Brazilian Company Types Text 19 09 2011

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HENARESADVOGADOSASSOCIADOS

Halley Henares NetoLuiz Paulo Facioli

Edson Gervsio de Arantes JniorLeandro Bonadia FernandesAndra Bellentani Casseb TrimontRovani DietrichHeloisa de Oliveira HerreraArtur Francisco da SilvaAnna Paula vila PaschuinoCarin HosoePaulo Shigueru YamaguchiAugusto Kenji Tosi TakushiAsmahan AlessandraVivian Astolpho dos SantosKelly Ramos BalthazarFernando de Carvalho Pinheiro Matos

So Paulo

R. Desembargador Eliseu Guilherme, 2009 andar Paraso So Paulo/SP

CEP 04.004-030 (11) 3074.2544

Ribeiro Preto

Av. Costbile Romano, 1677Ribeirnia Ribeiro Preto/SP

CEP: 14.096-380 (16) 3967.8179

Braslia

SCN Quadra 2 - Liberty Mall Torre B Sala 231 Braslia/DF

CEP: 70.710-500 (61) 3202.5899

Maring

Av. So Paulo, 172 Sala 1705Zona 1 Maring/PRCEP: 87.013-040 (44) 3029.5309

INCORPORATION OF BRAZILIAN COMPANIES

A. COMPANYTYPES

In Brazil, there are several types of companies. However, the most important and most usedones are the sociedade limitada (limitadas) limited liability company, and the sociedade por aes(S.A.) -joint-stock company or corporation.

Up to the publication of the New Brazilian Civil Code (Law No. 10.406/02), there weresignificant differences between these two types of companies. The limitadas were lessbureaucratic than the S.A.s, but now they are bureaucratically very similar.

1. Sociedade Limitada(Ltda. or Limited Liability Company)

Although a limitadas Articles of Association are in the form of a partnership contract, a limitadacompany is considered an entity which is separated from its quotaholders. No minimum capitalrequirements are imposed but immigration authorities may request a minimum of corporatecapital before granting a permanent visa (presently or equivalent to US$200,000.00) and workpermit to nonresidents moving into Brazil to manage the company. Capital must bedenominated in Brazilian currency.

A limitadamust have at least two quotaholders of any nationality, and its capital is in the form ofquotas with a fixed unit value in local currency as specified in the articles of association. It isunusual to issue certificates or other documents for members quotas. Quotaholdersparticipations must be clearly stated in the articles. In the absence of any agreement to the


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contrary, voting rights and profit distributions are proportionally to capital holdings, but the

articles may provide otherwise.

Companies as well as individuals may be members of a limitada. Non-resident members mustgrant a power of attorney to representatives in Brazil to act on their behalf on meetings and toamend the Articles of Association. All or part of the membership may exercise administrativepowers or may delegate these powers to an individual who is not a quotaholder. Managersmust be permanent residents of Brazil. Members are liable for debts and losses up to theamount of their individual capital quotas, and are jointly liable to the extent of any capital notpaid in by another member.

Members may withdraw in case of disagreement and are then entitled to repayment of theirquotas on the basis of a value established in accordance with a balance sheet drawn up for thispurpose. A retiring members quota may be redeemed by the firm without changing registeredcapital, as a form of treasury stock.

At least of the quotaholders votes are required to amend the Articles of Association,depending on the resolutions to be taken. In some cases, the totality of the quotaholders isrequired to vote in the resolutions. Many Articles of Association give members the option toacquire available quotas, especially in the event of the death of a member. The time for thepayment of capital must be included in the Articles of Association. The articles may permit the

issue of proxies by members for representation at meetings and these may be given to outsiders.

A limitada is required to call frequent meetings, in order to take resolutions on the followingmatters, for example: (i) approval of the administrations accounts; (ii) appointment ordestitution of administrators; (iii) remuneration of the administrators; (iv) the merger, split-offor the cease of the companys liquidation process; (v) approval of the result of the ended fiscalyear; (vi) destination of the profit, etc. Minutes of the quotaholders meetings must be filed atthe Board of Trade.

2. Sociedade por Aes(S.A. Corporation)

In a S.A., the participation is acquired through shares, freely negotiable, with or without votingrights (common or preferred, respectively), which may also be traded on the over-the-countermarket or stock exchanges (in the case of listed companies).

The S.A. is regulated by the Brazilian Federal Law No. 6.404/76 and by its by-laws. There mustbe at least two shareholders, but in case of a corporation subsidiary of a foreign one, thecontroller may hold 100% of the subsidiarys capital. All the shares held by the shareholders, as

well as the transferences of the shares must be registered in the proper books.

The shareholders of a corporation are also required to call frequent meetings. The minutes ofthe resolutions taken in these meetings must be written in the proper book, filed at the Board of

Trade. Depending on the companys capital, it is also required to publish such minutes in


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newspapers (Official Gazette and other newspaper). The companys administration is exercised

by the Board of Directors, and in the case of listed companies, by the Supervisory Board.

A S.A. company may also issue securities, such as Debentures (securities convertible into cash,similar to a loan operation); Founders' shares (grant the right to possible credits); andSubscription Bonuses (grant the right to future subscriptions of shares when the capital isincreased).

The legislation establishes the obligatory payment to shareholders of minimum annualdividends to an amount of 25%. Failure to comply with this determination during three

subsequent years grants voting rights to the holders of preferred stock.

A table is attached hereto, showing the differences between the Limited Liability Company anda Corporation.

3. Required Information

The following information is required to prepare the Articles of Association/ By Laws:

a) local company business name;

b) business address;

c) business purpose, noting that, under Brazilian law, general objectives such as allcommercial activities permitted by law are not accepted. The objectives must be veryspecific and precise. On the other hand, the inclusion of objectives which the companydoes not intend to engage in is also not advisable because this usually results inunfavorable tax consequences and/or paperwork;

d) initial capital investment amount and shareholding participation (in reais) of eachquotaholder;

e) form (cash or assets) and date of capitalization;

f) the following information on the quotaholders/shareholders:

f.1) if legal entity evidence of existence, place of incorporation, business address, businesspurpose, duration;

f.2) if individual - name, nationality, marital status, profession, passport number (ifforeigner)/ individual taxpayers number and identity card number (if Brazilian citizenor resident), residential address;


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g) duration; and

h) complete name and personal information (citizenship, profession, marital status,domicile, individual taxpayers number and Identity Card number) of the residentmanager.

All companies in Brazil require registrations at the Ministry of Finance Corporate TaxpayersNumber and also Social Security, Unemployment Guarantee Fund. Depending on the activity,State, Municipality and other Registrations shall be required.

B. PERMANENTVISA

In order to be the Brazilian companys administrator, a foreigner must be granted a permanentvisa by the Brazilian authorities.

As stated hereinabove, immigration authorities request a minimum of capital stock beforegranting a permanent visa (presently US$200,000). The investment shall be in the incorporatedcompanys bank account, and shall be registered at the Central Bank of Brazil, such as all

foreign investments, as explained below.

Another possibility to obtain the permanent visa for the foreign administrator is the investmentof the equivalent to US$50,000 plus the commitment to create 10 new job positions within 2years.

C. REGISTRATION OF FOREIGN DIRECT INVESTMENTS

In Brazil, foreign capital is governed by Brazilian Federal Laws Nos. 4131, of September 3,1962 and 4390, of August 29, 1964, regulated by Brazilian Federal Decree No. 55762 ofFebruary 17, 1965.

According to the Law No. 4131, foreign capital is considered to be any goods, machinery and equipmentthat enter Brazil with no initial disbursement of foreign exchange, and are intended for the production of goods

and services, as well as any funds brought into the country to be used in economic activities, provided that they

belong to individuals or companies resident or headquartered abroad.

The Brazilian Central Bank Regulation (Circular BCB) No. 2997 contains provisions related tothe electronic declaratory registry (RDE) for direct foreign investments in Brazil, through anelectronic system by which it is possible to transmit, via Internet, all information required forthe registration of foreign investment, directly to the Central Bank, by the payee.


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Recently, the Brazilian Federal Revenue Services has issued a Normative Instruction stating that

foreign investors which have goods and investments in Brazil must have a Corporate TaxpayerNumber (CNPJ). Currently, such corporate number is essential to have the investment dulyregistered at the Central Bank of Brazil.


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Annex I Main Differences between a Sociedade Annima (S.A.) and a limited liabilitycompany (Ltda.) for tax and legal purposes in Brazil

Item S.A. Ltda.

Shareholding Acquired through shares, freely negotiable, with or without voting rights (common orpreferred, respectively), which may also betraded on the over-the-counter market orstock exchanges (in the case of quotedcompanies).

The holding of a partner (quotaholder) in alimited liability company is represented by thenumber of stock quotas held in the company. The assignment of these quotas to thirdparties depends on agreement by theremaining quotaholders.

Corporate

Contract

Bylaws Articles of Association

Modifications tothe CorporateContract

Carried out by holding General andExtraordinary Stockholders' Meetings.

Carried out by amendments to the articles ofassociation.

Administration Administration is exercised by the Board ofDirectors, and in the case of quotedcompanies, by the Supervisory Board.

The manager should be a partner in thecompany; the Brazilian New Civil Codeallows a manager not partner of thecompany. The status of manager should berecorded in the Articles of Association.

Liability The liability of shareholders is limited up to

the amount of shares held.

The liability of the quotaholders and partners

is limited up to the capital of quotas held.Partner still liable for 2 years after withdrawalfrom the company.

Possibility ofissuing securities

- Debentures (securities convertible intocash, similar to a loan operation);

- Founders' shares (grant the right topossible credits);

- Subscription Bonuses (grant the right tofuture subscriptions of shares when thecapital is increased).

None.

Dividends The legislation establishes the obligatorypayment to shareholders of minimum annualdividends to an amount of 25%. Failure tocomply with this determination during threesubsequent years grants voting rights to theholders of preferred stock.

There is no obligation to distribute income.

Publication Obligation to publish the balance sheet andfinancial statements at the end of eachfinancial year.

Only for companies with capital share higherthan R$1,000,00.00 that has more than 10quotaholders.

Moreover, we should stress that Brazilian legislation does not establish differentiated taxtreatment for companies incorporated in different ways, so that taxes levied on the operationsof a Ltda. are equivalent to those applied to the operations of an S.A.

Brazilian Company Types Text 19 09 2011

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