EIRELI Law Allows Corporate Entities to Own Single-Member Companies
For years, it was the norm that legal entities in Brazil would have a minimum of two shareholders. No matter the percentage distribution of shares, there had to be at least two owners associated with a company to ensure personal liability.
For foreigner investors, this meant jumping through hoop after hoop. Opening a two-partner business meant duplicating what was already an onerous and time-consuming process, including notarizing and legalizing documents abroad, obtaining official translations, and filing for tax documents. For many, adding a business partner simply added unwanted legal and financial risk.
In 2012, everything changed. With the advent of the EIRELI (Empresa Individual de Responsabilidade Limitada), businesses can now be formed with only one shareholder. Gone are the days of needing a straw man to hold 0.01% of your company. Today you can be the sole shareholder.
Celebrated as a huge step forward in eliminating the corporate bureaucracy associated with starting a business in Brazil, the EIRELI was still short of being perfect. It came with its own drawbacks. To register as an EIRELI, the owner must pay a minimum capital of 100 times the Brazilian minimum wage, totaling R$93,700.00 based on the current federal minimum wage. For some, this investment is too great.
Yet perhaps the biggest drawback came not from the law itself but rather the government’s interpretation of the law. Normative Instruction 117 of November 22, 2011, prohibited legal entities from constituting EIRELIs. According to the interpretation, only individuals could be shareholders of EIRELIs…until now.
Published on March 3, 2017, Item 1.2 of Annex V of Normative Instruction 38.2017 of the Department of Business Registration and Integration (DREI) amends the government’s interpretation of who can form an EIRELI. Starting on May 2, both individuals and companies can be shareholders of EIRELIs.
The government’s previous interpretation of the EIRELI law drew broad criticism from those who sought to increase investment in Brazil by easing corporate restrictions. Now, those who criticized the government’s position are praising it. The government’s change in stance is a positive sign that the government is listening to its constituents and trying to make doing business in Brazil a bit easier for Brazilians and foreigners alike.