The Thinly Veiled Truth About Limited Liability in Brazil

Limited liability is one of the main reasons for forming an Ltda. or S.A. in Brazil. As in the US, the company is generally responsible for its debts, while shareholders’ personal assets are protected. At least that’s how it’s supposed to work.

Brazilian law allows a judge to “pierce the corporate veil” under two circumstances. It can happen when the company is used for an improper purpose, and it can happen when there’s no real separation between the company and its shareholders. Think of personal expenses paid from the company account, for example.

The rules are similar to those in the US, but their application in Brazil has been quite different. Courts have often gone after shareholders simply because the company lacked assets or ceased operating without being formally dissolved. Neither situation necessarily means that the shareholders abused the company. Yet that hasn’t always stopped courts from holding them personally liable.

The problem became so widespread that in 2020, Brazil’s Superior Court of Justice (STJ) identified hundreds of conflicting decisions. Seeking to establish a uniform standard, the STJ recently reaffirmed that piercing the corporate veil is an exceptional remedy. A creditor must first prove that the company was used for an improper purpose or that the assets were commingled. Insolvency or an irregular closure isn’t enough.

That’s good news for anyone owning a company in Brazil. But don’t get too comfortable. The law may be clear, but practice has shown that shareholders can still find themselves defending claims for company debts.