New regulation on the Brazilian single member company (EIRELI): what changes?

On August 3, 2018, the Department of Company’s Registry and Integration (DREI), federal entity responsible for the assistance and supervision of the Commercial Registries, issued a new normative instruction (nº 47), which clearly establishes that companies may own more than one EIRELI. Individuals, however, may only own one EIRELI.

As per the wording of the former rule in force, it was not clear if a company could own more than one EIRELI. It was only set forth that individuals should declare in the articles of incorporation that he/she does not own another EIRELI, without making any mention to such an obligation for companies. It also contained an unclear rule, according to which the shareholders of a company that owns an EIRELI, could not own another EIRELI.

This change represents an important evolution, which makes of the EIRELI a company form more adapted to the needs of foreign companies that own subsidiaries in Brazil.

As the Brazilian single member company, EIRELI, was created in 2011, there was a great deception. Although the law that enacted it (Law nº 12.441) did not make any distinction, the normative instruction issued on September 10, 2014 (nº 26) by DREI provided that only individuals – and not companies – could own EIRELIs.

DREI issued a new normative instruction (nº 38) on March 2, 2017, which expressly provided that companies, including foreign companies, could own EIRELIs. However, it was not clear whether a company could own more than one EIRELI.

Therefore, by making it clear that companies may own more than one EIRELI, the Normative Instruction nº 38 of August 3, 2018 issued by DREI enables foreign company groups to simplify their corporate structure in Brazil. Foreign groups, while incorporating subsidiaries in Brazil, usually use the corporate form of the Sociedade Limitada, which requires at least 2 shareholders. It is therefore very common that a company of the group owns a single share in the Brazilian subsidiary, just to ensure that the company has at least 2 shareholders. With the new regulation, foreign companies will be able to form more than one EIRELI in Brazil, thus simplifying corporate charts and the proceedings for the incorporation of a company.