The United States is a country of choice when it comes to starting a business, and so is Brazil. Both nations present various benefits that make them attractive destinations for entrepreneurs and investors.
The United States, offer advantages such as a robust and dynamic economy, a large consumer market, access to venture capital and funding opportunities, and a business-friendly environment for company formation and operation. On the other hand, Brazil, as the largest economy in South America, presents its own distinct advantages. It has a vast domestic market, offering opportunities in various sectors. It has also been taking steps to improve its business environment, simplify bureaucracy, and attract foreign investment, which make it an appealing destination for entrepreneurs and investors.
Entrepreneurs and investors looking to do business in either of these countries need to understand the legal framework and the business structures in place.
The countries legal system
The United States operates under a common law system, derived from English tradition. In the United States, the formation and operation of corporations, Limited liability companies (LLCs), and other legal entities are regulated by state laws. On the other hand, Brazil follows a legal system based on European civil codes, particularly those of Portugal.
Both countries having stable democracies, are welcoming of foreign investment and provides several benefits for entrepreneurs looking to set up companies, but regarding corporate structures, they possess significant differences.
Stated next are some key points of comparison regarding U.S corporate structures and Brazil corporate structures:
Types of Legal Entities
Brazil:
- Sociedade Anônima (SA) – Joint-Stock Company
In Brazil, the SA stands as the common type of corporate structure, known for its limited liability feature, which safeguards shareholders from personal responsibility for the company’s debts. SAs are governed by the Brazilian Corporations Law (Lei das Sociedades por Ações) and must have at least two shareholders. SAs can be publicly traded or privately held, with different requirements and regulations depending on their classification.
- Sociedade Limitada (LTDA) – Limited Liability Company
The Sociedade Limitada (LTDA) is another popular legal structure in Brazil. The LTDA structure offers it shareholders limited liability protection, which safeguard them from personal liability for the debts incurred by the company.
LTDA companies are governed by the Brazilian Civil Code and must have at least two partners. This structure is suitable for small and medium-sized enterprises (SMEs) and offers flexibility in terms of management and ownership.
- Individual Limited Liability Company – EIRELI (Empresa Individual de Responsabilidade Limitada):
This is a unique legal structure in Brazil. It allows a single individual to establish a limited liability company without the need for additional partners. The individual’s liability is limited to the company’s assets, providing personal asset protection. It has a minimum capital requirement which is 100 times the Brazilian minimum wage.
- Sociedade em Nome Coletivo (SNC) – General Partnership:
The Sociedade em Nome Coletivo (SNC) is a form of general partnership in Brazil. It requires a minimum of two partners who assume unlimited liability for the debts and obligations of the company.
It is governed by the Brazilian Civil Code and are less common due to the unlimited liability aspect, which can deter potential business partners.
Sociedade em Comandita Simples (SCS) – Limited Partnership:
The Sociedade em Comandita Simples (SCS) is a limited partnership structure in Brazil. This structure includes two types of partners: general partners, who assume unlimited liability and actively manage the company, being personally responsible for its obligations, and limited partners, whose liability is confined to their capital contributions. SCSs (Sociedades em Comandita Simples) are subject to the regulations stipulated in the Brazilian Civil Code.
United States:
- Sole Proprietorship:
This is the most common type of business in the U.S.. In this structure, the owner bears unlimited liability for the debts and obligations of the business, while the earnings generated by the business are reported on the owner’s personal tax return.
- General Partnership
This is a legal structure where multiple individuals or entities jointly own and manage a business. In this structure, partners share both the ownership and managerial responsibilities. Partners under thus legal structure assume joint liability, implying that they are collectively and individually responsible for the debts and obligations incurred by the company. .
- Limited Partnership (LP)
This type of partnership consists of general partners, who bear unlimited liability and actively oversee the business, and limited partners, who enjoy limited liability and serve as passive investors. Limited partners do not engage in the daily operations of the business and are liable solely up to the extent of their capital contributions.
- Limited Liability Company (LLC)
This is a widely chosen and adaptable legal structure in the United States of America. It offers it owners (referred to as members) the advantage of limited liability protection. It also have the flexibility to consist of one or more members, and they have the choice to operate either as member-managed or manager-managed entities. LLCs offer a combination of the limited liability of corporations and the flexibility of partnerships.
- Corporation
A U.S corporation stands as a legal entity independent from its owners, commonly referred to as shareholders. One of the primary advantages of a corporation is the limited liability protection it offers to shareholders, which in turn safeguard their personal assets from the debts and obligations of the corporation. Corporations typically follow a more formal organizational structure, comprising shareholders, directors, and officers. They are also subject to certain regulations, reporting requirements, and taxation as a separate entity.
There are two types of Corporations in the US:
- Business Corporation: this is established with the purpose of engaging in various business transactions to generate profits. In a business corporation, ownership is based on shares of stock, and management and liability are shared among the shareholders, unless otherwise specified.
- Not-for-profit Corporation: it is formed to advance specific non-profit objectives. This includes charitable and educational organizations, which can be either foreign or domestic.
Formation Process
Brazil:
In Brazil, the process of forming a company involves registration with the Junta Comercial (Commercial Registry) at the state level and obtaining a CNPJ (Cadastro Nacional de Pessoa Jurídica) tax identification number.
United States
In the U.S, the procedure for forming a business entity differs among states, but typically involves submitting the required paperwork, such as Articles of Organization for an LLC or Articles of Incorporation for a Corporation, to the Secretary of State of the respective state.
Corporate Governance:
Brazil:
Brazilian companies, especially Sociedade Anônima (S.A.), are subject to more rigorous corporate governance requirements, including the need for a board of directors, shareholders’ meetings, and stricter financial reporting regulations.
United States:
While U.S. companies also have corporate governance requirements, they tend to be more flexible and can vary based on the chosen legal structure. For example, LLCs have more flexibility in governance compared to corporations.
Taxation:
Brazil:
Brazilian companies are subject to range of taxes, including the corporate income tax (IRPJ – Imposto de Renda das Pessoas Jurídicas) at the rate of 15%.
Brazil implements a value-added tax (VAT) system. And in addition, Brazilian employers must contribute to the Instituto Nacional do Seguro Social (INSS), which covers social security benefits. The rate for INSS contributions varies, with a maximum cap on the amount subject to the contribution.
Brazil also offers tax incentives and deductions to specific sectors and activities as a means to stimulate economic growth and regional development.
United States:
U.S companies are subject to federal corporate income tax at the rate of 21%, but the country does not have a value-added tax (VAT) system.
However, employers in the United States bear the responsibility of withholding and remitting payroll taxes. These include Social Security tax, Medicare tax, and federal unemployment tax (FUTA).
The United States also provides various tax incentives and deductions to businesses to promote investment, research and development (R&D), and job creation.
Both Brazil and the United States offer various legal entity options to individuals and businesses. While there are similarities between the types of legal entities, there are also some differences in their specific characteristics, governance, and liability protections. It is important for individuals and businesses to understand the legal requirements and implications of each entity type before making a decision.
Determining the best country to establish a company, whether it is the United States or Brazil, depends on various factors such as your specific business goals, industry, target market, available resources, and risk tolerance.
Both the United States and Brazil offer opportunities for business success, but careful analysis and understanding of the local conditions and requirements are essential. So it’s recommended to consult with experts, and consider the specific needs and objectives of your business before making a decision.
Damalion experts can help in setting up a company in the United States or in Brazil. Please contact us now.
