By J. Rubens Scharlack
Article 7 of Law 13.874/2019 brought notable modifications to the Brazilian Civil Code, one of them being the alteration of its article 1.052, which added the possibility of only one person being a member of a Business Entity of Limited Liability (Ltda.).
First, this novelty does not represent a new type of business entity. The Single-Member Ltda. (SLU) follows the same rules as a regular Ltda., which means that a foreign individual or entity may create an SLU.
The Ltda. is the most common type of business entity in Brazil. The abandonment of the legal requirement that more than one partner shall exist in order to create or maintain a Ltda. came in good time.
Indeed, before the new law came into existence, Brazilian Law only recognized two ways to form a business with a single owner: the Sole Entrepreneur and the Individual Limited Liability Business (EIRELI). However, despite exercising a business (i.e., an organized economic activity) the Sole Entrepreneur remains an individual and continues to respond unlimitedly with his/her assets to any debt of the business. Moreover, professional service providers (professions regulated by federal law) cannot be Sole Entrepreneurs. On the other hand, an EIRELI, despite being a legal entity and providing asset protection to its owner, needs a minimum capital of 100 minimum wages, previously paid up, so that it can validly exist.
This legal reality forced businesses and entrepreneurs to create Ltdas with a second partner, which would hold a minimal interest (2%, 1%, or even 0,1%), only to fulfill the formality of the law.
The SLU ends that practice. The most popular type of business entity in Brazil can now be created by a single member, regardless of the amount of the entity's capital.
Besides bringing legal certainty to individual businesses, the SLU brings comfort to entities that are in the brink of dissolution. Losing the affectio societatis (i.e. the intention to be someone's partner) may mean the death of an entity, because article 1033 of the Civil Code determines that the entity which does not recompose the minimum number of two partners within 180 days as of the retirement of an exiting partner shall be dissolved.
Now this Ltda. may formally convert into an SLU, without the need to (2) bring another member into the business, (2) raise its capital to convert into an EIRELI, or (3) lose its legal entity status and subject the member's personal assets to the creditors of the business.
Due to its simplicity and practicality, the SLU innovation has a great potential to foment business activities in Brazil.
Author
J. Rubens Scharlack
Founding partner
Brazilian lawyer graduated from the Faculty of Law of the University of São Paulo (USP), as well as a lawyer from the United States with J.D. cum laude and LL.M. in Taxation, both at the University of Miami School of Law (UM). See the profile here.