nº 140, May 22, 2018.

With all these requirements in place, the entrepreneur will be able to use this type of company that will bring him unlimited liability and the amount of tax paid by the entrepreneur is fixed and low.


Independent Entrepreneur

It is the corporate type consisting of only one individual who will have unlimited liability, as there is no legal personality as it happens in business companies.


It is regulated by Complementary Law 123/2006. In order to fit into this company, a person cannot be a partner in another company and must have annual revenue must be within the limit of R$ 360,000.00 (to qualify as ME - microenterprise) or within the limit of R$ 4.8 million ( to qualify as EPP - small business).


EIRELI - Individual Limited Liability Company

Formed by a single person (private individual or legal entity), it is the corporate type that limits the responsibility of the entrepreneur, protecting his/hers personal assets.


This model requires paid-in social capital with at least 100 minimum wages in effect, which in turn ended up causing a certain discredit of this company type by introducing the new wording of art. 1,052 of Brazilian Civil Code, as it enables the creation of sole proprietorship limited companies, without any minimum fixing of capital to be paid up.


It is important to carefully observe the choice of the corporate type so it won't cause damage to the company

The lack of attention while choosing a corporate type may not only cause damage to the shareholders' assets, but also hamper the continuation of business activities.


It is essential to correctly observe the characteristics of each of these to avoid a negative impact on business or even the generation of losses, preventing the growth of business activity.



Authors:

Gabriel Burjaili de Oliveira

Partner

Carlos Mendonça Freire

Associate

Bárbara Bassan Prado

Intern

Larissa Dicman Ballo

Intern