Modofications to the Brazilian Civil Code lead to changes in limited liability companies

Since January 11, 2003, the limited liability companies are subject to a new legal system established by the New Civil Code (Law # 10.406/02). The companies that are already incorporated will have until January 11, 2004 to adapt its Articles of Association to the new legislation.

The Bill number 634/75, known as the new Civil Code, approved by the House of Representatives in November, 2001 and measured into Law number 10.406, on January 10, 2002 by the former President Mr. Fernando Henrique Cardoso, substantially modified the civil and commercial legislation in Brazil, revoking Law 3.071/16 of the Civil Code and Section I of Decree 556 from 1850 – Commercial Code. Pursuant to the new Code, the limited liability companies, which represent the majority of the companies incorporated in Brazil, will have to meet some demands formerly required only to share corporations.

Therefore, limited liability companies incorporated in Brazil shall review and adapt its Articles of Association to the new legislation until the deadline established by the law, or convert the limited liability company into a joint stock corporation, upon analysis of the advantages and disadvantages of each type of company under the new law. Our firm is available to assist your firm in this decision. We briefly summarize below some of the most relevant changes occurred affecting limited liabilities companies:

BOOKS OF RECORDS OF THE COMPANY The Company shall keep books for records of the General Quotaholders Meetings, Managers Meetings and Statutory Audit Committee Meetings.
CAPITAL INCREASE The capital may be increased ONLY after the quotas initially subscribed are paid in. In case of capital increase, the quotaholders will have a 30-day term to exercise the right of first refusal.
CAPITAL REDUCTION In the event of capital reduction, the operation shall be published in widely known newspapers. Creditors will have 90 days to file complaint against the capital reduction. Reduction of capital will only be effective after this term with no oppositions or judicial deposit for payment.
FOREIGN PARTNERS The New Civil Code did not expressly preview the possibility of foreigners becoming partners of limited liability companies, although there is such express authorization for joint stock corporations. Therefore, in order for foreign companies and individuals to become partners of limited liabilities, the Articles of Association of the limited liability company shall be ruled in the omissions of the applicable section of the Civil Code by the corporation law (Law # 6.404/76).
GENERAL QUOTAHOLDERS MEETINGS Mandatory Annual General Quotaholders Meetings for the analysis and approval of accounting and economic results and appointment of managers. The balance and financial statements shall be provided to the Quotaholders with 30 days in advance of the Meeting. The general meetings will have to be called in advance, by means of ads published in newspapers at least three times, unless all of the quotaholders are present or declare in writing aware of the meeting, demanding the presence of no less than ¾ of the quota holders for its execution.
MANAGEMENT The company may be managed by the Quotaholders or any other individual appointed by the Quotaholders in the Articles of Association or in a separate document, observing the voting quorum established by the law. In order to take office, the company’s managers will have to sign a book of records, which shall be registered before the Board of Trade. Also, in case of waive or renouncement of the position, the renouncement act shall be published in major newspapers and registered with the Board of Trade.
PUBLICATION OF ACTS The limited liability company shall publish in widely known newspapers the call for meetings, managers renouncement act, reduction of capital minute, dissolution, merger, acquisition and slip-up operations.
QUORUM FOR APPROVAL Minimum quorum composed of ¾ of the holders of the company’s capital in order to approve changes in its Articles of Association, performance of dissolution, merger, incorporation and split-up operations.
REGISTRATION OF THE COMPANY Companies with business purposes (industries, commercial companies which professionally market goods or provide services, etc.) shall be registered with the Board of Trade of the State of its principal place of business. Companies performing intellectual, scientific or artistic activities shall be registered with the Local Public Notary at the place of its activities.
RESPONSIBILITY The Quotaholders remain responsible before the Company and third parties for the total amount of the capital of the company. Quotaholders will respond for 5 years for the evaluation of goods used to pay the capital in. Managers are responsible for any act taken in disagreement or disapproval by the Quotaholders.
RIGHT TO WITHDRAW FROM THE COMPANY Quotaholders will have the right to withdraw from the company with reimbursement of the value of its quotas in cases of changes in the articles of association, mergers, acquisitions and split-ups during the 30 day period that follows the change.
STATUTORY AUDIT COMMITTEE Specific rules similar to the rules applicable to the joint stock corporations were created for the installation of a statutory audit committee as well.
TRANSFER OF SHARES The Quotaholders may transfer its shares freely to other Quotaholders, or to any third party, unless there is opposition of the others quotaholders representing ¼ of the capital of the company. The Articles of Association may establish different rules.

Azevedo Sette Advogados