Adler Martins – lawyers

Mandatory representative in Brazil – nuissance or safeguard?

1. The first step when incorporating a company in Brazil is to prepare a PoA to the local representative, who must be a permanent resident in the country.
2. The local representative will have powers to represent the investor before the commercial registry and the tax authorities.
3. The representative must also have powers to receive summons and subpoenas on behalf of the investor, and to manage local assets of the investor (this means, in practical terms, that he must have powers to deal on the investor’s shares)
4. Now, due to the way Brazilian tax and labour courts work, this representative might also be liable for tax debts or labour responsibilities of the Brazilian company.
5. On top of that, the local representative’s credit score may affect the BR subsidiary’s business. For example, by restricting its acess to lines of credit.
6. The representative will usually receive powers to represent the investor in several dealings involving the company. For example: naming a local Executive Director, executing changes to the articles of association, etc.
7. As you can see, the local representative is really connected to the company’s business. He is not a nameless secretary, like the ones you get when you incorporate in an offshore jurisdiction.
8. Lawyers and accountants may act as representatives (I, for example, do that all the time). But they will probably charge for it, and, depending on the nature of the company, they may ask for DOA insurance.
9. The local Executive Director of the company may double as the local representative of the investor. This usually works fine when the foreign investor has a local partner who will run the business.
10. However, when the investor is a large company, it is good policy to have two differente people playing these roles. One representative and one director. The reasons is that the representative may be used to quickly fire the director (by means of a notice, or a change to the company’s articles) if necessary.
11. In an emergency, if the director and the representative are the same individual, then the investor will have to terminate the PoA and name a replacement representative before firing the director. This takes time.
12. On the other end, it is advisable to add a clause to the PoA allowing it to be terminated by e-mail communication. This way, a change of representative can be performed swiftly, should the need arise.