Authorization of foreign quotaholders for practice of corporate activies
Statutory mechanism aims to grant security to the acts of administration
Brazilian legislation establishes a series of legal controls over foreign investment, which in summary has the scope of assuring solvency and liquidity of the result of foreign investments in Brazil. In this sense, considering to be mandatory appointing a local attorney-in-fact for foreign quotaholders, responsibility for practice of certain acts by attorneys deserves attention that ensure means to prove the lawfulness and objective good faith in the practice of acts in office of foreign investors. The requirement of specific authorizations for the practice of such acts, shows an important mechanism of control of these, either by the grantor, or by the attorney.
National legislation requires that acts of commerce by foreign investors must be previously authorized by the local Executive, in the event of establishment of local branches, or in last summary, to do so through companies incorporated in the country, on which investors take part (subsidiaries). No foreign individual or legal entity may be a partner or holder of a Brazilian company if doesn’t constitute a legal representative in the country, even if a foreigner with acquired citizenship and permanent residence in the country, appointing an agent by means of a power of attorney with specific powers to give and receive a judicial summons, as well as Represent the grantor before the Federal Revenue Service and Brazilian Central Bank.
Accordingly, legislation seeks to grant legal certainty to local creditors of companies that are mainly composed of foreign capital, whether private entities entering commercial relations with subsidiaries and affiliates of foreign investments, but mainly, Public Bodies responsible for the supervision and collection of taxes, and reporting of financial transactions. The mandatory constitution of a local attorney seeks ensuring mechanisms for directing acts of constriction in the event of insolvency.
Assuming time and complexity for national creditors try to reach the foreign equity of the investing partners over commercial failure of its affiliates and subsidiaries in Brazil, the attorney-in-fact in Brazil is responsible for representing the grantor, even if it is not questioned legality of the acts of management of the local company, which presupposes different responsibility as above. Even if the attorney-in-fact of foreign partners hypothetically sees his personal assets safe from possible constriction, duty to appear in court and provide clarification to the Federal Revenue and Brazilian Central Bank may prove to be a major burden.
It is worth mentioning that the mechanism for appointing local attorney demands executing power of attorney in the country of origin, accompanied by corporate documents that demonstrate the powers person signing on behalf to the grantor. As documents originated abroad, there are some formalities prior to its legal validity, such as the submitting to the Brazilian Consulate in the country of origin, or since August, 2016, legality taken by the formalities of the Apostille Convention, for those signatory countries. As a subsequent validity mechanism, sworn translation of the documents in a foreign language and registration in the Notary of Deeds is mandatory.
Power of attorney granted under the terms above enables foreign investors to take part in companies incorporated in Brazil, but does not necessarily empower the local representative to deliberate on corporate and patrimonial matters of behalf of the partners, which must be expressly resolved in power of attorney and evaluate deserved care, either by the grantor who wishes to ensure the control of acts that impose greater responsibility, or by the attorney-in-fact, who is concerned about the legal security of the acts in which he takes part by mandate of the foreign partners. This concern becomes more relevant from attorney’s perspective, in cases where the legal representative of local subsidiary is not the same person as the foreign partner’s attorney, since although the administrator is civil and criminal liable for negligent or fraudulent administration, management control is still held by him, and not of the foreign partner’s attorney who’s forced to rely on the lawfulness of the administration.
In such terms, it is of fundamental matter that the corporate documents are structured in such a way that more relevant acts require specific authorizations of foreign investor’s attorney and that despite the dynamism expected of the local administration, practice of certain acts be held over individual written authorization, held mandatory under penalty of nullity of the acts practiced in lack of it.