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
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
