Lukas Matthias Rhomberg*

With the global financial crisis predominantly affecting the economies of the most developed countries in the world, investors are increasingly turning towards emerging economies with strong growth forecasts. Brazil, which has emerged almost unaffected from the global financial crisis, has registered a particularly marked increase in investor interest in recent times.

The present article provides an overview of the main characteristics of the Brazilian limited liability company (Sociedade Empresária Limitada or Limitada) as well as the requirements to incorporate and subsequently capitalize it with foreign funds. Needless to say, the set up for investments in Brazil described in the present article may be adequate for some investors but may be less helpful in other cases. It is particularly important to focus on the best legal structure for a specific project in Brazil, given that, in view of Brazilian bureaucracy, fixing glitches at a later point in time may be a time-consuming exercise.

(A) The "Limitada"

The Brazilian Limitada is the standard entity used by international investors to do business in Brazil.

A minimum of two quota holders is required for its incorporation. Quota holders may be individuals or legal entities (whether or not Brazilian). Non-residents must appoint Brazilian resident individuals to represent them in the incorporation process.

The capital of a Limitada is divided into quotas that are represented in the Articles of Association of the Limitada. While each quota must grant the right to one vote, the Articles of Association may establish different rules for the quotas with respect to their participation in the profits of the Limitada.

The Limitada has to be managed by at least one Brazilian resident individual. In order to act as an officer of a Limitada, non-Brazilian individuals must hold a permanent visa. The officers may or may not be quota holders.

Other features of the Brazilian Limitada include (i) the quota holders are not personally liable for the obligations of the Limitada; (ii) there is no minimum capital requirement, (iii) the Articles of Association of the Limitada can provide for majority voting on various matters and (v) the Limitada's financial statements do not need to be disclosed.

Investors should be aware that incorporating a Brazilian Limitada involves significantly more bureaucratic steps than, for instance, forming a limited liability company in the U.S. or in the U.K. Once all relevant documents for the incorporation of a Limitada have been filed with the Brazilian trade board (Junta Comercial), it may take two to three weeks for the Limitada to be registered and fully functional.

In this context, it may be noted that Brazilian President Luiz Inácio Lula da Silva has recently announced that the Brazilian government will review the procedures for setting up Brazilian companies with a view to significantly accelerate and simplify the incorporation process. It remains to be seen whether these changes will in fact be implemented.

There exist various alternatives to using a Limitada for doing business in Brazil. In certain cases, a Brazilian joint-stock company (Sociedade por Ações) may be preferable, for instance because it allows for different share classes. A particularly tax efficient alternative may be the Brazilian private equity investment fund (Fundo de Investimento em Participações or FIP). However, set up and maintenance costs are significantly higher and a stricter regulatory framework applies.

(B) Registration of Foreign Funds with the Central Bank

Once the foreign investor has incorporated the Brazilian investment vehicle of his/her/its choice, the Brazilian entity will probably need to be capitalized with foreign funds. In general terms, foreign and domestic investments receive the same treatment in Brazil, except for some specific regulatory restrictions. Also, there are no minimum amounts for foreign investments and investments may be paid in cash, goods or rights.

The Brazilian authority in charge of controlling the entrance, remittances and exits of capital in and out of Brazil is the Brazilian Central Bank (Banco Central). All foreign investments must be registered with the Brazilian Central Bank in order to allow the remittance of dividends, and to assure the eventual repatriation of the original capital and subsequent reinvestment.

Pursuant to the applicable laws, the incoming funds must be registered within 30 days from the date of the Brazilian entity's corporate act declaring the capital increase with the foreign funds.

Registration is carried out electronically through an online system available at the Brazilian Central Bank's website. Both the invested entity and the non-resident investor are responsible for the registration of the investment with the Brazilian Central Bank.

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* Lukas Matthias Rhomberg is attorney at De Vivo, Whitaker, Castro e Gonçalves Advogados.