Brazil Routes to Market

So you've decided to expand your business in Brazil and researched your market. Now it's time to decide how you will register and set up the business. What is the best, most viable option for your company, your products, and yourself? Which is the path of least resistance?

Here are your typical options when expanding a business into Brazil:

Direct investments are those made through a newly created corporate entity or by acquiring equity participation in existing Brazilian companies

Indirect investments are those made by foreign investors in the financial and securities markets where there is no requirement to establish or acquire participation in a Brazilian company.

If you are planning to set up a business in Brazil, there are two main types of companies that are used for most business operations in the country:

Corporation (sociedade annima)

It is a company in which decisions are generally taken by majority vote and in which the management is separate from the shareholders. It is a corporate form usually utilized for ventures capable of gathering concentrations of financial resources from a large number of investors.

Limited Liability Company (sociedade limitada)

It is a company in which the characteristics of each of the partners are given considerable weight and mutual trust. A limitada requires at least two partners but all partners have limited liability. It is important to note, however, that the limitada is taxed in Brazil on its earnings.

The registration document for a new company needs to be drawn up with the help of a local official and registered at the State Commercial Registry Office. The entire procedure to set up a company from scratch can take from four to five months.

Acquisitions

Another common way to enter the market is the direct acquisition of an existing company. The organization of a Brazilian holding company is also a common structure. The holding company then receives the direct investment of the foreign entity and is used as the vehicle for the acquisition and, if necessary, for arranging the funding for it.

As a general rule, incorporating a business in Brazil is accomplished under the same mechanisms used internationally. Buyer and seller execute an agreement setting forth terms and conditions of the acquisition, including the usual representations and warranties relating to the business being acquired. The accuracy of these representations and warranties and the general situation of the business are determined prior to the closing through due diligence reviews performed by accountants, lawyers and experts appointed by the buyer.

Joint Ventures

Foreign investors starting a business in Brazil may also enter into joint ventures with local parties or with other foreigners. Such joint ventures are usually structured in the form of a limitada or a sociedade annima. The rights and obligations of the joint ventures in such companies are regulated by joint venture agreements, articles of association, by-laws, shareholders' agreements, and the applicable corporate law.

For further advice on setting up or forming a company in Brazil it is recommended that proper legal advice is sought. There is a long established British Chamber of Commerce in Brazil, which can offer advice and help on a wide spectrum of business related issues.

Exporting

Click here to find out about importing and exporting in Brazil.

Licensing

Licensing is the permission for someone else to use your intellectual property rights in Brazil: either a patent, trademark, trade secret, or copyright in Brazil. Different types of license include:

Non-Exclusive License - A non-exclusive license implies that your intellectual property rights can be awarded to more than one licensee.

Exclusive License - A little more complex because, although the license may not be exclusive to one licensee, it may be exclusive to a geographic location, a certain product, or limited area of use. For instance, you may grant a licensee exclusive use of the rights in France, yet grant another licensee its use in Germany.

Patent License - The allowance of another party to use your patented product, design or process.

Trademark License - Trademark licensing means permission is awarded to a licensee to sell a product or service. However, the licensor retains more control in order to ensure that quality is maintained. Quality control is in place to uphold the image of the brand / product / service / licensor, and therefore sustain customer confidence and satisfaction.

Franchising In Brazil

Franchising is the licensing out of a business name, product, technique, philosophy, trademark, etc, for a percentage of the income. Instead of setting up new outlets as part of your expansion, you license your existing business blueprint out to franchisees who then set up and manage it for you.

The benefits of starting up a business in Brazil in the form of franchising include: more freedom, as the franchisee takes on major responsibilities; minimal expense; lower cost and higher profits; potential for fast growth; brand building.

Disadvantages of franchising a business in Brazil: although few, rely predominantly on your franchisees. They include: poor quality franchisees; franchisees not declaring all income; poor performance.

The franchising system in Brazil started during the 60s with the launch of Yazigi, a foreign languages school, and with the opening of the first McDonalds store in the country. Nowadays setting up a business in Brazil with the franchising formula is a positive trend: an increase of 10 % is registered every year and Brazil prides itself on having 56.000 franchising agreements, 680 different brands whose 90% Brazilian.