Presentation made by Vera H de Moraes Dantas Chartered Institute of Marketing Finance Group Thursday, 11th September 2008

Points of Presentation

• General Overview of Brazilian Economy

• Foreign Capital Treatment in Brazil

• Doing Business in Brazil

Rendering Services from the UK to a Brazilian party

Direct Investment

Map of Brazil

Brazil’s economy

• Brazil is the fifth largest country in the world• 10th largest economy – GDP more than US$ 1

trillion• Inflation :

2005 – 6.8%

2006 – 3.5%

2007 – 3.2 %

2008 – 4.5 % (estimated)

• Foreign Investment:– 2005 – US$ 21.5 billion– 2006 – US$ 22.7 billion– 2007 – US$ 36 billion– 2008 – US$ 35 billion (est.)

• 30 April 2008 : Standard & Poor granted Brazil the status of Investment-Grade economy

• Opportunities for the provision of services and joint ventures: Oil and Gas; Ethanol production; Shipping (on top of Chris Wall’s list)

FOREIGN CAPITAL TREATMENT IN BRAZIL

• Foreign companies may invest freely in Brazil• Federal Constitution : identical treatment and equal

conditions for national and foreign capital• Foreign investment is subject to registration at the

Central Bank of Brazil, but no preliminary official authorisation is required for the remittances of funds relating to investments in Brazil

• Registration is essential to allow remittance of profits and repatriation

Doing Business in Brazil

• Providing Services to a Brazilian party

• Direct Investment

– Setting up your own Company

– Purchase of an existing business

– Joint Venture

Rendering Services from the UK to a Brazilian party

Main legal issues• 1. Memoranda of understanding

• Unlike in many countries, memoranda of understanding are binding in Brazil

• Defaults of obligations under a proposal will be subject to indemnification of losses and damages under the general rules of the Civil Code, to which one should add court fees and legal costs

• Term Sheet must be cautiously drafted by experienced lawyers, in order not to create a binding obligation between them

Rendering Services Main issues – cont.

• 2. Services Agreement:

• 2.1 Tax – payable at remittance

• Services – 25% income tax• Royalties – 25% • (15% income tax + 10% CIDE)

Agreement to state clearly which party is to be responsible forthat payment (careful with “directly or regressivelyresponsible for any and all taxes”!)

Rendering Services Main issues – cont.

• 2.2 If the Agreement involves transfer of technology, use of patents, industrial design or trade marks then it will require registration with the National Institute of Industrial Property (INPI)

• 2.3 It is normal – just like in England! – to insert other clauses such as confidentiality, termination events, etc

Rendering Services Main issues – cont.

• 2.4 Choice of governing law and jurisdiction must be carefully considered in each case and expressly included in the relevant agreements

– Arbitration possible in Brazil

Rendering Services Main issues – cont.

• 2.5 Enforceability of agreements against the defaulting party through summary execution proceedings in Brazil: possible if the Agreement is signed by the defaulting party and two witnesses

• 2.6 Validity of contractual obligations against third parties further depends on registration of the contract with a Public Register of Deeds and Documents within 20 days of their execution

Rendering Services Main issues – cont.

• 2.7 Signatures must be notarised and if the Agreement is signed abroad, the notarization must be recognised by the nearest Brazilian diplomatic division

• 2.8 Instruments executed in a foreign language must be translated into Portuguese by sworn translators in Brazil

Direct Investment

set up your own company

buy an existing one

enter into a Joint Venture

Which Type of Company?

Most frequently used company structures:

"Sociedade Anônima" (S.A.) and

"Sociedade Limitada" (LTDA)

in both cases the participants have limited liability

Decision process – of relevance if the investor is a minority shareholder

(a) in a Limitada – the social contract and the 75% vote rule

• Decisions must be taken by majority of votes, except for the cases of alteration of the social contract or merger, consolidation or winding up of the company, whe it must be taken by at least 75% of the votes representing the social capital

• Whilst these matters can, in the case of an S.A., be regulated in a shareholders agreement, in the case of a Limitada they will be necessarily dealt with by the Articles

(b) in a SA – Shareholders Agreement

• General rule applying to S/As : decisions are taken by the majority of voting shareholders

• Obligations set forth in a Shareholders Agreement can be subject to specific performance

Decision process – of relevance if the investor is a minority shareholder

The Shareholders Agreement

• Under the umbrella of a Shareholders Agreements the parties to decide on important issues, such as:

• Mechanisms for the management of the Company

• Board of Directors may be integrated by foreign individuals

• Corporate Governance policies

• Quorum for Strategic Decisions

• Right of First Refusal; Tag Along

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