Brazilian Federal Government introduces changes in corporate legislations
On April 30, 2019, the Brazilian Federal Government enacted the Provisional Measure no. 881 (Economic Freedom PM). Such rule aims at stablishing a more liberal framework for the development of economic activities in Brazil, simplifying regulatory procedures for low impact activities, reinforcing the presumption of good-faith and creating a Declaration of Economic Freedom Rights.
The Economic Freedom PM introduces certain changes in civil, labor, tax and corporate legislations. Specifically concerning the latter, there are relevant changes related to investment funds and unipersonal limited liability companies, in addition to strengthening the limitation of liability, detailing the hypothesis of disregard of the legal entity
Unipersonal Limited Liability Companies
The corporate legislation was amended to allow the incorporation of limited liability companies by a single shareholder. Therefore, further to the two already existing hypothesis of unipersonal partnerships (wholly owned corporations and Individual Limited Liability Entity – EIRELI), the Brazilian law has a third partnership structure capable of having a single investor.
Such alteration reduces the legal requirements for the incorporation of unipersonal companies eliminating, for instance, the necessity of a minimum capital stock or of the investor being a legal entity, as occurs with the EIRELIs and wholly owned corporations.
The unipersonal limited liability companies may allow the simplification of the corporate structure of economic groups in the country, which may cease to have a minority shareholder exclusively to meet legal requirements.
Although the Economic Freedom PM is in full force, the reaction of the trade boards to its content is still unpredictable, as the regulation is still pending.
A new chapter was included in the Brazilian Civil Code referring to Investment Funds. The Economic Freedom PM, as already defined by the Brazilian SEC, clarified the nature of investment funds (defined as “communion of resources, in the form of condominium”).
The new legislation allows the statutes of Investment Funds to stablish the limitation of liability of their quotaholders to the acquired quotas and of the fiduciary service providers both before the fund and among the services providers themselves.
Although the limitation of liability is not a new concept in the Brazilian legislation, the Economic Freedom PM reinforces its importance by clarifying the situations in which the Judiciary can disregard the legal entity, and, thus access the assets of shareholders and management to satisfy debts of incorporate entities.
The rules strengthening the limitation of liability were introduced in the general provisions regarding legal entities (art. 50 of the Civil Code), in the legislation regulating Individual Limited Liability Entities – EIRELI (art. 980-A, paragraph 7 of the Civil Code) and in the Bankruptcy Law (art. 82-A of Law 11,101/2005).
In common, all alterations emphasize the requirement of abusive use of the legal personality to allow the disregard of the legal entity.
In light of the broad scope of this provisional measure and of the necessity of regulation for part of its content, it is still soon to foresee how the Economic Freedom PM will affect the Brazilian business environment. Particularly if one consider that the Economic Freedom PM has a temporary force (60 day period) and can still be rejected or amended by the Brazilian Congress in the next coming months.
For further information, contact:
Hugo Johan Silverio Wery
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