What is the main source of law authorising this entity form?

Brazilian Corporation Law (Law No. 6,404, of December 15, 1976)

Publicly held corporations are also subject to specific regulations of the Brazilian Securities Commission (Comissão de Valores Mobiliários) (“CVM”), pursuant to Law No. 6,385 of December 7, 1976.

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

The corporation has separate legal personality.

(Maximum) period of existence

There is no maximum period of existence.

Governing document(s)

The corporation is governed by its By-laws (Estatuto Social) duly registered before the competent Board of Trade (Junta Comercial).

The corporation's name must include either the words Companhia, Sociedade Anônima or its abbreviation S.A. which is most commonly used, according to Brazilian Civil Code (although there are recently published normative instructions stating that the corporation's name does not have to expressly indicate the core business).

Liability of incorporators / shareholders

As a general rule, a shareholder is not liable for the corporation's obligations, but solely for the payment in full of the subscribed shares. Once all the shares have been fully paid in, the shareholders will have no further liability.

The Brazilian Courts can exceptionally disregard the corporate entity and pierce the corporate veil in very specific situations (deviation from the corporate purpose or confusion of assets – i.e., the failure to segregate the company’s assets from the shareholders or managers), if it is proven that the partner directly or indirectly benefited from the abusive practice, in order to extend the corporation’s liabilities to the shareholders and/or other companies in the same economic group, especially with respect to tax and labor-related debts.

(Governing) bodies

The corporation shall be managed by: (i) the Board of Officers (Diretoria), which is the executive body and, among other duties, is in charge of the legal representation of the corporation; (ii) the Board of Directors (Conselho de Administração), which is the collective decision-making body of the corporation and is only mandatory for publicly held and authorized capital corporations; and (iii) the Audit Committee (Conselho Fiscal), which is responsible for supervising the company’s directors and officers – this is a compulsory body, but is not required to operate on a standing basis.

Other particularities

The managers are not liable for obligations assumed on behalf of the corporation, unless they exceed their powers or violate the law or the By-laws.

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

It is possible for a Brazilian corporation to enter into cross border acquisitions. However, corporate restructuring transactions (merger, spin-off and corporate transformation) can only directly involve Brazilian companies.

Can this type of entity be publicly listed or held?

Yes, the corporation may be either a publicly held corporation (Companhia Aberta) or a closely held corporation (Companhia Fechada).

Can this type of entity be used for a non-profit or charitable organization?

No.

Give a brief summary of the process of incorporation, formation, or organization, including:

Main documents required

Main acts and documents required for the incorporation of a Brazilian corporation:

• Subscription by at least two (2) shareholders (legal entities or individuals) of the entire allotted share capital.
• Payment in cash of at least 10% of the subscribed capital (deposit with Banco do Brasil S.A. or another financial institution authorized by CVM).
• Execution of the Minutes of Incorporation Meeting and By-laws by the shareholders, which must be registered before the local Board of Trade, published in the Official Gazette and widely circulated newspapers and registered in the relevant corporate books.
• Opening of the applicable corporate books.
• Execution of documents required for the registration of the shareholders, officers and directors, including the relevant powers-of-attorney granted by foreign shareholders/directors (if any) to the local residents (if applicable).
• Registration of the corporation before the Brazilian Federal Tax Authority (Receita Federal) and other public enrolments.
• Obtaining operation licenses and permits, depending on the corporation’s activities.
• Disclosure of information on the ultimate beneficial owners of any foreign entities before the Brazilian Federal Revenue.

Note: publicly held corporations are subject to additional regulations issued by CVM.

Involvement of notary, company register, governmental authorities

The corporate purpose must be set forth for in the By-laws and registered before the competent Board of Trade.

Obtaining the tax identification number (CNPJ) – which is sufficient to enable the company to open a bank account, execute agreements, hire employees, among other day-to-day activities – usually takes fifteen (15) to thirty (30) days counted as from the filing date (depending on the activities, receipt of the CNPJ may take longer and, given the current situation of COVID-19 pandemic, further delays caused by lockdown restrictions are expected).

Timing (estimate)

The timing for the complete incorporation of a corporation is directly linked to the activities in which the company will engage in Brazil.

The whole incorporation process usually takes sixty (60) to ninety (90) days to be completed (depending on the activities, obtaining the operation licenses may take longer and, given the current situation of COVID-19 pandemic, further delays caused by lockdown restrictions are expected).

Main costs, including registration and similar fees (excluding legal fees)

The main costs are (i) legal fees (lawyers and paralegal services); (ii) fees charged by the public authorities; (iii) notarial fees for the legalization of the foreign documents; and (iv) fees charged by third-party service providers for legal representation and management services (if necessary). The costs may vary depending on the location, type of activities, number of shareholders etc.

Shelf companies can be purchased from third-party service providers. The cost may vary from USD 2,000 to USD 3,000.

 

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

The corporate purpose must be set forth for in the By-laws and registered before the competent Board of Trade.

Minimum number of incorporators / shareholders and residency requirements

At least two (2) shareholders, except in case of a specific type of corporation named as wholly owned subsidiary (subsidiária integral) which may have just one (1) shareholder, which must be another Brazilian entity.

The shareholders may be either entities or individuals, domiciled/headquartered in Brazil or abroad. Foreign shareholders must appoint legal representatives in Brazil.

According to the Brazilian Corporation Law, a corporation shall be dissolved if it has only one shareholder, verified at an annual general meeting, if the two shareholders requirement is not met by the annual general meeting of the following year.

Minimum number of directors (or other applicable officers) and residency requirements

The Board of Officers must be composed of at least two (2) officers, who may be shareholders or not, and must be resident in Brazil – i.e., only Brazilian citizens or foreigners resident in Brazil who have obtained a visa/authorization for residence, pursuant to the rules provided for in the New Migration Law (Law No. 13.445/2017) are allowed to act as managers of a company.

The Board of Directors must be composed of at least three (3) members, who are not required to be Brazilian residents. Foreign directors must appoint legal representatives in Brazil.

The Audit Committee must be composed of three (3) to five (5) members (and a like number of alternates), who must be Brazilian residents.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

As a general rule, there is no minimum capital requirement.

Exceptions may apply if the company will engage in import and export transactions, or other very specific activities, in which case a level of capital compatible with such activities may be required on a case-by-case basis.

Should the shareholders seek to appoint an expatriate officer, the corporation must apply for a visa/authorization for residence and, for such purpose, the company must have a minimum of BRL 600,000 duly registered with the Brazilian Central Bank as capital investment. The investment will be reduced to BRL 150,000 if the company undertakes to create ten (10) employment positions within two (2) years as from the issuance of the relevant visa/authorization for residence by the Brazilian Immigration Authorities.

At least 10% of the issuance price of the shares subscribed must be paid-up. The amount must be deposited with Banco do Brasil S.A. or another financial institution authorized by CVM. The corporation's bank account must be opened in Brazil after its incorporation.

The shareholders must pay-up the shares in accordance with the conditions stated in the By-laws or in the subscription form (boletim de subscrição).

Any foreign investment must also be subject to registration before the Brazilian Central Bank.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

No. The foreign shareholders and members of the Board of Directors may be represented by virtue of a power of attorney granted to local residents.

The officers (who must be resident in Brazil) and directors must personally execute their investiture terms in the applicable corporate books – the relevant pages may be sent abroad for signature, if necessary

Is a tax identification number, or equivalent, required? If so, how is it obtained?

All Brazilian companies (and their foreign shareholders) must be enrolled with the Brazilian Federal Tax Authority (Receita Federal) and obtain the tax identification number (CNPJ) to begin their operations.

Due to the integration of the respective systems in the main States in Brazil, the registration of the By-laws with the Board of Trade automatically initiates the enrolment with the CNPJ.

Subject to the activities to be performed, a company may also need to obtain registrations with the State and Municipal Tax Authorities. The State enrolment is obtained along with the CNPJ and the Municipal enrolment is obtained by means of a separate process.

 

What is the title of the applicable company registry?

All the corporate acts must be registered before the competent Board of Trade (Junta Comercial).

Publicly held corporations are also subject to prior registration with CVM.

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:

At least the following information must be filed before the Board of Trade and, therefore, will be publicly available: (a) By-laws, including the company’s name, address of the principal place of business, activities, the capital amount, its payment terms and apportionment between the shareholders, number/classes of shares, period of existence, management structure and routine governance matters; (b) managers’ identification; and (c) shareholders’ identification (in case of publicly held corporations).

All Brazilian companies owned by foreign entities must disclose information on their ultimate beneficial owners before the Brazilian Federal Revenue.

The most relevant corporate documents (which are intended to produce effects before third parties) and the financial statements must be registered before the competent Board of Trade and published in the Official Gazette and widely circulated newspapers.

Publicly held corporations must disclose to the market any material act or fact that may predominantly influence: (i) the price of the securities issued by such corporation or related thereto; or (ii) in the decision to buy, sell or hold such securities, or even to exercise any rights inherent to them.

Most Brazilian authorities issue public certificates on existing lawsuits and outstanding debts.

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The Board of Officers (Diretoria).

Among other duties, the members of the Board of Officers represent the company and carry out management duties, according to the corporate purpose provided for in the By-laws.

The By-laws may require that certain managerial decisions should be taken in executive board meetings only.

The By-laws must provide for the assignments and powers of each officer. As a general rule, the officers will not be held liable for any obligations assumed on behalf of the company as regards routine acts necessary for the company’s management.

If the By-laws are silent or there is no resolution adopted by the Board of Directors prescribing the officers’ duties, any officer may individually represent the company and take the actions necessary for its day-to-day operations.

How are the members of the executive body appointed, dismissed and replaced?

The members of the executive body (Board of Officers - Diretoria) may be appointed, dismissed and replaced at any time by the Board of Directors (Conselho de Administração), or if the company does not have a

Board of Directors, by the Shareholders’ General Meeting (Assembleia Geral de Acionistas), according to the specific rules provided for in the By-laws.

Note: The relevant corporate act approving the appointment, dismissal or replacement of the executive officers must be registered before the competent Board of Trade and published.

Is it possible to appoint corporate directors or must all directors be natural persons?

No, the members of the Board of Directors shall be appointed by the Shareholders’ General Meeting, according to the rules provided for in the By-laws. They must be natural persons and not corporate entities.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

The Board of Directors (which is a non-executive body) is only mandatory for publicly held and authorized capital corporations.

The Audit Committee is a mandatory body but is not required to operate on a standing basis.

The members of both bodies are appointed, dismissed and replaced by the Shareholders’ General Meeting.

Such bodies are independent and separate from the Board of Officers which is an executive body.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

General Shareholders’ Meeting (Assembleia Geral).

Such body is the highest authority in a corporation and is in charge of almost every resolution, including any amendments to the By-laws, the election or replacement of any director of the company (or officers, in case the company does not have a Board of Directors), the approval of the financial statements and management accounts, as well as the merger, consolidation, spin-off, dissolution or liquidation of the company, etc.

The shareholders are required to hold annual shareholders' meetings to vote on certain matters, such as the approval of management accounts and financial statements. Such shareholders’ meetings may be held with physical presence of the partners or remotely (online), subject to certain requirements established (i) by normative instructions, in case of closely held corporations; and (ii) by CVM guidelines, in case of publicly held corporations.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Generally, decisions must be taken by at least the majority of the shareholders present at the meeting.

Certain matters, expressly set forth in the law, require the approval by a higher quorum.

The conversion of the company’s corporate type must be approved by 100% of the shareholders (if the By-laws do not provide otherwise).

The Brazilian Corporation Law establishes a qualified quorum of affirmative vote of shareholders representing more than 1/2 of the voting capital regarding, among others, the following matters: (a) creation of preferred shares or increasing an existing class of preferred shares; (b) reduction of the mandatory dividend; (c) merger of the corporation; (d) change of the corporate purpose; (e) spin-off of the corporation; (f) dissolution of the corporation.

The By-laws may establish other quorum requirements.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

Publicly held corporations are subject to specific regulations of CVM.

So-called large companies – i.e., entities with assets greater than BRL 240 million (approximately, USD 80 million) or revenues greater than BRL 300 million (approximately, USD 100 million) – are subject to rules on the hiring of external auditors and rules for preparation of financial statements applicable to publicly held corporations. Debate and litigation existed on whether large companies were also required to publish their financial statements in the Official Gazette and another newspaper with wide circulation, because the legislation does not expressly refer to the publication of the financial statements, but only to the preparation and audit thereof. This has generated many debates and is still controversial.

In the case of closely held corporations, if the company has a net asset value lower than BRL 10,000,000 and less than twenty (20) shareholders, it is not required to publish its financial statements and other documents pursuant to the Brazilian Corporation Law.

There are special listing segments of the Brazilian Stock Exchange – Bovespa Mais, Bovespa Mais Nível 2, Novo Mercado, Nível 2 and Nível 1 – which are bound by good corporate governance practices in addition to those that are already required by law and are intended to improve the assessment of those companies which decide to join one of these segments voluntarily. Such rules ensure shareholders’ rights and guarantees and establish the disclosure of more complete information to market players, and, therefore, attract more investors.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

The company's accounts must be kept as permanent records, in accordance with the provisions of the commercial legislation, the Brazilian Corporation Law and with generally accepted accounting principles, using accounting methods or criteria that are uniform over time and recording changes in assets on an accrual basis.

At the end of each fiscal year, the corporation must prepare its financial statements, based on its bookkeeping records, which shall clearly indicate its assets and liabilities as well as the changes that occurred during the fiscal year.

An annual meeting must be held by the shareholders in the first four (4) months after the end of the previous fiscal year in order to approve the management's accounts and the financial statements.

The financial statements of publicly held corporations are also subject to the rules issued by CVM and must be audited by external auditors registered with CVM. Closely held corporations may choose to follow the same rules.

Is the entity permitted to determine its own financial year?

Yes, the date of the end of the fiscal year must be specified in the By-laws.

Is the entity subject to any statutory (external) auditor obligations?

Publicly held corporations (and the so-called large companies) are obliged to have their financial statements audited by an external auditor.

In relation to the closely held corporation, if the company does not have independent auditors, the Audit Committee (if installed) may, for better performance of its functions, appoint an external accountant or audit firm.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

No.

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

Shares.

Are different classes of ownership interests possible? If so, what are some examples of different classes?

The capital of corporations is divided into shares issued with or without par value and may be divided into common, preferred or fruition shares. The rights and obligations attributable thereto vary in accordance with their legal nature and provisions of the By-laws. More than one type of preferred shares can exist, with or without voting rights, and the difference between them must be provided for in the By-laws. The number of non-voting or restricted voting preferred shares may not exceed 50% of the total number of issued shares.

What documentation is required for the transfer of ownership interests?

Shares may be represented by certificates or may be book entry shares – i.e., the By-laws may require all the corporation shares, or one or more classes thereof, are to be kept in deposit accounts in the name of their holders at an institution designated by the corporation, without issuing certificates.

Registered Shares. The ownership of registered shares is evidenced by the name of the shareholder written in the Registered Shares Book (Livro de Registro de Ações) or by the certificate supplied by the custody agent acting as fiduciary owner of the shares.

• Registered shares shall be transferred by an entry in the Registered Shares Transfer book (Livro de Registro de Transferência de Ações), duly executed by the assignor and assignee or their legal representatives.
• In case of transfer of registered shares acquired on a stock exchange, the assignee shall be represented by the brokerage corporation or stock exchange liquidation department.

Book Entry Shares. Book entry share ownership is presumed by the registration in the share deposit account opened in the name of the shareholder in the books of the depositary.

• The transfer of a book entry share is effected by an entry made by the depositary in its corporate books, against presentation of a written order by the assignor, or a court authorization or order, in an appropriate document which shall remain in the possession of the depositary.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

As a general rule, shareholders may freely transfer their shares to other shareholders or third parties by means of an entry in the Share Transfer Book. However, the By-laws of closely held corporations may impose restrictions on the transfer of shares, provided that such restrictions are defined in detail and do not preclude their negotiability nor subject the shareholder to the arbitrary decision of the administrative bodies of the corporation or of the majority of the shareholders.

The transfer of shares involving foreign shareholders must be subject to registration before the Brazilian Central Bank.

Are there any applicable stamp duties imposed when transferring ownership interests?

No.

How are shares issued? (including information on payment obligations, registration requirements)

Shares are issued by means of (i) the approval of the Shareholders’ General Meeting (or by the Board of Directors in case of companies with authorized capital), (ii) the execution of the relevant subscription form (boletim de subscrição) by each shareholder and (iii) the registration of the shares and shareholders in the Registered Shares Book (Livro de Registro de Ações). The Minutes of Shareholders’ General Meeting (or the Minutes of the Board of Directors’ Meeting, as applicable) shall be registered before the competent Board of Trade, and published and registered in the relevant corporate books.<

The public subscription of shares is subject to prior registration before CVM and must be intermediated by a financial institution.

Shareholders must pay-up the shares in accordance with the conditions stated in the By-laws or in the subscription form (boletim de subscrição).

At least 10% of the subscribed capital must be paid-up by the shareholders in case of incorporation or any increase of capital.

The capital increase upon subscription of shares may only be made after payment of at least 3/4 of the previous capital amount.

The general rule is that in the event of a capital increase the shareholders have preemptive rights proportionally to the equity held by each shareholder.

The foreign investment must also be subject to registration before the Brazilian Central Bank.

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

Shares may be paid in cash or by any assets for which the monetary value can be appraised (in this case, an appraisal report must be prepared and submitted for the approval of the shareholders).

A corporation whose shares have no par value may capitalize profits or reserves without changing the number of shares.

In addition to the shares, a corporation may issue additional securities to investors in order to raise additional capital, such as debentures, beneficiary parts (for closely held corporations only) and subscription rights.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

Brazilian companies are allowed to negotiate their own shares only in specific cases provided for in the Brazilian Corporation Law. Authorized transactions include the acquisition of shares for the purposes of (i) holding shares in treasury, (ii) cancellation, and (iii) future sale.

CVM regulates the “buyback” of shares by publicly held companies.

Redemption, repayment or amortisation operations are also authorized by law.

The capital may be reduced in case the company has (i) registered losses (up to the total amount of the accumulated losses), and (ii) excessive capital vis-à-vis its purposes and operations. In the latter case, the resolution will only become valid and effective in case there is no opposition of creditors within sixty (60) days counted as of the date of publication of the relevant Shareholders’ General Meeting.

Any requirements with respect to distributions to shareholders?

Subject to the provisions of the Brazilian Corporation Law and to the By-laws, the corporation must hold an annual shareholders´ meeting to approve, among other matters, the distribution of annual dividends, based on the financial statements prepared for the immediately preceding fiscal year.

• As a rule, shareholders are entitled to a compulsory dividend in accordance with the provisions of the Bylaws, subject only to the sufficiency of profits. As a market practice, corporations usually establish 25% of the net profits as mandatory dividends.
• In the event the By-laws do not provide for a mandatory dividend, shareholders are entitled to 50% of the net profits, adjusted according to the Brazilian Corporation Law.
• Currently, dividend distributions are not subject to income tax.
• While all dividends must be distributed in proportion to each shareholders’ equity, it is possible to attribute specific benefits to the shareholders upon the creation of preferred shares.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

The shareholders can enter into a Shareholders Agreement to govern the exercise of voting rights, the purchase and sale of shares, the exercise of the right of first refusal, etc. The provisions of the Shareholders Agreement must not contradict the By-laws, but additional and/or more detailed provisions are allowed.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

The annual costs for the maintenance of a corporation in Brazil are directly linked to the activities in which the company will engage, the number of branches and employees, the size of the corporation, among other factors. In general, the company must maintain its business address, have officers/directors and can have employees.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

Federal corporate income tax rates:

• Corporate Income Tax (IRPJ): 15%.
• IRPJ Surtax on taxable annual profits over BRL 240,000: 10%.
• Social Contribution on net profits: 9% (20% for banks in general, and 15% for certain institutions such as private insurance companies and capitalization companies).

Sales of goods performed by foreign companies through a legally binding Brazilian representative or a domestic branch are subject to corporate income taxation.

Remittance of funds abroad is generally subject to a withholding income tax but there are several exceptions to this rule (e.g., currently, the remittance of dividends is tax exempt).

Foreign investors may also be subject to different income tax rates on gains earned in financial markets.

There are several other applicable taxes, such as (i) the social contributions on gross revenues (PIS/COFINS) applicable at a general combined rate of 3.65% or 9.25% on gross revenues, (ii) the tax on financial transactions (IOF), whose rate may vary depending on the type of transaction (loan, exchange currency, interest participation), (iii) the State value-added tax (ICMS), (iv) the Municipal service tax (ISS), and others.

Summary of any specific matters, e.g. recent or prospective major legal developments

Several rules have been enacted in Brazil, given the presidential election in 2018 and since the beginning of COVID-19 pandemic, many of them related to changes in private and corporate laws. Among the main corporate legislative changes, the following stand out:

Law No. 13,874, of September 20, 2019, the so-called “Economic Freedom Law”, establishing, among other provisions, (i) the creation of the limited liability company incorporated by a single shareholder (Sociedade Limitada Unipessoal); (ii) the inclusion in the Brazilian Civil Code of new provisions regarding investment funds; and (iii) some changes regarding the requirements that may trigger a request to pierce the corporate veil;M
• Law No. 14,010, of June 10, 2020, establishing a transitional legal regime of civil law for the pandemic period. This law authorized, among other provisions, the annual partners’ meeting to be held remotely (online);
• Law No. 14,030, of June 28, 2020, establishing, among other provisions (i) the postponement of the deadline for the annual partners’ meeting; and (ii) amendments to the Brazilian Civil Code and Brazilian Corporation Law to authorize annual partners’ meetings to be held remotely (online);
• Provisional Measure No. 1,040, of March 29, 2020, aiming to facilitate and simplify the business environment and improve Brazil's placement in the World Bank's Doing Business Ranking. Such Provisional Measure is valid for sixty (60) days, which may be postponed for an equal period, and will be subject to approval by the National Congress to be converted into law.