Joint Ventures in Brazil

Brazil, unlike China, has no Joint Venture law. Thus, foreign investors must adapt their plans to the local regulations.

On the plus side, Joint Ventures have been, for a long time, a common vehicle for business and investments in Brazil. This has provided good court precedents, in the sense that the enforcement of obligations contained in formal joint venture agreement is usually granted.

The best way to engage in a joint venture with a Brazilian Company, I would say, is to adopt a two-fold strategy:

First, enter into a general Joint Venture Agreement, covering transference of technology, financial obligations, tax responsibilities, decision making, powers of each party and mutual duties. Plus, of course, the ubiquitous boilerplate clauses.

This Agreement MUST provide for arbitration, preferably to be pursued outside of Brazil.

Second, do the fine tuning, drafting the ancillary agreements that will give substance to the Joint venture.

At this point, I'd note that:

-It is generally preferable to create a new company instead of purchasing shares of an existing one. This is because tax and labour responsibilities may spread from the Brazilian partner to the foreign investors. This is not a good thing to see.

-The decision making process, the procedure to enforce stock-options and the quorum for board and management decisions in the general Joint Venture agreement will not necessarily match the provisions of Brazilian Law. This is because the Brazilian Law for Limited Liability companies and for Corporations has the innate defect of providing different quorum requirement for each kind of alteration in the Articles of Association. (for example: In the limited liability companies, three quarters of the quota holders must agree in order to raise the capital, while 51% is enough to appoint administrators).

The way to circumvent that is to sign a very detailed shareholders agreement, which will eliminate the difficulties caused by our well-meaning but too detailed internal laws.

This shareholders agreement is of essence because some provisions of the Brazilian company law may be considered of public interest. Therefore, even if the joint venture agreement selects arbitration, and even if it appoints another material law, some provisions of the Brazilian Civil Code must be taken in consideration as a precaution. Otherwise, there would be a risk of the foreign arbitration decision not being recognized in  Brazil.

I'm sure there is much more to say, but I'd like to hear your comments before moving further.