BRAZIL Law and Practice Contributed by: Rodrigo Casarotti, Alexandre David, Ricardo Melaré and Gabriela Claro, /asbz
Where more sophisticated capital structures or gov- ernance are required – such as multiple classes of equity, a larger number of institutional investors or a potential future listing – companies may incorporate as corporations ( sociedades por ações – “SAs”), either privately held or, later, publicly held. In cross-border, venture-backed structures, it is common to have a foreign holding company (eg, in Delaware or the Cay- man Islands) above a Brazilian operating company, but the entity that conducts business in Brazil is usu- ally incorporated locally. There is no statutory minimum capital to incorporate a Limitada or a privately held SA, save for specific regu- lated sectors (eg, financial institutions, insurance, avi- ation and other strategic activities). For SAs, at least 10% of the cash portion of subscribed share capital must be paid in on incorporation and deposited with a Brazilian bank. Digitalisation of corporate registries has made incor- poration faster. A straightforward domestic company can usually be formed in around ten business days from filing. Where there are foreign investors, addi- tional steps (tax IDs, notarisation and apostille of for- eign documents, sworn translations and local notarial filings) can extend the timeline to several weeks. 2.2 Type of Entity Technology entrepreneurs almost always choose either a Limitada ( sociedade limitada ) or an SA ( socie- dade por ações ). Both offer limited liability as a gen- eral rule. The Limitada is the default for early-stage ventures and smaller technology businesses. It is simpler, involves fewer mandatory formalities and is cost-effective to maintain. Governance and economic arrangements are typically implemented through the articles of asso- ciation and a quotaholders’ agreement, which offers significant contractual flexibility. SAs are recommended where more complex govern- ance or capital structures are envisaged – for exam- ple, multiple investor classes, broader equity incentive plans, larger syndicates of institutional investors or a potential IPO. Many start-ups begin as Limitadas
and convert into SAs when ownership and financing become more complex. Recent reforms have narrowed differences between the two forms. Both may have a single shareholder/ quotaholder and both may be managed by a single director or officer (resident or non-resident, provided a Brazilian legal representative is appointed for non- resident managers). Control typically follows a major- ity of voting capital, although this can be adjusted by contract in sophisticated arrangements. Both Limitadas and SAs can be wholly owned by for- eign investors, subject to tax registration and appoint- ment of a Brazilian resident legal representative. In practice, foreign-owned start-ups adopt the same basic forms as domestic ones, with added FX and registration formalities. 2.3 Early-Stage Financing At pre-seed stage in Brazil, funding typically comes from angel investors (including experienced entrepre- neurs), sometimes investing through informal groups or clubs, and from early-stage VC funds or accelerator programmes. Both domestic and foreign investors are active, subject to sectoral rules. Government-spon- sored development institutions (such as BNDES and FINEP, and certain state agencies) also act as corner- stone investors in seed and venture funds that invest in early-stage technology companies. Seed rounds are more often led by VC funds and complemented by angels, family offices and, in some verticals, corporate venture capital. Documentation commonly uses convertible instruments (convert- ible loans or notes) designed to convert into equity in subsequent priced rounds. SAFE-inspired instru- ments are also used, adapted to Brazilian law. Where non-resident investors fund convertible instruments or equity, the foreign investment must be registered in the Central Bank’s RDE-IED system for FX/statistical purposes and repatriation. 2.4 Venture Capital Venture capital is primarily provided by independent VC funds, bank- and corporate-backed funds and, increasingly, corporate venture arms of large Brazilian and multinational groups. BNDES and FINEP (and, in
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