LOCAL REPRESENTATIVES FOR CHINESE COMPANIES INVESTING IN BRAZIL – WHAT ARE THEIR EXACT POWERS?

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.