São Paulo, April 10th, 2017
Brazilian Normative Instruction No. 38/2017 recently reviewed the text of the EIRELI Registration Manual, which authorizes the formation of a sole-partner company. The specific aim was to enable the possibility of appointing a corporate entity, based either in Brazil or abroad, as the as the titular head of an EIRELI. This Instruction comes into effect on 2nd May 2017.
The previous text of the Manual, published in early 2012, when Brazilian legislation approved the EIRELI, did not envisage the possibility of a corporate entity being the head of such a sole-partner company. At the time, the company could not be formed in such circumstances. However, the law that introduced the EIRELI included no limitation on such an organization being formed by a corporate entity. Accordingly, the limitation imposed by the Manual was inappropriate. In a few cases, investors successfully took legal action to prevail over this limitation.
We view this change as highly positive in the current Brazilian corporate environment. As the EIRELI is a type of corporate entity enabling the formation of a company with only one partner, companies with a second partner (sometimes unrelated to the respective company’s operations) aimed exclusively at compliance with the legal requirements, can now remove such second partner from their organization.
Moreover, this change could represent a substantial investment cost reduction for foreign companies that opt to form or transform their subsidiaries into EIRELIs. In fact, if an investor does opt for this corporate structure, this would avoid the preparation of two partners’ documents, thereby reducing costs incurred on attorneys-in-fact and other bureaucratic procedures (e.g., notarization of documents, sworn translations, records with the Federal Tax authorities). Thus, it represents a trend whereby foreign companies can establish representation in Brazil faster and less expensively.
For more information about this new change or how to establish a business in Brazil, contact our member firm Angelico Advogados.