Presentation made by Vera H de Moraes Dantas
Chartered Institute of Marketing Finance Group
Thursday, 11th September 2008
Points of Presentation
• General Overview of Brazilian Economy
• Foreign Capital Treatment in Brazil
• Doing Business in Brazil
Rendering Services from the UK to a Brazilian party
Direct Investment
Map of Brazil
Brazil’s economy
• Brazil is the fifth largest country in the world
• 10th largest economy – GDP more than US$ 1
trillion
• Inflation :
2005 – 6.8%
2006 – 3.5%
2007 – 3.2 %
2008 – 4.5 % (estimated)
• Foreign Investment:
– 2005 – US$ 21.5 billion
– 2006 – US$ 22.7 billion
– 2007 – US$ 36 billion
– 2008 – US$ 35 billion (est.)
• 30 April 2008 : Standard & Poor granted Brazil
the status of Investment-Grade economy
• Opportunities for the provision of services and
joint ventures: Oil and Gas; Ethanol production;
Shipping (on top of Chris Wall’s list)
FOREIGN CAPITAL TREATMENT
IN BRAZIL
• Foreign companies may invest freely in Brazil
• Federal Constitution : identical treatment and equal
conditions for national and foreign capital
• Foreign investment is subject to registration at the
Central Bank of Brazil, but no preliminary official
authorisation is required for the remittances of funds
relating to investments in Brazil
• Registration is essential to allow remittance of
profits and repatriation
Doing Business in Brazil
• Providing Services to a Brazilian party
• Direct Investment
– Setting up your own Company
– Purchase of an existing business
– Joint Venture
Rendering Services from the UK
to a Brazilian party
Main legal issues
• 1. Memoranda of understanding
• Unlike in many countries, memoranda of understanding
are binding in Brazil
• Defaults of obligations under a proposal will be subject to
indemnification of losses and damages under the general
rules of the Civil Code, to which one should add court fees
and legal costs
• Term Sheet must be cautiously drafted by experienced
lawyers, in order not to create a binding obligation
between them
Rendering Services
Main issues – cont.
•
2.
Services Agreement:
• 2.1 Tax – payable at remittance
• Services – 25% income tax
• Royalties – 25%
• (15% income tax + 10% CIDE)
Agreement to state clearly which party is to be responsible for
that payment (careful with “directly or regressively
responsible for any and all taxes”!)
Rendering Services
Main issues – cont.
• 2.2
If the Agreement involves transfer
of technology, use of patents, industrial
design or trade marks then it will require
registration with the National Institute of
Industrial Property (INPI)
• 2.3
It is normal – just like in England!
– to insert other clauses such as
confidentiality, termination events, etc
Rendering Services
Main issues – cont.
• 2.4
Choice of governing law and
jurisdiction must be carefully considered in
each case and expressly included in the
relevant agreements
– Arbitration possible in Brazil
Rendering Services
Main issues – cont.
• 2.5 Enforceability of agreements against the
defaulting party through summary execution
proceedings in Brazil: possible if the Agreement is
signed by the defaulting party and two witnesses
• 2.6 Validity of contractual obligations against
third parties further depends on registration of the
contract with a Public Register of Deeds and
Documents within 20 days of their execution
Rendering Services
Main issues – cont.
• 2.7
Signatures must be notarised and if
the Agreement is signed abroad, the
notarization must be recognised by the
nearest Brazilian diplomatic division
• 2.8
Instruments executed in a foreign
language must be translated into Portuguese
by sworn translators in Brazil
Direct Investment
set up your own company
buy an existing one
enter into a Joint Venture
Which Type of Company?
Most frequently used company structures:
"Sociedade Anônima" (S.A.) and
"Sociedade Limitada" (LTDA)
in both cases the participants have limited liability
Decision process – of relevance if the investor is a
minority shareholder
(a)
in a Limitada – the social contract and the 75% vote rule
•
Decisions must be taken by majority of votes, except for the cases of
alteration of the social contract or merger, consolidation or winding
up of the company, whe it must be taken by at least 75% of the
votes representing the social capital
•
Whilst these matters can, in the case of an S.A., be regulated in a
shareholders agreement, in the case of a Limitada they will be
necessarily dealt with by the Articles
Decision process – of relevance if the investor is a
minority shareholder
(b) in a SA – Shareholders Agreement
•
•
General rule applying to S/As : decisions
are taken by the majority of voting
shareholders
Obligations set forth in a Shareholders
Agreement can be subject to specific
performance
The Shareholders Agreement
•
•
•
•
•
•
Under the umbrella of a Shareholders Agreements the
parties to decide on important issues, such as:
Mechanisms for the management of the Company
Board of Directors may be integrated by foreign
individuals
Corporate Governance policies
Quorum for Strategic Decisions
Right of First Refusal; Tag Along
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