Deciding to open a business involves making many decisions, and one of the main ones is to define the type of company with which our business will operate legally. The choice will depend on factors such as the type of business and the capital available, whether you want to act alone or with other people as partners. There are also considerations regarding the liability or asset protection you will have.
Below, we review the main types of companies in Brazil and their characteristics to guide you in making this critical business decision.
Simple company
It is composed of service providers, i.e., professionals who have the profession as their primary activity or practice it in the company. Generally, this type of company needs a class registration to be incorporated, as is the case of CREA, which qualifies the work of real estate agents. In formalizing this type of company, it is optional to register it with the Board of Commerce. Still, it is essential to register it at the Registry and the Civil Registry of Legal Entities.
Limited Liability Company
It is a company with the financial investment of all its partners, which can be formed by as many persons as desired, and even by other companies (legal entities) in some cases. In organizing this relationship, one of the partners must be assigned as the company’s administrator, having the legal responsibility of such function in the company’s bylaws. The limited liability company has more obligations, such as being registered with the Board of Commerce, and its corporate name must include the initials LTDA.
Partnership in a collective name
All partners are liable for the partnership’s debts, becoming “solidary” with the proposed cause. Therefore, an obligation of the company will directly affect the partners’ personal assets. Due to this characteristic, the Civil Code (Article 1039) allows this type of partnership to be formed only by individuals, and such collective liability may be limited in the bylaws of the partnership.
Limited Partnership
The limited partnership is of limited use and divides the social parties into two categories: limited and general partners. They deal with the company’s capital stock, with the difference in administrative participation. The limited partners are not part of the organizational framework of the company, while the general partners can assume functions within the organization. The corporate name of this type of partnership contains only the general partners, and all of this must be well described in the partnership’s bylaws.
Limited joint-stock company
This type of company has its capital divided into quotas. Unlike the corporation, which is also divided in the same way, in this type of partnership, only the managing partners, known as directors, will have unlimited liabilities.
There is no protection of the partners’ assets in cases such as death (except when the company’s capital is negative). For a partner to cease to be a partner, most of the other partners must agree with the decision.
Joint stock company
this is one of the most common companies in Brazil and may be formed by two or more partners to accumulate capital. The capital stock of this type of company is distributed through quotas and can exist in two formats: open, in which the shares will be available on the stock exchange, and closed, which does not allow this practice.
Shareholders have the right to participate in the company’s profits and the division of assets if sold, supervise corporate management, and have a preference for purchasing other securities of the company and others that are regulated by law.
This model is more suitable for more specific and complex cases, leaving the limited liability company for more recurrent and straightforward claims.
Cooperative Society
This type of company can be divided into three categories: singular (formed only by individuals -with the possibility of exception-), cooperative federations (composed of at least three singular cooperative societies -with the possibility of exception for individual members-) and cooperative confederations (consisting of 3 or more cooperative federations). Until 2003, it was only possible to form a cooperative if a minimum of 20 people were required to constitute it, which was revoked by Law 10406/2002.
Partnership in Participation Account
Two or more individuals may participate in an alliance on the condition that at least one is a merchant without registering a corporate name. Its corporate purpose is to obtain profits in particular commercial operations. The great advantage of this type of partnership is the exemption from the bureaucracy required in other cases, serving the specific purpose of mutual interest between the parties and a particular term for the partnership.
Partnership of Lawyers
Unlike the other types, the law firm works differently, involving professionals accredited to exercise the function in the constitution of a simple law firm or a sole proprietorship (SUA). The lawyer participating in a partnership cannot be part of other partnerships, and the law provides that the partnership’s name must refer to one of the members.