Mayara Crespo Neppe
Lawyer at Marcos Martins Advogados
Law No. 12,441 of 2011 established the Individual Limited Liability Company (EIRELI) in the Brazilian legal system, which represented a major step forward in terms of creating a new type of company to be chosen by entrepreneurs, according to their interests, conditions and business objectives.
From its establishment in the legal system to the present day, some uncertainties and gaps relating to the EIRELI have been resolved, but there are still some points of divergence that deserve attention, as will be explained below.
Firstly, the EIRELI, in addition to being provided for in the Brazilian Civil Code, is regulated by the DREI (Department of Business Registration and Integration), formerly the National Department of Trade Registration (DNRC), which on November 22, 2011, through IN 117/11, approved the Manual of Acts for the Registration of Individual Limited Liability Companies, which contained the rules and formalities for the registration of corporate acts before the State Trade Boards.
This is a type of company which, like the individual entrepreneur, allows a single person to carry out the activities of the business, but with liability limited to the subscribed and paid-up share capital. Therefore, it allows for a well-defined separation between personal and professional assets, with the former only being affected in cases of misuse of purpose or confusion of assets, which cause the legal personality to be disregarded.
It is important to remember that in regulating the EIRELI, the legislator determined the application, where applicable, of the rules laid down for limited liability companies, according to article 980-A, paragraph 6 of the Civil Code¹, which can be verified, for example, with regard to the issue of limiting the owner’s liability, mentioned above.
There are, however, some important differences with regard to limited liability companies, which will be discussed below.
The minimum share capital for the incorporation of an EIRELI must not be less than one hundred times the value of the minimum wage in force in the country², and the payment of this capital must be made in cash at the time of its incorporation, rules which do not apply to limited liability companies. Regarding share capital, the recent Normative Instruction 47, of August 3, 2018, issued by the DREI, likewise provided that the capital can be increased at any time, however, it must be fully and immediately paid in.
There is also a limit on the number of companies in the EIRELI format that can be set up by the same natural person, i.e. only one.
Another interesting aspect is that, until 2017, only natural persons could own an EIRELI, according to a restrictive interpretation of Article 980-A of the Civil Code. However, the main section of this article does not expressly provide for this prohibition, and only its second paragraph³ creates the restriction mentioned above, that the natural person who sets up an EIRELI can only be part of a single company of this type. Therefore, jurists and legal operators have always defended the idea that this restriction applied to natural persons, which did not mean that only they could be EIRELI owners.
This problem was resolved with Normative Instruction 38, of March 2, 2017, issued by the DREI, which amended the EIRELI Registration Manual, establishing that legal entities, whether domestic or foreign, are also able to be holders of this type of company, as set out in item 1.2.5 of Annex V of said normative instruction.
From then on, we have at least two direct and objective benefits arising from the possibility of a legal entity being the sole owner of another legal entity: a) it avoids the famous “partner of convenience” or even the figure we used to call “orange”, who was only used as a minority partner, to merely allow the incorporation of a limited liability company; and b) it allows foreign companies to transform their subsidiaries into EIRELI, thus being able to invest and open their national companies, without depending on minority partners for this function, which opens the way for various business models and investments in the country, without further state formalities⁴.
It is also important to point out that, by interpreting the law literally, we are faced with the fact that there has never been any legal or administrative prohibition on the possibility of a national or foreign legal entity being the owner of more than one EIRELI, with the express prohibition existing only in relation to natural persons, as explained above⁵.
In this respect, the 3rd paragraph of item 1.2 of the DREI⁶’s Manual of EIRELI Registration Acts stipulated that:
The incorporation of an EIRELI by a legal entity prevents the incorporation of another with the same natural persons as the owner, in compliance with the provisions of § 2 of Article 980-A of the Civil Code.
This paragraph was not intended to prohibit the incorporation of more than one EIRELI by the same legal entity, but rather referred to the following situation: once an EIRELI has been created by a legal entity, the partners of that legal entity, holder of the first EIRELI, cannot create another EIRELI, the ownership of which belongs to the partners, natural persons, who make up the corporate structure of that legal entity.
In this way, it was understood that there was no legal prohibition on the creation of more than one EIRELI by the same legal entity.
Until August 2018, as this understanding was not settled, it was possible to defend the validity of corporate structures in which a legal entity was the holder of one or more EIRELI, which was, however, dependent on the understanding of each commercial board.
However, with Normative Instruction 47, of August 3, 2018, issued by DREI, it has now been established that a legal entity can be the holder of more than one EIRELI, under the terms of the new item 1.2 of the EIRELI Registration Acts Manual, an understanding that must be respected by all the Boards of Trade in the Brazilian states.
Another point of divergence, which has not yet been fully resolved, is that there is no express legal provision regarding the impossibility of incorporating a company into an EIRELI, and even so some Boards of Trade usually veto this type of registration, on the grounds that there would be an incompatibility between the individual nature of the EIRELI and the consequent receipt by the incorporator of the partners or shareholders of the incorporated company.
However, this situation cannot be considered a rule for any and all corporate transactions. After all, it is not compulsory for the partners of the company being taken over to join the incorporator, and the parties involved may adopt a different approach to their business.
From the above, it can be said that the creation of the EIRELI corporate type has brought advantages to the corporate world and is highly relevant and up-to-date. However, it is still necessary to remedy some inconsistencies and gaps in the legislation, in order to always seek to standardize the procedures for registering such companies nationwide.
Marcos Martins Advogados is qualified and available to deal with questions and doubts regarding the feasibility of setting up an EIRELI and its benefits.
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¹Civil Code: Art. 980-A. § 6º. The rules laid down for limited liability companies shall apply to individual limited liability companies, where applicable.
²Civil Code: Art. 980-A. The individual limited liability company shall be set up by a single person who holds the entire share capital, duly paid up, which shall not be less than 100 (one hundred) times the highest minimum wage in force in the country.
Civil Code: Art. 980-A § 2. The natural person who sets up an individual limited liability company may only appear in one company of this type.
⁴YAMAGUCHI, Paulo Shigueru, 2017. Eireli with legal entity owner. Valor Econômico Electronic Magazine, April 28, 2017.
⁵ARIAS, Veronica de Lima. Legal entity, national or foreign, can be holder of Eireli. Revista Eletrônica Consultor Jurídico, April 18, 2017.
⁶Department of Business Registration and Integration – DREI. Manual for the Registration of Individual Limited Liability Companies – EIRELI. Brasília, 2017. Available at: <http://www.institucional.jucesp.sp.gov.br/downloads/anexo5_eireli.pdf
