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How does a limited liability company work in Brazil?Posted 27/05/2022
Incorporating a company in Brazil is a bureaucratic process, as the country’s regulations are among the most complex in the world. Anyone who wants to start a business must choose the best regulatory framework to avoid headaches in the future.
In Brazil, the Limited Liability Company is the most common type of business, as it has a legal identity of its own. In other words: it is separated from the members and administrators, without compromising personal assets in the event of debts or bankruptcy.
Among the characteristics mentioned, this legal nature has critical aspects. Therefore, before deciding to start a business within this legal framework, understanding the rules is essential. Check out more details on Europartner blog!
What is a Limited Liability Company?
A company incorporated as a Limited Liability Company in Brazil should consist of two or more members. However, this format allows the company to have a non-member administrator.
Importantly, each member is liable for a portion of the share capital. Likewise, investments referring to the percentage owned by each member is also possible.
Despite this, the key purpose of this type of company is to protect the members’ assets. In the event of debt or bankruptcy, members risk losing only the amount of their initial investment.
Limited Liability Companies are usually abbreviated as LTDA. or Ltda.
There is no minimum capital amount for this type of legal entity. So, each member’s liability is proportional to the amount invested, but all members may be liable for the total amount.
In other words, if one partner invested $5,000 and the other invested $15,000, in the case of debts, both are liable for the total amount, i.e., $20,000.
Under this corporate model, the members’ liability is limited as well. In this sense, if the company’s capital is at risk, withdrawing or allocating profits is prohibited.
With regard to the members’ compensation, the amount is dependent on the percentage invested in the share capital.
Pros and cons of owning a Limited Liability Company
As we said above, the assets of the individual and of the legal entity are separated in a Limited Liability Company incorporated in Brazil.
When debts exist, personal assets are not used for the payoff. Conversely, if the individual member is in debt, the company’s assets are not compromised.
The members’ actions are aimed at a greater objective: ensuring the stability of the company, as well as the proper operation of the organization. Therefore, all members should work together to make the best decisions.
However, if a member infringes the rules defined in the articles of incorporation, s/he may be removed from the limited liability company.
As a downside, a Limited Liability Company does not require an audit committee or a management board to help make the most serious decisions. However, implementing an advisory board is possible in order to avoid conflicts.
Is a Limited Liability Company your kind of company?
Starting a business in Brazil no easy task, and the process can be quite bureaucratic.
For this reason, analyzing all issues that involve a Limited Liability Company is important, such as:
- Number of members;
- Activity to be performed;
- Share capital.
Also, you should check whether this is the best kind of company for you.
Keep in mind that the initial costs for setting up a company in Brazil
may vary between R$500 to R$1,500, and the incorporation takes from 8 to 12 weeks.
But you don’t have to do it by yourself! Europartner helps you through the entire process of starting your company, in a convenient and safe manner.
Thinking about setting up a company in Brazil? Talk to Europartner
We have a team of skilled specialists who are ready to provide you guidance and fulfill all tax requirements so you can start your business.
Find out more information about how we can help, contact us by email and talk to our professionals!Author's post: Europartner Accounting