Any foreign investor in Brazil must be prepared to appoint two separate representatives. This dual system is confusing and frustrating for newcomers. Nevertheless, it can work quite well.
The way the
Brazilian legal system is structured, it is very important for authorities to be
able to formally communicate with all persons. The formal delivery of a notice
or subpoena is a prerequisite for starting lawsuits, applying penalties, etc.
This
general principle is applied to foreign investors through the requirement to
maintain a permanent representative in Brazil at all times, with specific
powers to receive subpoenas, court notices and similar communications.
Thus, one
of the documents required for the incorporation of a company that has a foreign
shareholder is the power of attorney that names this representative.
The
appointed person must reside in Brazil, although he can be of any nationality. It
doesn’t have to be a “Brazilian” Brazilian representative. Only a
representative that is domiciled in Brazil.
The individual
who received the incumbency must beware, though. As a representative, he is at
risk of being liable for many financial obligations of the Brazilian company,
in case they are not dully paid. Obligations may include tax debts, unpaid
labour compensation and penalties for environmental damage.
This large gamut
of potential problems is the reason why professional representatives may charge
somewhat expensive monthly fees.
A CEO based
in Brazil or a lawyer from a reputable firm will not take on such a burden
without proper guarantees. The hiring of a D&O type insurance is usually
required, on top of a monthly payment.
Keep in
mind that the representative need not be a CEO, lawyer or accountant. Any
business associate, employee or even a friend could be selected.
For
companies that plan to start slow and cannot justify a large expense in
complying with this requirement, appointing a local business associate or a
temporary nominee as the local representative may be an option to reduce costs.
Now, since
the appointment and selection of this representative has taken up some time and
effort, it is customary to add some powers to the POA with the purpose of
making a better use of him. Such powers may include powers to execute minutes
of meetings, to sign alterations to the articles of association and to comply
with ancillary registrations connected to the investment operation, including
the registration of the investment before the Brazilian Central Bank.
All the
powers mentioned so far are exclusively related to the actions of the foreign
investor himself, acting as a shareholder. The legal representative does not
have any powers to act as a director of the newly incorporated company.
The new
company that has been created in Brazil will need a local director or group of
directors who will represent the company on daily operations.
Until
recently, the directors were required to be Brazilian residents. Again, not
Brazilian citizens, but at least people who lived in Brazil with long term
visas. Since this distinction was not always of much use, one would frequently
hear that “Brazilian companies need Brazilian directors”.
Gladly,
this is no longer the case. Since a few years now, any person in the world can
act as the director of a Brazilian company.
Which is
the motive for the second-level representative that may be required: the
representative of the foreign director.
Whenever
the company has a director that does not have residence in Brazil, this
director, as an individual, must personally name a local representative for
himself.
What does
the law say about the the powers of the attorney to the director?
Durint the
life of the company, many official notices may be addressed to the company’s
director, such as the initial subpoena for lawsuits, messages connected to bank
communication, etc. In case the director does not keep a permanent address in
Brazil, all of those will be directed to his personal attorney.
Therefore,
the main duties of this second representative are to receive subpoenas and
communications directed towards the company director.
For
practical reasons, the director will most likely grant some additional powers
to his representative. For example: powers to execute minutes of corporate
resolutions and to receive mail packages. Depending on the situation, the director
can even grant extensive powers to the local representative, including powers
to execute legally binding agreements.
Of course, if
the investment is structured as to have a director domiciled in Brazil, this
second-level representative will not be necessary.
For the
cases where the two representatives are required, it is useful to say that both
roles can be performed by a single person.
This means
that a local employee could have a power of attorney from the Chinese
shareholders, as well as a separate power of attorney issued by an American-resident
director who has been appointed to the board.
The two POAs
would be independently valid.
Please feel free to get in touch in case you need assistance with company
incorporation in Brazil.
