After undergoing changes during the legislative process within the Brazilian National Congress, Provisional Measure No. 881, of April 30, 2019, was converted into Law No. 13,874/2019, sanctioned and published on September 20, 2019, pursuant to which the “Declaration of the Rights of Economic Freedom” was instituted, aiming at reducing bureaucracy and providing more legal certainty to business in Brazil.
The Economic Freedom Law is based on the following principles, expressly provided for therein:
- Freedom as a guarantee in the exercise of economic activities;
- The good faith of the individuals before the public power;
- State intervention in the exercise of economic activities on a subsidiary and exceptional basis;
- Recognition of the vulnerability of the individuals vis-à-vis the State.
During the discussions in the Brazilian National Congress, the attention was focused on changes in the various labor aspects. However, most of the points that changed the Labor Law and could have significant impacts on companies, fell into the plenary vote and the changes were tightly restricted.
Several changes of major relevance to Business Law were promoted by the Law on Economic Freedom, including the following:
- Institution of the sole holder limited liability company: the requirement of a plurality of members provided for in Law No. 10,406/2002 (Civil Code) for the formation of limited liability companies is no longer in force, so limited liability companies with one sole quotaholder is now allowed. The incorporation of a company owned by only one person, the Individual Limited Liability Company – EIRELI, was already expressly admitted, but the Civil Code required a minimum share capital of 100 (one hundred) minimum salaries for this type of company, a requirement not applicable to limited liability companies.
- Autonomy of legal entities: the Civil Code now contains an express provision that the legal entity is distinct from its partners, associates, founders or officers. It was also expressly provided that the formation of legal entities is a lawful mechanism for risk allocation and segregation, established by law with the purpose of stimulating enterprises, jobs and income generation, tax collection and innovation.
- Disregard of legal entity doctrine: consistently with the prevailing case law, the Civil Code was amended to provide for more detailed rules for disregarding the personality of legal entities, with the scope of reaching private assets of managers or partners in cases of misuse of purpose or asset confusion. Misuse of purpose is conceptualized as the use of the legal entity for the purpose of harming creditors or for the performance of unlawful acts of any kind. The asset confusion, on the other hand, results from the lack of actual separation between the assets of the legal entity and its partners.
- Limited Liability Regime in Investment Funds: The Civil Code now contains specific provisions on investment funds, with the recognition that they are “special nature” condominiums intended for investment in financial assets, general assets and rights of any kind. Among the most significant changes, permission was granted for the by-laws of investment funds to establish: (i) the limitation of the liability of each investor to the value subscribed; (ii) the limitation of the liability of the investment fund’s service providers, before the condominium and among themselves, to the fulfillment of their duties, on a non-collective basis (without joint liability); and (iii) classes with distinct rights and obligations, with the possibility of constituting segregated equity for each class. The Brazilian Securities Commission shall regulate this new regime.
- Expedition in the corporate registration process: With the purpose of reducing the bureaucracy and providing more agility in the process for registration of companies in Brazil, Law on the Economic Freedom amended some provisions of Law 8.934/1994, which deals with the public register of commercial companies. Among other amendments, requests for the registration of acts of incorporation of corporations, consortiums, groups of companies and corporate reorganizations involving transformation, merger and spin-off shall be decided within 5 business days, otherwise such corporate acts shall be considered registered, if so requested by the interested parties, but without prejudice to the examination of legal formalities by the public prosecutors. The filing of the acts of incorporation and amendments not mentioned above (i.e., corporate acts involving limited liability companies, simple companies, EIRELIs and individual entrepreneurs) shall be decided within 2 business days, otherwise such corporate acts shall be considered registered, on the same grounds mentioned above.
- Established of the concept of “regulatory abuse”: which consists of a kind of infringement committed by the Government, characterized by practices of acts or enacting laws that can affect economic activities and free enterprise, likely to indemnity.
- Creation of a new Work and Social Security Card (CTPS): the document will probably become electronic and will include an unique employee ID and social security number.
- Time tracking: originally mandatory for all companies with more than 10 employees, is now only mandatory for companies with more than 20 employees.
- Permission to adopt the registration of working hours control by exception: this is a kind of control by which the employer controls only the extraordinary working day. Only the exceptions will be mentioned on his workday control. The new model, however, depends on individual or collective authorization.
- Authorization for financial institutions to operate on Saturdays.
- E-Social: the system will be replaced by a new and simpler system. However, there is no date established for this to occur.
- Possibility of collecting debts from companies of the same economic group only in case of abuse of the legal entity, characterized by misuse of purpose or confusion of assets.
We are available to provide further clarification on the items above, as well as discuss the other changes provided for by the Law on Economic Freedom.
