Power of Attorney for setting up a company in Brazil – new rules

In order to incorporate a company in Brazil, the foreign investor must appoint a local representative who lives in Brazil.

Traditionally, this representative was required to have powers to receive court summoning and to answer to any civil subpoenas directed at the foreign investor.

This makes sense under Brazilian procedural law, that puts a lot of focus on making sure that respondents will be properly summoned to present his defence in administrative or judicial procedures. Rulings “in absentia” are exceptional.  By requesting the nomination of a Brazilian resident as representative of the investor, Brazilian authorities would always have someone close enough to be summoned by ordinary means (without the need for international communications between courts, etc.).

This is the basic idea.

Now, since Brazil is a very bureaucratic place, people soon noticed that is would be a waste of time to issue a one-line PoA, considering that several other actions also require a power of attorney. For example: registration of the investment before the Brazilian Central Bank, clearance of foreign currency exchange agreement, etc.

Not to mention that any alteration to the articles of the company, such as increase in equity or appointment of new directors, would also require the investor to sign the documents himself, or to name a proper representative in Brazil with powers to do so.

All things considered, a proper PoA would have 3 pages and a LOT of very specific powers.

Now, this “excess” of powers has contributed to a problem. Brazilian courts started to consider that this all-powerful attorney would act, in practice, as a company director. Thus, labour and tax courts started to redirect debt collection suits to the Brazilian representative, whenever the company didn`t have enough assets to pay for the debts.

This situation, albeit technically illegal, has persisted for some time.

Recently, the Brazilian Revenue Service has tried to make the representative`s personal liability official. It issued an administrative ruling stating that any foreign company looking for enrolment before the national taxpayer`s registry (the famous CNPJ) must name a local representative with full powers to manage the investor`s assets in Brazil.

By choosing these word, the Brazilian Revenue Service made clear that the local representative will be considered a kind of local manager, not only a representative able to receive summoning.

Please notice that the enrolment with CNPJ is one of the first steps required in order to incorporate a new company in Brazil, in case the foreign investor is a corporate entity (not an individual).  Therefore, there is no way around this requirement.

And this is not the only recent change.

The federal body responsible for standards in corporate regulation issued new guidelines in 2017. They include a provision requiring that all powers of attorney from foreign investors must not have a time limit. This is to say, they must be valid until a formal cancellation is filed before the Commercial Registry.

The two alteration, combined, result in a local representative that:

a)    Has powers to manage the investor`s assets in Brazil (to control the company);

b)    Is liable for company`s debts, since he will be considered a sort of director;

c)    Has power for an unlimited period of time, until he gives up the job or until his PoA is formally cancelled.

The situation is awkward, to say the least.

It has forced the new PoA documents to become even longer. Now they must include:

a)    Provisions for cancellation;

b)    Protection against tax and labour liability;

c)    Restrictions on powers, to prevent the representative from “taking over” the company.

So, there is little chance you will find a good template for a PoA, readily usable.

 The PoA is now a document to be drafted as carefully as the articles of the association of the company.


SEE ALSO:

Incorporating a Brazilian company, step by step
How to incorporate a Brazilian company through foreign direct investment
List of documents for setting up a company in Brazil

Power of Attorney for setting up a company in Brazil

Representatives of foreign investors in Brazil - Ultimate Beneficial Owner and management powers

All foreigners who own companies in Brazil or that invest in the Brazilian Stock Market, or even that own real estate in Brazil, must have a local representative.

Starting July, 2017, this representative will be more subject to government scrutiny and, at the same time, will be required to have more managerial power over the investor`s assets.  On the other hand, it is expected that the representative will be at a higher risk of being liable for tax fraud or labour debts.


This comes along with a rule that requires that the ultimate beneficial owners of any company investing in Brazil be revealed to the Federal Government.

The result of these rules, I think, is that the cost of keeping local representatives will increase. Instead of using young professionals or junior accountants as representatives, the investors will have to select lawyers or executives. Costs with D&O insurance should also go up.

On the plus side, it looks like the new president is taking steps to speed up the registration of foreign investment. Let`s see if the policies even out one another. I sure hope so. 

Verifying a Brazilian Power of Attorney - Question from Korea

SEE ALSO:

NEW RULES FOR POWER OF ATTORNEY - 2017

Debt  Collection in Brazil x Korea

Incorporating a Brazilian company, step by step

How to incorporate a Brazilian company through foreign direct investment

List of documents for setting up a company in Brazil

Dear Mr. Adler,  

 

Currently, I am making business case with Brazilian company and I have received FULL POWERTED POA including rights of enter into negotiation, sell, transfer funds signature and etc. 

Is there any other way, I can verify if the POA issue in Brazil is legitimate? 

For your reference, I have only received POA document only, grantor’s I.D copy and delegator’s I.D have not included. The grantor and delegator is both Brazilian. 

 

I am looking forward hearing from you soon. 

 

Best Regards, 

KPop Gangnam 

____________

Dear Kpop

Thanks for the contact. 

It the PoA is a public document (issued by a Brazilian notary public, or "Cartório"), it can be checked in Brazil, by anyoned. A permanent record is available at the Cartório. Even though, one must contact the grantor to check if he happened to cancel the PoA. 

 If it is a private document, the only way to check it is to contact the grantor, or to verify his signature, in case the grantor has a standard signature registered at a local cartório. 

Good luck!

Adler

-------

RELATED POSTS:

NEW RULES FOR POWER OF ATTORNEY - 2017

How to incorporate a Brazilian company through foreign direct investment

A more detailed procedure can be found at

Incorporating a Brazilian company, step by step

Other related posts:

Practical guide - Incorporating in Brazil

List of documents for setting up a company in Brazil

Power of Attorney for setting up a company in Brazil - new rules

- Brazilian Import License

According to Law 4.131, dated 09.03.1962,  foreign capitals are defined as:

 Art. 1 – FOREIGN CAPITALS are the goods, machines and  equipments introduced in Brazil without initial payment, designated to the production of goods and services; as well as the financial or  monetary resources introduced in the country for the use in economic activities; since, in both cases, they belong to companies or individuals with permanent residence or headquarters in foreign countries.

Foreign capitals are assured identical juridical treatment to that of national capitals, under the Constitutional principle of equality.

INCORPORATING A COMPANY IN BRAZIL

 Investors may choose, basically, between two kinds of legal entities: the Limited Liability Company, which resembles the Limited Liability company from the American law, and the Corporation (or Anonymous Society, or SA,, as per the Brazilian Law).

The basic difference among them is that only the SA is able to become listed in stock exchanges and sell stocks and bonds to the public. Nevertheless, the basic procedures for incorporation of both kinds of companies follow the same general lines.

TOTAL TIME: 90 DAYS.

 NO MINIMUM CAPITAL REQUIREMENT

 CAPITAL MAY BE DISTRIBUTED AMONG PARTNER AT ANY PROPORTION.

 A lawyer must sign the company’s articles of association. This is a legal requirement.          

 Every new company must hire an accountant from day one. Usually, accountants charge one minimum wage (about 350 USD) per month.

FOREIGN INVESTORS' REPRESENTATIVES

The individuals or legal entities that owns shares in a Brazilian company and have residence / head office abroad must maintain two legal representatives in Brazil:

The first one to represent the capital. His only duty is to serve as a legal representative in case court orders need to be delivered to the foreign investor.

The second one is the Director of the company. The Director must either be a Brazilian citizen or have a permanent visa. The Director is responsible for managing the company.

The individuals that own corporate shares in Brazil must register themselves under the CPF (Individual's Tax Registration Number). In case of foreign companies, the registration shall be made under CNPJ (Company's Tax Registration Number).

The articles of association of the incorporated company in Brazil must contain the following information:

• Headquarters of the foreign partner;
• Name of the legal representative of the foreign partner, resident inBraziland bearing powers of attorney;
• Enclose the legal representative's Power of Attorney;
• Indication of how is the capital going to be entered intoBrazil(currency, goods, rights, machines, etc.).
• Lawyer responsible for the drafting of the articles.

PERMANENT VISA

Only foreigners bearing a permanent visa are allowed to establish themselves in the country as businessmen or as directors of a local company. The permanent visa is granted after approval by the Ministry of Labor, Ministry of Foreign Relations and the Federal Police. The applicant shall present documents that demonstrate:

• That he is partner of Brazilian company; and/or
• Has been designated as the local Director of a Brazilian company, and depends on the visa to fulfill his duties.

Another determinant condition for the granting of the visa is the amount invested in Brazil:

The foreign investor as an individual, must invest BRL 500,000.00 (this value changes from time to time), or the equivalent in another currency, at least, in a local company. In addition, the investor must present a business plan that show how the investment will benefit local communities. 

Legal entities can also obtain a permanent visa for administrators, managers, directors or foreign executives.

FDI REGISTRATION

The Central Bank ofBrazil(Bacen) controls the foreign capital admission and registration, as well as financial operations with foreign countries.

The registration is the only formality imposed to the investors. There is no previous analysis of the investment. The Brazilian government also does not impose mandatory licensing procedures for foreign investments.

The registration is made through an online system called Electronic Registration of Foreign Direct Investment (RDE-IED), which is part of the Central Bank Information System (SISBACEN). This system can be accessed through Bacen's website, using a previously requested password and registration number.

The investor shall declare:

• The amount of capital entering the country;
• The source of the resources;
• If the capital is being entered as currency or as goods. In the last case, the value of the goods.
• The repatriation of capital or profits, as well as the payment of royalties, or reimbursement of technical expenses;
• The reinvestment of profits.

IMPORTANT NOTICE:

 The registration is of essential importance. Only after the registration the capital becomes legalized. Also, the registration warrants the investor the free disposal of the money/shares/stocks, allowing its immediate repatriation, liquidation or transference.

 The Lack of registration may also give cause to heavy monetary penalties.

See also:

- List of documents for setting up a company in Brazil