backLegal entities that conduct commercial activities in Brazil and do not rely on the intuitu personae aspect of their shareholders are generally structured as limited liability companies (Ltda.) or corporations (S.A.).
Below is an overview of these corporate structures and their main advantages and disadvantages for investors and entrepreneurs.
1. Limited Liability Company (Ltda.)
The limited liability company is Brazil’s most common type of entity, regulated by the Brazilian Civil Code (Law No. 10,406/02), unlike corporations, which have their capital stock divided into shares, Ltda. Entities have their capital divided into quotas.
Each quota holder’s liability is limited to the value of their subscribed quotas, although all partners are jointly liable for paying up the corporate capital.
Advantages and Disadvantages
| Advantages
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Disadvantages
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|---|---|
| Limited liability for quota holders, reducing personal risk.
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Must include “Ltda.” in the company’s name when registering with the Board of Trade.
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| No requirement to publish financial statements in official or major newspapers.
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Partners are jointly liable for the payment of subscribed capital.
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| Profit distribution can be disproportionate to ownership, allowing flexibility in financial planning.
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Less corporate governance compared to corporations, making it less attractive to institutional investors.
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| No mandatory fiscal council.
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A partner may be excluded if they fail to contribute their share of the capital or if they jeopardize the company’s operations.
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| No minimum capital requirement to incorporate.
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2. Corporations (S.A.)
Regulated by the Brazilian Corporations Law (Law No. 6,404/76), corporations are the closest Brazilian equivalent to U.S. C corporations.
A corporation’s capital is divided into shares, which may be voting (common shares) or non-voting (preferred shares).
One key difference from the LTDA is that shareholders’ liability is strictly limited to the value of their subscribed shares, meaning there is no joint liability between shareholders.
Foreign shareholders must appoint legal representatives in Brazil to act on their behalf.
A General Shareholders’ Meeting is a corporation’s highest decision-making body. Additionally, corporations must appoint a Board of Officers, which must include at least one Brazilian resident. Creating a Board of Directors is optional for privately held corporations, but it may include non-resident foreign members when established.
Advantages and Disadvantages
| Advantages
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Disadvantages
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|---|---|
| Shareholder liability is limited to their stake, with no joint responsibility for the unpaid capital of other shareholders.
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Cannot opt for the Simples Nacional tax regime, which is available for Ltda. companies with annual revenue below R$8.7 million.
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| Greater flexibility in raising capital through share issuance, public offerings, and debt securities (e.g., debentures).
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Corporate restructurings require valuation reports, increasing costs.
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| Enhanced transparency and corporate governance, making it more attractive to foreign and institutional investors.
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Profit distribution must follow shareholding proportions, except for preferred shares with predefined advantages.
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| Mandatory dividend distribution, ensuring that shareholders receive a portion of the company’s earnings.
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More complex regulatory requirements, including financial statement publication and the maintenance of corporate books.
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| Possibility of going public on the stock exchange, allowing significant capital inflows.
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3. Other Structures
While limited liability companies and corporations are the most commonly used structures in Brazil, there are other legal entities available under Brazilian law:
- Sociedade em Conta de Participação (SCP): A silent partnership structure often used for joint ventures and temporary business projects.
- Sociedade de Propósito Específico (SPE): A special purpose entity often used for real estate developments, infrastructure projects, and structured finance operations.
- Sociedade em Nome Coletivo: A general partnership where all partners have unlimited liability for the company’s debts.
- Sociedade em Comandita Simples and Comandita por Ações: Hybrid models where some partners have unlimited liability (those actively managing the business), while others (investors) have limited liability.
- Sociedade Simples: A non-business entity often used by professionals such as lawyers, doctors, and consultants, where the personal reputation of the partners is more important than the perpetuity of the business.
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