Differences between Limitada , S/A and Partnerships
article by William Billeaud, President and Managing Partner of Lombard Global, Inc., with contributions from Joseph Low. Mr. Low is currently writing a book on the overall process of starting a business in Brazil. Its planned publication time frame is Q1 of 2013. Joseph is a Senior Advisor of Lombard Global, Inc. www.lombardglobal.com
If you’re considering expanding overseas into Brazil, you may want to investigate setting up an in-country entity or partnership, rather than relying on contractors. With its longstanding culture of protectionism, Brazil is a notoriously difficult place for foreign companies to do business, with corporate and tax law favoring companies with entities on the ground.
When you set up a corporate entity in Brazil, you have the choice between establishing a limitada or an S/A. At a high level, the limitada usually gives you trading flexibility and ease of implementation. For more complex operations and limited liability, the S/A is the best choice.
The sociedade limitada is the most popular corporate structure since it is easier to set up and has fewer public-disclosure requirements than any other corporate legal forms.
The capital of a limitada is divided into quotas (the amount to which each partner limits his liability). The limitada is formed through a similar but simpler procedure than the sociedade anônima and involves the same taxes; expenses are generally lower, however, since the limitada does not require external auditing.
Moreover, little disclosure is required; limitadas rarely reveal basic financial information, such as operating expenses or year-end profits.
It is not necessary to register a limitada on a stock exchange, and no minimum amount of capital must be deposited in a bank. A member may not sell a stake in the company (called quotas) without the consent of all other members.
It takes about two weeks to establish a limitada, which may not issue preferred shares or debentures.
The present body of legislation governing the formation of companies (including Company Law 6404 passed in 1976, Company Law 9457 passed in 1997 and Company Law 11638 passed in December 2007) was designed to protect minority shareholders, strengthen capital markets and facilitate the formation of conglomerates.
The 1976 and 1997 laws introduced new corporate concepts to Brazil, including those of a controlling shareholder and the mandatory distribution of dividends. Law 11638 seeks to modernise these concepts.
The law takes into account market changes that have taken place since the original law passed in 1976, and it requires the adoption of internationally accepted accounting norms.
The sociedade anônima is comparable to a US corporation or British public limited company and must comply with specific requirements.
It has more extensive requirements than the sociedade limitada in terms of disclosure policies, corporate meetings and financial statements. Capital stock is divided into shares, which may be traded on the stock market.
There are several types of shares, such as common or preferred shares, all of which have different rights and restrictions. A company organized as an SA may be set up as either a closed company (companhia fechada) or an open company (companhia aberta).
Open companies are those whose shares are traded publicly either on the stockmarkets or over the counter and must be registered before the Brazilian Securities Commission (Comissão de Valores Mobiliários—CVM). The CVM is the body in charge of regulating and monitoring the stock exchange in Brazil. The shares of a closed company are not available to general public.
(similar to a limited liability company)
• No stipulated minimum corporate capital
• Capital divided in quotas
• Amendments of Articles of Association demands ¾ of corporate capital
• Possibility of claim for exclusion of minority shareholder for a fair cause
• Less protection for minority shareholder
• Easier path for the shareholder that intends to leave the company
• Fewer formalities
(similar to a corporation)
• General rule, no minimum capital is required however 10% of capital paid prior to filing
• Capital divided in shares
• Bylaws amendment demands 50% + 1 of voting capital
• Exclusion of minority shareholder is rare and very controversial
• Possibility of subscription for raising capital via new shares issuance
• Possibility of using goodwill, debts and other structured instruments
• Publishing corporate bylaws and audit of financial statements is required
- Sociedade em nome colectivo (a general partnership)
- Sociedade em comandita simples (a limited liability co-partnership)
- Sociedade em comandita por acoes (a limited liability co-partnership by shares)
- Sociedade em conta de participao(an unincorporated partnership)
The most common tax structure for multinationals is the real profit regime or lucro real. Under the lucro real, the total corporate tax rate is effectively 34%. Financial institutions sometimes have a total effective tax rate of 40%.
Without going into too much detail in this introductory article, effective tax strategies in Brazil devote considerable time to the operational taxes applicable to the company’s line of business and on where to incorporate.
For instance, although VAT-type taxes are generally creditable, they require a complexity to manage which requires Brazil corporate specialists and are important enough to be figured into a company’s overall Brazil strategy.
In regards to municipal taxes, some municipalities on the outskirts of Sao Paolo, for example, offer economic incentives which reduce the ISS municipal tax to almost zero effectively.
But again, actively seek out Brazil corporate specialists for planning and implementation.
In closing, we leave you with a checklist which illustrates the procedures necessary to open an LLC or limitada in Brazil:
Investment-approval checklist example
To register a limited-liability company (sociedade limitada—Ltda) in Brazil, the following steps should be taken:
• If the company is funded by foreign capital, remit capital and register it with the central bank (Banco Central do Brasil) within 30 days.
• Register the company with the state where the company’s principal office will be located. Pay registration fees and obtain an identification number.
• Register with the Secretariat of Federal Revenue (Receita Federal do Brasil) for federal- and state tax purposes. Obtain a company number (known locally as the CNPJ), confirm taxpayer enrolment and obtain inspection of state taxes.
• Obtain permission from the respective state-level Ministry of Economy (Secretaría da Fazenda Estadual) to print receipts and invoices.
• Apply for an operations permit with respective municipality.
• Register company’s employees in social integration programme (contribuição para o programa de integração social—PIS).
• Open a bank account for the Length of Service Guarantee Fund (Fundo de Garantia por Tempo de Serviço—FGTS) unemployment account.
• Request permission from the Ministry of Labour and Employment (Ministério do Trabalho e Emprego) for the limited number of expatriate employees who need to be hired.
• Register with the Employees Union and Patronal Union.
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