Brazil: Risk Management and the shareholder’s responsibility in regard to limited liability companies

Entering into the Brazilian market, leaving it, or even holding participation in a limited liability company in Brazil requires an assessment – sometimes periodically – of the company’s health. In order to avoid unpleasant surprises or even an irreversible situ­ation, the shareholders should regularly verify the state of the company, especially what concerns labor, tax, costumer and environmental risks. This due diligence may not only support the management in identifying risks but also in strategic planning, e.g. what concerns tax planning, but also a matter of accountability towards the share­holders, which creates credibility and stability for the company.

 

 

Regarding the responsibility of the shareholders, the general rule foresees that in a limited liability company, the responsibility is limited to the value of the shares, but all shareholders are jointly liable for the payment of the company's share capital, according to the article Nº 1.052 of the Brazilian Civil Code (Law Nº 10.406/2002). However, some and very important exceptions, of this limited liability are found.

 

As the most important and extensive one, the disregard of legal entity may be applied in several fields of the Brazilian law. Although the personality and patrimony of the legal entity are not to be confused with those of the shareholders, the law foresees that this segregation may be broken in case of abuse of legal personality, as indicated in the article 50 of the Brazilian Civil Code. This abuse may occur in case of 1. misuse of purpose or 2. patrimonial confusion. 

 

It must be noted – and this situation is very relevant when liquidating a company – that the mere end of acti­vi­ties by the company, with civil debts, is for itself not enough for the disregard of legal entity, according to the precedent EREsp 1.306.553/SC of the Brazilian Superior Court of Justice and the Statement 282 of the IV Civil Law Meeting. However, a different situation is what concerns the open debts regarding tax, labor, costumer or environmental law, which may lead to the liability of the shareholder, although no misuse of purpose nor patrimonial confusion are to be found, as following indicated. 

 

The article 135 of the National Tax Law (Law Nº 5.172/66) foresees that the manager or representative of the company may be subsidiarily responsible for tax debts when acting with excess of powers, violation of the law or of the articles of association or statutes. This may be the case when the company does no longer carry out its activity at the address indicated as the tax domicile without notifying the competent bodies, presuming to be irregular dissolved and legitimizing the redirection of the tax debts to the managing partner, as indicated at the repeated precedent Nº 435 from the Brazilian Superior Court of Justice (Súmula Nº 435 STJ). 

 

Another important exception to the patrimonial segregation may be found in what concerns labor debts, as they are considered priority and are constitutionally protected. Since they are essential to the survival and the employee is considered usually the weakest part in the employment relationship, labor debts may lead to the responsibility of the shareholder. This understanding is very commonly found in the Brazilian Courts of Justice, but the exact situation must be proven before Court. 

 

A similar situation may be seen in what concerns costumer and environmental debts, but in this case the law foresees that any obstacle to the indemnification of the damages caused may lead to the disregard of legal entity and consequently to the liability of the shareholder. In practical terms, all debts and obligations from costumers must be paid by the company, under the penalty of the disregard of the legal entity (article 28, paragraph 5th of the Costumer Protection Law – Law Nº 8.078/90). The same applies for the second situation, as the responsibility for environmental harm is not only objective and propter rem, what means it doesn’t depend on fault, mistake or intention and can be identified by actions or omissions, but also may lead to the liability of the shareholder, if the patrimonial segregation shows itself as an obstacle to the indemnification of the environmental damage (article 4 of the Law Nº 9.605/98 and article 14, §1º, of the Law Nº 6.938/81). Additionally, the environmental harm is the sole occasion which may imply in the criminal responsibility of the company, since both individual and company are independently liable for the environmental harm. That means, what concerns the criminal responsibility, both individual and company may face a lawsuit together or separately.

 

Therefore, several situations may lead to the responsibility of the shareholder, especially if he carries out a managing position. The safety and consistent conduction of a company requires periodical evaluation and risk management. The annual approval of the managers accountability made by the shareholders and foreseen at the article 1.078 of the Brazilian Civil Code, is also an opportunity to cover additional risks, providing more security for the shareholders as well as more credibility and stability for the company.