Disposals of Brazilian subsidiaries 




Brazilhas been high on international investors’ agendas during recent years. A period of rapid economic growth began in the early 1990s with the taming of hyperinflation by the ‘Plano Real’. Then, in 2001, Brazil was grouped with other leading emerging economies to become the B in the BRIC acronym. The election of left wing president Luiz Inácio Lula da Silva (Lula) in 2002 saw successful macroeconomic policies maintained, but at the same time saw a new focus on wealth redistribution, which has helped to lift millions of Brazilians out of poverty and raised domestic consumption.

When the developed world entered one of the worst economic crises in recent history in 2008, many companies and investors switched their focus to emerging markets, where continued growth could offset stagnation or decline at home. As a major exporter of commodities to China, where demand was rampant, Brazil was a popular investment destination and attracted significant capital inflows. 

Since then, however, the tide has turned. The commodity boom is over and Brazil’s high cost business environment and infrastructure bottlenecks have strangled growth. With renewed growth in the developed world, some companies are reassessing their investment priorities and considering an exit from their Brazilian businesses. 

In this article we set out the steps required for the disposal of a Brazilian subsidiary of a foreign holding company. 

Corporate structures in Brazil

The two most commonly used corporate structures in Brazil are the limited liability company (limitada) and the corporation (sociedade anônima, or ‘S.A.’).

Limitadas are most commonly used for subsidiaries and early stage joint ventures because they are simpler and cheaper to operate, whereas corporations tend to be used for larger local businesses. Corporations are the only entities that are able to publicly offer securities and to create different classes of capital. 

In this paper we will focus on the limitada corporate structure, which requires at least one administrator, who must be a Brazilian resident individual, and at least two quota holders, which may be Brazilian or foreign resident individuals or corporate entities. Where a company wants a wholly-owned subsidiary, it will usually allocate a nominal quota-holding to another company from the same corporate group, or to a related individual. 

Corporate disposals

There are two main scenarios for the disposal of a subsidiary by a foreign holding company: the sale of quotas or a winding up of the company. In either case, once the decision has been made to exit the Brazilian market, a series of steps need to be taken. It is important to comply fully with such procedures, otherwise the company will remain subject to filing and other administrative requirements and the administrator and quota holders may incur further liabilities. It should be noted that the administrator and quota holders, to the extent they can be held responsible for a subsidiary’s obligations, will remain liable for two years following the corporate disposal. 

The first step is to consider the nature of the corporate disposal. If the company is being wound up, it is necessary to execute a document called a distrato, dissolving the company. If, however, the company is being sold, the buyer and seller should prepare a Sale and Purchase Agreement (SPA), setting out the terms of the sale, which will eventually be effected by amending the company’s articles of association to show the change in ownership of the quotas. Where quotas are being transferred for free, it is still advisable to enter into an SPA setting out the buyer and seller’s agreement regarding company liabilities and any warranties that are being made by the seller. It is also advisable to include a nominal consideration (e.g., BRL 1) for accounting reasons and to avoid paying tax on the sale at 4 percent of the book value of the quotas. Where quotas are being sold, such tax is not payable, but the seller will be subject to capital gains tax on any gain realised on the sale. 

The second step is to deal with the company’s outstanding liabilities. Clearance certificates must be obtained in relation to federal taxes, social security contributions and unemployment compensation (FGTS) as a condition precedent to any winding up or quota transfer. 

In case of a winding up, the company must appoint a liquidator to realise its assets and liquidate its liabilities. Every employee of the company should be dismissed at no fault by way of a compromise agreement setting out their rights and indemnity payments in accordance with Brazilian law. Only after this is accepted by the Ministry of Work can they be considered dismissed. It is also wise to settle any pending employment disputes to extinguish future liabilities of the quota holders and administrator. 

If the company’s liabilities exceed its assets, it will be necessary to file for bankruptcy. Otherwise, to the extent that the net assets of the company are less than or equal to the quota capital of the company, they will be set out in the distrato and following registration of this, they may be repaid and repatriated to quota holders with no tax payable. Any excess must first be distributed to the quota holders by way of dividend, which are also free of taxes. 

The third step is to register an amendment to the articles of association or the distrato with the commercial registry of the state where the company was incorporated. In case of a sale, the amendment to the articles of association will have to nominate two new quota holders (or, exceptionally, a single Brazilian resident individual quota holder) and will usually also change the administrator and registered office. In case of winding up, the articles are terminated by filing a term of dissolution with the relevant registry.

Registration by the commercial registry triggers the start of a two year liability period during which the outgoing administrator and quota holders can be held responsible to the company and remaining quota holders for liabilities arising during their periods of management and ownership. Although the limited liability nature of a limitadagenerally protects its quota holders from liability for the company’s activities, quota holders can be held responsible in case of irregular dissolution of the company, acts beyond the company’s powers and illegal acts. In practice, Brazil’s labour tribunals also tend to hold quota holders liable for the labour obligations of the company whenever the company itself is unable to pay.  

Following registration of the amendment or distrato the final steps are to cancel or amend the company’s federal tax (CNPJ), state and municipal registrations. 


Although Brazil continues to present excellent investment opportunities in certain sectors, the end of the recent boom cycle may cause certain investors to review their portfolios and consider withdrawing from Brazil. Such withdrawal may be achieved through a corporate sale or winding up. In either case there are a clear set of procedures to be followed, which will allow quota holders to close out their investments in the proper manner, minimising any risk of further liability. 


Ted Rhodes is a partner and Nicolas Vielliard is an associate at CMS Cameron McKenna LLP, and Mario Sergio Braz is a partner at Apex Auditores & Consultores. Mr Rhodes can be contacted on +55 21 3722 9832 or by email: ted.rhodes@cms-cmck.com. Mr Vielliard can be contacted on +55 21 3722 9834 or by email: nicolas.vielliard@cms-cmck.com. Mr Braz can be contacted on +55 21 98138 3415 or by email: mbraz@apexauditores.com.br.

© Financier Worldwide


Ted Rhodes and Nicolas Vielliard

CMS Cameron McKenna LLP


Mario Sergio Braz

Apex Auditores & Consultores

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