Over the last five years, rating agencies, such as Standard & Poor’s, Moody’s and Fitch, awarded Brazil with investment grade, reflecting the continuous development of the Brazilian economic policy and the stable business environment in the country.
Large investments in infrastructure are ongoing in Brazil. The “Logistics Investment Programme”, launched by the Federal Government, in 2012, has the aim of providing Brazil with a transportation system that is compatible with the size of the country. The programme will invest over £40 billion on infrastructure over the next few years. Applying an investment model that favours partnerships between the public and private sectors, this initiative will award concession contracts and establish Public Private Partnerships for infrastructure projects. The programme aims to strengthen the competitiveness of the Brazilian economy by reducing transport-related costs. The programme will include investment opportunities in roads, railways, ports, airports and waterways.
Brazil is the world’s fifth largest country and boasts a rich geology and a large variety of mineral deposits, from iron ore and gold to diamonds and oil. The country is a leading producer of minerals and produces and markets about 80 mineral commodities. The states with the largest ore production are Minas Gerais (48%), Pará (28%), and Goiás (5%). In 2012, mining products represented 23,5% of the total Brazilian exports.
Primary commodities such as iron ore, manganese and gold represent 60% of the mineral industry and totalled US$34 billion. Exports of iron ore represented US$31 billion of this figure and totalled approximately 326.5 million tons.
Brazil is the world’s largest producer of niobium (over 90%); third largest producer of iron ore (14,2%) and aluminium (14,3%); fifth largest producer of Kaolin (5,8%); sixth largest producer of Tin Ore (4,07%) and ninth largest producer of steel (2,4%). In Latin America, Brazil’s production of steel represents 51,3% of total.
Oil and Gas:
The second largest oil producer in South America, Brazil is experiencing steady growth in the oil and gas sector. In the first half of 2008 Petrobras announced the discovery of oil in the pre-salt layer in Santos Basin, placing Brazil at the same level of reserves of the major world producers. In December 2012, there were 316 concessions active in the country, operated by 27 companies (82 are offshore and 234 onshore).
The increasing demand and incentives for new technologies to explore the pre-salt layers has been attracting numerous relevant companies to Brazil, such as GE, Siemens, Baker Hughes, IBM, Halliburton, Schlumberger, FMC Technologies.
To meet the growing demand for qualified workers, training programmes were created, such as Prominp (Program for Mobilization of the National Oil and Natural Gas), which has already qualified more than 88 thousand professionals in different areas of the industry.
The 11th licensing round is scheduled for May 2013 and the first auction for the pre-salt field must be held in end of this year.
The Brazilian energy matrix is considered the most renewable among the world’s major economies, with 45.3% of its production from sources such as water (hydroelectric plants), biomass, wind, solar and sugar cane bagasse (ethanol).
Brazil is the second largest producer of ethanol in the world and the world’s leading ethanol exporter. As the largest producer and exporter of sugar cane ethanol in the world, Brazil today leads the ranking of developing countries in the field of renewable energy. The complete cycle of ethanol production, from the development of special sugar cane varieties, planting systems, processing, storage and distribution, in addition to the flex fuel engine technology (engines that automatically adjust to different types and mixtures of fuels such as ethanol and gasoline) is all genuinely Brazilian.
Brazil has been developing programmes in several sectors in order to increase technology and innovation. This is the strategic direction for the coming decades, which involves combining quality universal education, scientific research, innovation and social inclusion.
Brazil has recognized the comprehensive character of innovation, ranging from adequate preparation of schoolchildren for scientific and entrepreneurial careers and skills to the creation of enabling environments for the development of new products, services and processes. In order to tackle these issues, the Brazilian government has put in place the Greater Brazil Plan (Plano Brasil Maior), the main purpose of which is to stimulate investments and technologic effort in order to increase competitiveness of national goods and services. With regards to education and skills, the government has put in place the “Science without Borders” programme, which will offer grants to more than a hundred thousand Brazilian students so that they can study science-related subjects at universities around the world, both at undergraduate and postgraduate level. It also aims to give foreign researchers the chance to work in Brazil.
TYPES OF BUSINESS ORGANIZATIONS
The Brazilian legal system provides for types of business organizations under which parties can set up corporate entities or establish other forms of incorporation that do not imply corporate structure. The later group includes consortia and other forms of legal businesses whose parties do not relinquish their status as individuals. Incorporation of a company, on the other hand, entails a written agreement, either private or public, in which the contracting parties express their aims either individually or as a partnership (sociedades personificadas – partnerships forming a legal entity – or sociedades não personificadas – partnerships not forming a legal entity). The latter include sociedades em comum (unregistered partnerships) and sociedades em conta de participação (joint venture partnerships).
Brazilian law provides for the following types of companies: sociedade simples (simple partnership), sociedade em nome coletivo (collective partnership), sociedade em comandita simples (limited co partnership), sociedade limitada (limited liability company), sociedade anônima (joint-stock company) and sociedade em comandita por ações (partnership limited by shares).
The law lends corporate status to such companies upon registration with the competent pubic registry office, turning them into legal entities with distinct liability to that of their partners.
Brazilian law also provides for associations, foundations and cooperatives. Such forms of association are not-for-profit either due to their charitable nature or to their specific characteristics and aims, and they are thus different from comercial organizations, regardless of whether they generate revenues or not.
It should be stressed that, except for joint-stock companies (sociedades anônimas), all the types of business organizations contemplated in the Brazilian Law can operate either as simple partnerships (sociedades simples) or as business corporations (sociedades empresariais). However, their nature must be expressed in their articles of incorporation. Simple partnerships must be registered with the Civil Registry of Corporate Entities, while business corporations must be registered with the board of trade.
Joint-stock Company (Sociedade Anônima)
A joint-stock company (Sociedade Anônima or Companhia), as described in article 1,088 of the Brazilian Civil Code and provided for in Law 6,404 of December 15, 1976, as partially amended by Law 9,457 of June 5, 1997, by Law 10,303, of October 31, 2001, by Law 11,638 of December 28, 2007, and by Law 11,941 of May 27, 2009, is fundamentally a legally constituted business corporation with capital stock divided into shares. The main purpose of these companies it to generate profits for distribution among its shareholders as dividends or interest on their own capital.
A Sociedade Anônima is identified by a name followed by the words Sociedade Anônima in full or abbreviated as S/A or preceded by the word Companhia in full or abbreviated as Cia. A corporate name may take the form of the name of a person, e.g. of its founder or of a person one wants to pay homage to. A corporate name can describe corporate purposes or the activity carried out by the company in question, but such a description is not mandatory.
There are two kinds of sociedades anônimas: publicly held companies that raise capital through public offerings and subscriptions and are supervised by the Brazilian Securities Commission (CVM) and closed capital companies that raise capital with its shareholders or subscribers, whose accounting and management are simpler.
Capital stock is represented by securities known as shares. Depending on the nature of the rights or advantages conferred to their holders, they can have common, preferred or fruition shares.
Apart from conferring special rights, common shares give their holders the right to vote, while preferred shares, which also grant special rights to their holders, can restrict or suppress the right to vote. Fruition shares give their holders the right to continue to participate in the company’s profits from ordinary or preferential shares even upon their amortization, without reduction in capital.
By means of a Shareholder’s Agreement, shareholders can decide on issues relating to purchase and sale of their shares, establish preferential acquisition rights, or exercise voting rights. All obligations set forth in Shareholders Agreement are binding, and must be respected by the Company. All obligations set forth in Shareholders Agreement are binding, and must be complied with by the company.
A sociedade anônima can be managed by a Board of Directors and Management Council or only by a Board of Directors, as determined in law or in its by-laws.
The Management Council is a collegiate decision-making body. Such councils are optional for closed capital corporations and mandatory for open-capital or authorized-capital corporations. A Management Council must have at least three members, who must be individual shareholders residing in Brazil or not.
The Board of Directors is the executive body of a sociedade anônima. It is responsible for representing the company and to carry out all acts required for its regular operation. It is made up of at least two directors, who may or may not be shareholders and must be individuals residing in the country elected for a maximum term of three years.
Shareholders can inspect their company through the Audit Committee (Conselho Fiscal).
The Audit Committee is in charge of inspecting the company’s accounts and management and it can be either a permanent body or one set up for specific tasks. The Audit Committee is set up according to the desire of the shareholders to ensure more stringent control over corporate management. It must comprise no less than three and no more than five members, each with an alternate who may be a shareholder or not elected by the General Assembly. In special cases, representatives of a specific category of shareholders can take part in the Audit Committee.
Limited Liability Company (Sociedade Limitada)
Articles 1,052 to 1,087 of the Civil Code and the Corporations Act regulate the operations of limited liability companies, which may take the form of a simple company (sociedade simples) or of a business corporation (sociedade empresária), according to their corporate aims and type of business.
A sociedade limitada is set up through articles of association and has limited liability partners. Since the liability of its partners is limited to the value of their shares, all of them are jointly liable for its capital stock until it is completely paid up.
Under the New Civil Code, limited liability companies must have an organic structure made up of a Meeting of Shareholders, a Management Board and na Audit Committee established by the partners in the articles of association. The meeting of shareholders is the main decisionmaking body of a corporate organization which meets as required by law or by the articles of association. Management is carried out by one or more individuals who may be shareholders or not assigned to this role by the company’s articles of association, which also defines their term in this role.
The capital stock of a limited liability company is divided into shares. Each share represents an amount in money, credits, rights or assets which a shareholder contributes to the company’s capital. Shares must be registered and are not represented by securities. As the ownership and number of shares are expressed in the Articles of Association, any transfer of such shares requires na amendment to them. At the meetings of shareholders, changes resulting in amendments to the articles of association or in the reorganization of the company require favorable votes representing at least three-fourths of the capital stock.
Rules Common to Both Joint-stock Companies and Limited Liability Companies
Both joint-stock and limited liability companies can engage in operations involving transformation, merger, consolidation or split-up in accordance with articles 1,113 to 1,122 of Law 10,406 of January 10, 2002 (Civil Code) and articles 220 to 234 of Special Law 6,404, of December 15, 1976 (the Corporations Act).
Transformation is an operation through which the corporate classification of a given company is changed without it being dissolved. Acquisition (incorporação) is na operation through which one or more companies are absorbed by another one, which assumes all their rights and liabilities.
Merger (fusão) is an operation through which two or more companies amalgamate to form a new one that assumes all their rights and liabilities, as the former ones cease to exist.
A split-up (cisão) is an operation whereby a company transfers a part or all of its net equity to one or more existing companies or to companies specifically set up for this purpose, resulting in the extinction of the parent company, if all of its net equity is transferred, or in the reduction of its capital, if only part of its net equity is transferred.
OTHER TYPES OF COMPANIES AND FORMS OF ASSOCIATION
Because of their nature as partial or unlimited liability companies, other types of companies are rarely used, but they can be interesting options for certain business purposes. Brief information will be provided below on some of the most common options.
Individual Limited Liability Company (Empresa Individual de Responsabilidade Limitada – EIRELI)
The newest type of company in Brazil is the individual limited liability company, which was created on July 11, 2011 by Law n. 12,441.
The Law, which introduced article 980-A and the only paragraph of article 1,033 of the Civil Code of 2002, provides for the possibility of establishing a limited liability company in which a single person holds all the quotas of the capital stock, which is necessarily paid-up in an amount of no less than one hundred (100) times the highest minimum wage in effect in the Country. The rules applied to limited liability companies also apply to individual limited liability companies, as appropriate.
Limited Co-partnership (Sociedade em Comandita Simples) or Limited Partnership by Shares
(Sociedade em Comandita por Ações)
A limited co-partnership (sociedade em comandita simples) or a limited partnership by shares (sociedade em comandita por ações) can have partners of two kinds: partners with unlimited liability, who are in charge of corporate management and representation, known as full partners (comanditados), and partners whose liability is limited to their participation, represented by social quotas in the case of limited co-partnerships and by shares in the case of limited partnerships by shares, known as silent partners (comanditários).
In limited co-partnerships, the participation of full partners is also represented by corporate shares, but their liability is governed by the rules applied to general partnerships (sociedades em nome coletivo), meaning that liability of the partners is unlimited and shared.
Limited partnerships by shares are governed by articles 1,090/1,092 of the Brazilian Civil Code and by a special chapter of the Corporations Act and the respective participation of both their types of partners consists in shares.
General Partnership (Sociedade em Nome Coletivo)
This corporate type is characterized by the unlimited and shared liability of its partners, meaning that they only have joint partners. However, these partners are only liable for the company’s social obligations on a subsidiary basis, i.e. their assets can only be executed after all the company’s assets have been exhausted.
Responsibility for the company’s management falls on all of the partners if its articles of association do not specifically determine a specific partner to bear this responsibility. If they do, this partner will have the exclusive right to use the firm or corporate name.
This company’s corporate name is made up of the name of one, some or all of its partners, with the expression. “& Cia” added to it when there is no express reference to the names of all partners.
Joint Venture Partnership (Sociedade em Conta de Participação -SCP)
A joint venture partnership has two types of partners: ostensible and unidentified partners. These partnerships are unincorporated, i.e. they have no corporate status even if registered.
These partnerships are established solely for the purpose of conducting a specific undertaking for a specific period of time.
Apart from the ostensible partner, these partnerships involve a category of “hidden” partners which contribute capital or other inputs toward the undertaking. Their liability is exclusively toward the ostensible partner, pursuant to the corresponding articles of association, which also record their status as creditors. In the event of bankruptcy of the ostensible partner, the participating partners become creditors of the former with no priority or preference rights.
Joint venture partnerships can be established with few formalities other than the registration of their articles of association, and they are acceptable under Brazilian law. They are therefore companies that exist only between their parties and not for third parties, as these deal only with the ostensible partner, who bears full responsibility for the undertaking.
Joint venture partnerships are exclusively managed by the ostensible partner, who is responsible for all its operations and must render accounts to the other partners after the joint venture is over or as provided for in their contract.
Etymologically, the word consórcio means union, combination, association. According to the Brazilian corporate law, however, a consórcio is an association of two or more companies around a specific project in which they preserve their corporate identity.
A consortium is established by means of an agreement between two or more companies under which they do not lose their autonomy, as they preserve their corporate identity while pooling efforts to achieve specific objectives.
Although this association is based on a contract, it does not have corporate standing, since the parties only bind themselves to the terms of the consortium agreement. Each party is liable for its specific obligations as set out therein, without presumption of joint liability before third parties, except with regard to labor relations, according to the Brazilian labor law (CLT).
The consortium agreement must be approved by the signatory companies at a general meeting in the case of limited liability companies or by the corresponding competente authorities in other cases.
A consortium agreement must contain the following items:
- the name of the consortium, if any;
- the objectives of the consortium;
- the duration, address and venue of the agreement;
- the obligations, responsibilities and commitments of the participants;
- rules for receipt and distribution of profits;
- management and accounting policies, shares of each of the participating companies and
- administrative charges, if applicable;
- rules for deliberation and the voting rights of each participant; and
- the contribution of each participant to common expenses, if applicable.
The consortium agreement and any subsequent amendments thereto must be filed before the Board of Trade in whose jurisdiction its head office is located, whose certificate must be published in the federal or state Official Gazette and in a newspaper with large circulation.
PROCEDURES FOR REGISTRATION
There are two kinds of public registries for companies in Brazil:
- Commercial Registry – for registering the documents of business companies (apart from the registration of individual partners and of his representatives and other agents) with trade boards, which are bodies under state jurisdiction; and,
- Civil Registry, for registering the documents of simple partnerships with the registry office for legal entities, which are bodies under the jurisdiction of their districts.
The Commercial Registry
The Commercial Registry, whose executive bodies are the State Trade Boards (one per unit of the
Federation), is compulsory for all those engaged in business activities (businesspersons and companies)
entailing production or circulation of goods and services.
According to the law, all joint-stock companies are business companies. Apart from these, any general partnership (sociedade em nome coletivo), limited co-partnership (sociedade em comandita simples or por ações) or limited liability company (sociedade limitada) is also a business company that must register with the trade board in the state where it operates or where it might open branches, provided that its purpose is engaging in economic activities through production or circulation of goods or services by means of a corporate structure.
According to the corporate type chosen by the company and the definition of its corporate purpose,
which must be clearly and accurately stated, it will register either with a State Trade Board or with a Registry Office for Legal Entities.
The application for filing articles of association for joint-stock companies must be accompanied by
the following documents:
- Articles of Incorporation or Minutes of the General Incorporation Meeting, listing the particulars of the subscribers and proof of payment of the entire capital stock;
- Bank deposit slip (from Banco do Brasil S.A.) confirming the deposit in cash of no less than ten percent (10%) of the company’s subscribed capital for payment in cash;
- By-Laws signed by all subscribers.
- A report indicating the subscribed capital signed by the original subscribers or by the Secretariat of the General Meeting providing the full name, nationality, marital status, profession, residence and domicilie of the subscribers, in addition to the number of subscribed shares and the amount paid;
- A power-of-attorney granted by any foreign shareholder residing or headquartered abroad signed before a Public Notary in the country of origin, stamped by the Brazilian Consulate, translated by a public sworn translator in Brazil and registered with a Registry of Deeds and Documents;
- Documentary proof of the existence of partners residing abroad;
- Photocopy of the identity cards of elected directors and board members.
- Forms duly filled out with data on the company and its partners, accompanied by proof of payment of all charges due for filing.
For all business companies, the incorporation documents and any subsequent amendments thereto must be filed with the Trade Board in the jurisdiction of the company’s head office accompanied by a petition signed and dated by a partner, attorney or other duly authorized person.
The application to file articles of incorporation of a business company with the trade board must
be accompanied by the following documents:
- Three original copies of the articles of association signed by all partners and two witnesses;
- A certificate that the articles of association were agreed upon in a public deed, if they were;
- A certified photocopy of the identify card of each partner;
- A power-of-attorney granted by any foreign partner residing or headquartered abroad signed before a Public Notary in the country of origin, stamped by the Brazilian Consulate, translated by a public
- sworn translator in Brazil and registered with a Registry of Deeds and Documents;
- Documentary proof of the existence of partners residing abroad;
- A personal declaration signed by each partner or manager of the partnership stating that he or she is.
Source: Legal Guide for Foreign Investors in Brazil 2011
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