By Robert Eugene DiPaolo
I’ve learned many things from spending time and doing work in Brazil, most importantly that Brazil is not the USA. While this is obvious, I say it because it’s easy to forget. If you spend all you time comparing things in Brazil to how things are in your own county, you’ll end up feeling frustrated most of the time, rather than enjoying the things that are truly great about Brazil. So, while dong business in Brazil can be hard work, the rewards can be great if you are willing to take the time to understand how things work there, and learn to adapt to a different set of rules.
Let me give you an example. Driving in Brazil is nothing like driving in the USA. In fact driving in Brazil can be down right chaotic by comparison. Sometimes it seems as if there are no generally accepted rules of the road by which you are expected to drive. It’s like playing a video game. It’s an adventure in which you never know what is going to happen, and which requires your complete attention and absolute vigilance. But, having learned to accept how things are, and to adapt, rather than being frustrated by the reality that driving in Brazil is not the same as driving in the USA, you can come to appreciate the experience of driving in Brazil, and to treat every drive as an adventure, which it usually is.
This said, sometimes it’s helpful to compare how things are done in one country with how they are done in another, to give you perspective and provide you with a road map by which you can anticipate the turns, twists and obstacles you may encounter along the way. It’s like being in line at Disneyland. It’s not so much about how long the line is, or even the fact that you have to wait in it. After all, this is what you expected. What you want to know is how long you are going to have to wait in line. Well, Disneyland, at least the time I was there, has cleverly dealt with this problem by posting signs along the way telling you how much longer you will need to wait from that point on, thereby managing your expectations. So, it is with this idea in mind that I’ve embarked upon our discussion of doing business in Brazil. To help you, the reader, and potential investor in Brazil, manage your expectations, to tell that there is a line in which you will have to wait, suggest how long you may have to wait there, and to let you know that while the line may be long, the ride at the end is, more often than not, worth the wait.
Well, at this point, we’re ready to discuss some of the steps you will need to take to start a new company through which to operate your new business, buy a business or invest in Brazil. For comparison sake, let’s say you want to form a company in the USA. Our friends at the World Bank, who have determined that the USA ranks third, right behind Singapore and New Zealand in terms of ease of opening a new business, boil this process down to five steps, each taking one day, some of which can be performed simultaneously, so that you can be up and running in a week or less. These steps include registering the business name and filing the certificate of incorporation or formation with the secretary of state in the state in which you are forming your company, and obtaining an employer identification number. If you plan to have employees, you will need to register for sales tax, unemployment insurance and arrange for workers compensation insurance. That’s pretty much it, unless you need to obtain specific licenses for your business, or you’ve decided to form a limited liability company, or LLC, in the state of New York, which absurdly requires you to publish notice of the formation of your LLC in two newspapers over a period of six weeks within 120 days of formation.
Now let’s say that you’ve decided to form a Limitdada, or Ltda., in Brazil through which to do business. The World Bank divides this process into 17 steps, which together can take up to 152 days. As discussed in our pervious article, the steps and length of time required to compete each step may differ from state to state, but the process is essentially the same across Brazil. One reason the process can take so long is that the filing requirements are spread out across various governmental agencies. For instance, to find out if the name you want to use for your company is available you go to the State Commercial Registry Office. But to form the company, you need to file what is know as the Social Contract, essentially the equivalent of the articles of incorporation and the articles of association, with the Commercial Board of Trade or the Register of Civil Companies, depending on whether the company’s activities will be civil or commercial. To do this you as one of the two or more quotaholders of your Limitada, must sign the Social Contract to register your equity interest in the company. But you cannot sign on your own behalf. And why is this you ask? Well, your signature cannot be verified in Brazil, since you have no legal status there. So, you will need to grant a power of attorney, or POA, to the person, generally a lawyer although an accountant can perform the same function, but for obvious reasons using an accountant to do legal work is generally not recommended, as they will draft and file your Social Contact. To complicate things more the POA must be signed and notarized in the USA, and then legalized or consularized by the Brazilian Consulate which has jurisdiction over the state in which you reside. And to complicate things even more, most Brazilian Consulates, for whatever reason, only accept postal money orders to pay for the fees involved. That’s right, no checks (very un-Brazilian), not even bank or certified checks, no credit cards and no cash. In any event, the legalized POA must then be translated by what is know as a sworn translator in Brazil and registered before the public notary there.
Following this you need to register with the Office of Federal Revenue of the Finance Ministry, to obtain a tax identification number, known as a CNPJ number, which also registers employees with the National Institute of Social Security. You will also need to register with the Tax Authorities of the state in Brazil in which you have formed your Limitada. Needless to say there are several other steps, including getting authorization to print invoices and receipts, obtaining an operational permit and registering employees with in the unemployment insurance program. You may even be required to obtain a Fire Brigade license from the state in which you have formed your Limitada. But, I will not elaborate on the rest of the steps at this time, since I wouldn’t want to lose the few readers who have stuck with me this far. However, if you would like to review all the steps, and the estimated time required to complete them, you can do so by taking a look the World Bank’s Doing Business Website at www.doingbusiness.org. Next time we’ll introduce you to someone who can help you coordinate and facilitate all the various tasks you’ll need to complete to get your business up and running, from obtaining permits and import and export licenses, to simply helping you maneuver through the various levels of governmental bureaucracy in Brazil.
Part 4 next week…
Mr. DiPaolo is the co-founding managing director of The Fidelis Group do Brasil Consultoria, Ltda., a legal/business consultancy specializing in assisting non-Brazilians who want to do business or invest in Brazil. He can be reached at email@example.com.
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