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Limiting Liability in Brazilian Limited Liability Companies

Posted on the 02 August 2013 by Angelicolaw @AngelicoLaw

Quite understandably, a major concern of foreign investors in Brazil is whether they can be held personally liable after having set up a limited liability company (limitada). As in any other legal system, there are provisions that determine when it is appropriate to pierce the corporate veil. Hence, the risk of exposure to personal liability, even where an owner’s liability is limited, must been considered.

Brazilian Laws Providing for Limited Liability

Generally, the liability of each partner in a Brazilian limited liability company, or limitada, is limited to the amount of ownership they have in the company. This means that each partner’s liability is calculated based on the number and value of the quotas to which they have subscribed, or to the issue price of the subscribed or purchased shares.

In the event the partners have not “paid in” (integralizar) their share of the company’s authorized capital (valor subscrito), then the partners are responsible for the value attributed to the entire authorized capital of the company.

Of course, there are exceptions that allow the courts to pierce the corporate veil and assign liability to the partners. These exceptions include:

  • Acts of partners that violate Brazilian law
  • Acts of partners that violate the company’s articles of incorporation
  • Acts of fraud against creditors
  • Misevaluation of an asset belonging to the social capital
  • Tax and employment liabilities owed to the government

There are also other legal provisions, in addition to the corporate laws, that regulate partner liability in limited liability companies. Article 50 of the Civil Code allows for personal liability if a partner or manager deviates from the company’s purpose or comingles funds. Also, there are provisions in the Consumer Defense Code, in environmental law regulations, and in antitrust regulations that allow the corporate veil to be pierced.

Brazil’s History of Piercing the Corporate Veil

Unfortunately, Brazil has a history of piercing the corporate veil under circumstances that don’t fall squarely within the clear exceptions. It has been argued that Brazilian courts often look to equitable principles to resolve disputes. For example, a court may deem it “fair” to pierce the corporate veil even under circumstances that would not allow the same conclusion under statutory or Constitutional law.

The Brazilian Legislature Is Considering a New Bill that Clarifies Limited Liability

When it is appropriate to pierce the corporate veil may soon be determined by a new law. The Brazilian House of Representatives is considering a bill that will clarify this issue. The bill (3401/2008) outlines specific judicial procedures that must be followed when courts are deciding whether or not to pierce the corporate veil.

The proposed procedures, which are aligned with the due process of law guaranteed by the Brazilian Constitution, are expected to ensure that any efforts to assign personal liability to limited liability partners follow a predictable path and support the protections established by corporate law.

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