HENARES

ADVOGADOS ASSOCIADOS
Halley Henares Neto Luiz Paulo Facioli Edson Gervsio de Arantes Jnior Leandro Bonadia Fernandes Andra Bellentani Casseb Trimont Rovani Dietrich Heloisa de Oliveira Herrera Artur Francisco da Silva Anna Paula vila Paschuino Carin Hosoe Paulo Shigueru Yamaguchi Augusto Kenji Tosi Takushi Asmahan Alessandra Vivian Astolpho dos Santos Kelly Ramos Balthazar Fernando de Carvalho Pinheiro Matos
So Paulo
R. Desembargador Eliseu Guilherme, 200 9 andar Paraso So Paulo/SP CEP 04.004-030 (11) 3074.2544

Ribeiro Preto
Av. Costbile Romano, 1677 Ribeirnia Ribeiro Preto/SP CEP: 14.096-380 (16) 3967.8179

Braslia
SCN Quadra 2 - Liberty Mall Torre B Sala 231 Braslia/DF CEP: 70.710-500 (61) 3202.5899

Maring
Av. So Paulo, 172 Sala 1705 Zona 1 Maring/PR CEP: 87.013-040 (44) 3029.5309

INCORPORATION OF BRAZILIAN COMPANIES

A.

COMPANY TYPES

In Brazil, there are several types of companies. However, the most important and most used ones are the sociedade limitada (limitadas) limited liability company, and the sociedade por aes (S.A.) - joint-stock company or corporation. Up to the publication of the New Brazilian Civil Code (Law No. 10.406/02), there were significant differences between these two types of companies. The limitadas were less bureaucratic than the S.A.s, but now they are bureaucratically very similar.

1.

Sociedade Limitada (Ltda. or Limited Liability Company)

Although a limitadas Articles of Association are in the form of a partnership contract, a limitada company is considered an entity which is separated from its quotaholders. No minimum capital requirements are imposed but immigration authorities may request a minimum of corporate capital before granting a permanent visa (presently or equivalent to US$200,000.00) and work permit to nonresidents moving into Brazil to manage the company. Capital must be denominated in Brazilian currency. A limitada must have at least two quotaholders of any nationality, and its capital is in the form of quotas with a fixed unit value in local currency as specified in the articles of association. It is unusual to issue certificates or other documents for members quotas. Quotaholders participations must be clearly stated in the articles. In the absence of any agreement to the

contrary, voting rights and profit distributions are proportionally to capital holdings, but the articles may provide otherwise. Companies as well as individuals may be members of a limitada. Non-resident members must grant a power of attorney to representatives in Brazil to act on their behalf on meetings and to amend the Articles of Association. All or part of the membership may exercise administrative powers or may delegate these powers to an individual who is not a quotaholder. Managers must be permanent residents of Brazil. Members are liable for debts and losses up to the amount of their individual capital quotas, and are jointly liable to the extent of any capital not paid in by another member. Members may withdraw in case of disagreement and are then entitled to repayment of their quotas on the basis of a value established in accordance with a balance sheet drawn up for this purpose. A retiring members quota may be redeemed by the firm without changing registered capital, as a form of treasury stock. At least of the quotaholders votes are required to amend the Articles of Association, depending on the resolutions to be taken. In some cases, the totality of the quotaholders is required to vote in the resolutions. Many Articles of Association give members the option to acquire available quotas, especially in the event of the death of a member. The time for the payment of capital must be included in the Articles of Association. The articles may permit the issue of proxies by members for representation at meetings and these may be given to outsiders. A limitada is required to call frequent meetings, in order to take resolutions on the following matters, for example: (i) approval of the administrations accounts; (ii) appointment or destitution of administrators; (iii) remuneration of the administrators; (iv) the merger, split-off or the cease of the companys liquidation process; (v) approval of the result of the ended fiscal year; (vi) destination of the profit, etc. Minutes of the quotaholders meetings must be filed at the Board of Trade.

2.

Sociedade por Aes (S.A. Corporation)

In a S.A., the participation is acquired through shares, freely negotiable, with or without voting rights (common or preferred, respectively), which may also be traded on the over-the-counter market or stock exchanges (in the case of listed companies). The S.A. is regulated by the Brazilian Federal Law No. 6.404/76 and by its by-laws. There must be at least two shareholders, but in case of a corporation subsidiary of a foreign one, the controller may hold 100% of the subsidiarys capital. All the shares held by the shareholders, as well as the transferences of the shares must be registered in the proper books. The shareholders of a corporation are also required to call frequent meetings. The minutes of the resolutions taken in these meetings must be written in the proper book, filed at the Board of Trade. Depending on the companys capital, it is also required to publish such minutes in
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newspapers (Official Gazette and other newspaper). The companys administration is exercised by the Board of Directors, and in the case of listed companies, by the Supervisory Board. A S.A. company may also issue securities, such as Debentures (securities convertible into cash, similar to a loan operation); Founders' shares (grant the right to possible credits); and Subscription Bonuses (grant the right to future subscriptions of shares when the capital is increased). The legislation establishes the obligatory payment to shareholders of minimum annual dividends to an amount of 25%. Failure to comply with this determination during three subsequent years grants voting rights to the holders of preferred stock. A table is attached hereto, showing the differences between the Limited Liability Company and a Corporation. 3. Required Information

The following information is required to prepare the Articles of Association/ By Laws: a) b) c) local company business name; business address; business purpose, noting that, under Brazilian law, general objectives such as all commercial activities permitted by law are not accepted. The objectives must be very specific and precise. On the other hand, the inclusion of objectives which the company does not intend to engage in is also not advisable because this usually results in unfavorable tax consequences and/or paperwork; initial capital investment amount and shareholding participation (in reais) of each quotaholder; form (cash or assets) and date of capitalization; the following information on the quotaholders/shareholders: if legal entity evidence of existence, place of incorporation, business address, business purpose, duration; if individual - name, nationality, marital status, profession, passport number (if foreigner)/ individual taxpayers number and identity card number (if Brazilian citizen or resident), residential address;
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d)

e) f) f.1)

f.2)

g) h)

duration; and complete name and personal information (citizenship, profession, marital status, domicile, individual taxpayers number and Identity Card number) of the resident manager.

All companies in Brazil require registrations at the Ministry of Finance Corporate Taxpayers Number and also Social Security, Unemployment Guarantee Fund. Depending on the activity, State, Municipality and other Registrations shall be required.

B.

PERMANENT VISA

In order to be the Brazilian companys administrator, a foreigner must be granted a permanent visa by the Brazilian authorities. As stated hereinabove, immigration authorities request a minimum of capital stock before granting a permanent visa (presently US$200,000). The investment shall be in the incorporated companys bank account, and shall be registered at the Central Bank of Brazil, such as all foreign investments, as explained below. Another possibility to obtain the permanent visa for the foreign administrator is the investment of the equivalent to US$50,000 plus the commitment to create 10 new job positions within 2 years.

C.

REGISTRATION OF FOREIGN DIRECT INVESTMENTS

In Brazil, foreign capital is governed by Brazilian Federal Laws Nos. 4131, of September 3, 1962 and 4390, of August 29, 1964, regulated by Brazilian Federal Decree No. 55762 of February 17, 1965. According to the Law No. 4131, foreign capital is considered to be any goods, machinery and equipment that enter Brazil with no initial disbursement of foreign exchange, and are intended for the production of goods and services, as well as any funds brought into the country to be used in economic activities, provided that they belong to individuals or companies resident or headquartered abroad. The Brazilian Central Bank Regulation (Circular BCB) No. 2997 contains provisions related to the electronic declaratory registry (RDE) for direct foreign investments in Brazil, through an electronic system by which it is possible to transmit, via Internet, all information required for the registration of foreign investment, directly to the Central Bank, by the payee.
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Recently, the Brazilian Federal Revenue Services has issued a Normative Instruction stating that foreign investors which have goods and investments in Brazil must have a Corporate Taxpayer Number (CNPJ). Currently, such corporate number is essential to have the investment duly registered at the Central Bank of Brazil.

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Annex I Main Differences between a Sociedade Annima (S.A.) and a limited liability company (Ltda.) for tax and legal purposes in Brazil Item Shareholding S.A.
Acquired through shares, freely negotiable, with or without voting rights (common or preferred, respectively), which may also be traded on the over-the-counter market or stock exchanges (in the case of quoted companies). Bylaws

Ltda.
The holding of a partner (quotaholder) in a limited liability company is represented by the number of stock quotas held in the company. The assignment of these quotas to third parties depends on agreement by the remaining quotaholders. Articles of Association

Corporate Contract

Modifications to Carried out by holding General and Carried out by amendments to the articles of association. the Corporate Extraordinary Stockholders' Meetings. Contract Administration
Administration is exercised by the Board of The manager should be a partner in the Directors, and in the case of quoted company; the Brazilian New Civil Code companies, by the Supervisory Board. allows a manager not partner of the company. The status of manager should be recorded in the Articles of Association. The liability of shareholders is limited up to The liability of the quotaholders and partners the amount of shares held. is limited up to the capital of quotas held. Partner still liable for 2 years after withdrawal from the company. Debentures (securities convertible into None. cash, similar to a loan operation); Founders' shares (grant the right to possible credits); Subscription Bonuses (grant the right to future subscriptions of shares when the capital is increased).

Liability

Possibility of issuing securities

-

Dividends

The legislation establishes the obligatory There is no obligation to distribute income. payment to shareholders of minimum annual dividends to an amount of 25%. Failure to comply with this determination during three subsequent years grants voting rights to the holders of preferred stock. Obligation to publish the balance sheet and Only for companies with capital share higher financial statements at the end of each than R$1,000,00.00 that has more than 10 financial year. quotaholders.

Publication

Moreover, we should stress that Brazilian legislation does not establish differentiated tax treatment for companies incorporated in different ways, so that taxes levied on the operations of a Ltda. are equivalent to those applied to the operations of an S.A.

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