(1) Main corporate aspects of the Limitadas and S.As: type of corporation Limitada S.A.

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1 DOING BUSINESS IN BRAZIL Brazil In 2014, Brazil was in the global spotlight by hosting the world s greatest sporting tournament: the FIFA World Cup. In 2016, the city of Rio de Janeiro will also be hosting the Summer Olympic Games. With a Gross Domestic Product (GDP) of US$2.253 trillion in 2012, Brazil is the world s seventh largest economy. It is also the largest country in area and population in Latin America and the Caribbean and borders with all South American countries except for Chile and Ecuador. A foreign company may establish itself in Brazil either through a branch or a subsidiary. Foreign individuals can also set up their own companies in Brazil. Branches are subject to prior approval being obtained from the Federal Executive Branch of Brazil and are most commonly used by foreign banks and airline companies. Due to the extremely complex procedure involved, the opening of a branch in Brazil is not generally recommended. Subsidiaries, which are Brazilian companies established under Brazilian law, represent a more straightforward approach to establishing a presence in Brazil. Although various types of companies exist under Brazilian law, the two most frequently used are the Limited Liability Company (Limitada) and the Corporation (Sociedade por Ações - S. A.). A new type of company having a single member and known as the single-member or individual limited liability company (EIRELI) also became available for individuals since January (1) Main corporate aspects of the Limitadas and S.As: type of corporation Limitada S.A. Requirements It is the most simple, flexible and inexpensive type of company to operate. A Limitada requires at least two shareholders, also known as quotaholders, whether or not Brazilian resident individuals or corporate entities. The quotaholders may incorporate a Limitada by executing a Contrato Social (Articles of Association) and comply with registration requirements of the local applicable registry in which the registered office of the company is to be located (either the Commercial Registry or Junta Comercial S.As are not as flexible and inexpensive to run as Limitadas. The S.A. is incorporated by private subscription of the company s capital by at least two individuals or corporate entities or any combination thereof, whether or not resident in Brazil. An S.A. may be a listed corporation (S.A. de capital aberto) or a non-listed corporation (S.A. de capital fechado), depending on whether or not its securities, including shares, are traded on the over-the-counter market or on the stock exchange. The S.A. s corporate

2 for business companies, and the Registry for Corporate Entities Registro de Pessoas Jurídicas for non-business companies). purposes must be specifically and fully described in its Estatuto Social (By-Laws). Once approved, the By-Laws must be registered and published, prior to the commencement of the company s activities. Corporate documents of the S.A. are also registered with the competent Commercial Registry. Capital Quorum resolutions and The corporate capital is divided into quotas, which represent each quotaholder s interest in the same. In this type of company, participants are liable only up to the value of the quotas for which they have subscribed. However, until the capital of the company is fully paid up, their liability extends to the entire capital of the company. All quotas usually have the same voting rights as well as a par value which is designated in the company s Articles of Association. Unless approved in writing by all quotaholders, all matters to be decided by the quotaholders must be submitted for approval in a quotaholders meeting. The Limitada is required to produce annual accounts The S.A. is a corporate entity whose capital is divided into shares and the liability of its shareholders is limited to the issue price of subscribed shares. The shares of the S.A. may be classified as (i) common shares; or (ii) preferred shares with or without voting rights. The number of non-voting or restricted voting preferred shares may not exceed 50% of the total number of issued shares. Further, preferred shares may not exceed 50% of the total number of issued shares. Preferred shareholders in a non-listed S.A. are entitled to: (i) priority distribution of fixed or minimum dividends, which may be cumulative or not; (ii) priority in the reimbursement of capital upon liquidation of the company, with or without a premium; or (iii) a combination of items (i) and (ii). It is worth mentioning that in addition to common and preferred shares, the S.A. may also issue other types of securities, such as partes beneficiárias (beneficiary parts), debentures (debentures), etc. All matters submitted for resolution at a duly convened general shareholders meeting may be approved by shareholders representing 50% of the voting capital plus one voting share. Applicable

3 which must be approved by its quotaholders at an Annual Quotaholders Meeting. Minutes of such Annual Meeting, as well as the company s Articles of Association (and amendments thereto), are required to be publicly filed at the Commercial Registry. Decision-making in the Limitada is generally a simple process, particularly where there are only two quotaholders. Each quota usually entitles the holder to one vote at a quotaholders meeting. Quorums for resolutions in the Limitada are in general higher than a majority vote (i.e., 50% of the voting capital plus one voting quota) and an equity interest of 75% is really required to ensure control. legislation contemplates a higher quorum for a few specific matters. Further, the By-Laws may specify a higher quorum than that established by law. Furthermore, S.A.s are composed of up to fours 4 main administrative bodies: the General Shareholders Meetings, the Board of Directors, the Management Board and Inspection Committee. The Board of Directors until recently was composed only of shareholders (but this legal requirement no longer exists) while the Management Board and the Inspection Committee are composed of two or more Brazilian resident individuals. A Board of Directors is only mandatory for listed S.A.s and corporations with authorized capital. (2) The Limitada vs. the S.A: Formalities/Costs. The extensive provisions governing the S.A. provide a more detailed regulatory framework for corporate activities, management and shareholder relations and enhanced transparency, although at the cost of increased administrative and publication costs associated therewith. In contrast to the S.A, the Limitada is not required to publish financial records and statements which results in cost savings and confidentiality benefits for the Limitada. Control. Additionally, a shareholder in the S.A. may retain absolute control by holding 50% of the voting capital plus one voting share. In the Limitada, certain fundamental matters affecting the company require approval from quotaholders representing at least 75% of its capital. Moreover, an S.A. is authorized to issue several classes of shares, not to mention the non-voting preferred shares, which, although lacking voting rights could pay dividends in addition to being less expensive than common shares. Financing flexibility. Unlike the Limitada, the S.A. may issue securities and other negotiable instruments. Tax. The Limitada and the S.A. are afforded the same treatment under Brazilian tax legislation; however, the home tax jurisdiction

4 of the company s investors may treat related Limitada and S.A. company profits and losses differently. (3) The Individual Limited Liability Company (the EIRELI ): Law No. 12,441, of 11 th July 2011, which became effective in January 2012, introduced a new corporate figure into the Brazilian Civil Code, namely the Single-Member Limited Liability Company or Empresa Individual de Responsabilidade Limitada, as it is called in Portuguese. Such companies are to have limited liability (just like a Ltda.) and a single member. The following requirements should be satisfied for incorporating one: (i) A sole member (necessarily an individual and not a corporate entity) can hold its entire capital, which must be fully paid up and set in an amount equivalent to at least 100 (one hundred) times the highest minimum salary in force in Brazil; (ii) The company name must adopt the abbreviation EIRELI ; (iii) The single member can only figure as the owner of only one such company type. (4) Licences and permits: Once the company has been duly incorporated, the next step is to obtain all necessary registrations, permits and enrolments. The list of the same can be longer or shorter depending on the activities to be conducted. The following chart contains an idea of such registrations, permits and enrolments. Fiscal licences, registrations, permits and authorisations Federal taxpayer registration State taxpayer registration Municipal taxpayer registration Invoice registration Registration with relevant employers union Registration with Accrued Severance

5 Labour and social security licences, registrations, permits and authorisations Pay Fund (FGTS) Registration with Social Security Institute (INSS) Registration with Labour Inspection Register Maintenance of employee register Maintenance of each employee s individual registration file Operational licences, registrations, permits and authorisations Sanitary operational registration with state health department Municipality licence for localisation and operation Building occupancy permit Building permit Inspection certificate issued by the fire department Permit to operate the plant Registration of trademarks with the National Industrial Property Institute Registration of domain names with the São Paulo State Foundation for Research Assistance Registration with SISCOMEX (the Integrated Foreign Trade System) Registration with RADAR (which tracks the activities of foreign trade players)

6 Environmental licences, registrations, permits and authorisations Preliminary environmental licence Installation licence Operational licence (5) Visas: Director(s) of Brazilian-incorporated companies must be resident(s) in Brazil and may be either Brazilian or foreigner(s) (holding a permanent visa). A permanent visa may be obtained in the latter situation if: (i) the foreign quotaholder/shareholder effects a minimum investment of BRL600, (six hundred thousand reais) in its Brazilian subsidiary; or (ii) the foreign quotaholder/shareholder invests BRL150, (one hundred and fifty thousand reais) in its Brazilian subsidiary, such Brazilian subsidiary undertaking to hire at least 10 employees within two years of its incorporation or arrival of the foreign Director holding the permanent visa; If the foreigner is a national of a Mercosul Member State (Argentina, Paraguay and Uruguay with the exception of Venezuela) or of an Associated State (Bolivia, Colombia, Chile, Ecuador and Peru), he/she may obtain a two-year temporary visa which, exceptionally, will fulfill the residence requirement for directors) of Brazilian-incorporated companies. In this case, there is no minimum capital requirement. (6) Legalization and Registration of Documents: A peculiarity regarding corporate matters in Brazil is that since Brazil is not a signatory of the Hague Apostille Convention, all documents originated abroad (including powers-of-attorney and the corporate documentation of foreign companies) need to be legalized at the Brazilian Consulate where the document has been executed and notarized. After legalization, once in Brazil, the documents must then be translated into Portuguese by a local sworn translator and registered with the competent Registry of Deeds and Documents. (7) Registration with the Central Bank: All remittances of capital effected by foreign shareholders or quotaholders (whether individuals or corporate entities) to companies in Brazil must be registered with the Brazilian Central Bank - BACEN within 30 days as of the respective exchange contracts being executed. Such registration allows such foreign shareholders or quotaholders to repatriate profits and capital through the commercial exchange rate market.

7 Prior to such exchange contracts being executed, an RDE-IED code must be obtained from BACEN for each pair comprising the foreign shareholder or quotaholder and the Brazilian company recipient of the foreign investment. (8) Timing: Once all documentation required for incorporating a Brazilian company have undergone the above-mentioned process of notarization, legalization, translation and registration and such company s corporate charter is ready to be filed for registration with the competent company registry, it usually takes one to two week to form the company and obtain its federal taxpayer enrolment number (CNPJ). The CNPJ will then enable the company to: (i) open a local bank account; (ii) hire employees and pay their salaries and applicable taxes and social security contributions; (iii) enter into agreements with third parties. It takes approximately 30 (thirty) days (and sometimes even months) to open a bank account in Brazil. This procedure can take less time if the shareholders/company have a pre-existing relationship with the bank overseas. (9) General Cost: In addition to lawyers fees in incorporating the company and dealing with the Central Bank, general costs with translating documents (depending, of course, on the size of the documentation requiring translation), paying company registry fees, etc. would be in the region of EUR1, (10) Bilateral agreements in place between Brazil and Italy: Brazil and Italy have a long solid relationship which is based on mutual cooperation. Brazil and Italy have entered into a double tax treaty and a judicial cooperation treaty (which requires that documentation produced in one country only be notarized (and not legalized) to be effective in the other country). Contact: NEIL MONTGOMERY Managing Partner neil.montgomery@montgomery.adv.br Tel.: Website: