Shortly after completing ten years of existence, the Individual Limited Liability Company ceases to exist in the Brazilian legal system and gives way to the newly arrived single-member limited liability company.
Seeking to facilitate the opening of companies and corporate bureaucracy reduction, on August 26, 2021, Law no. 14.195 was enacted, bringing the single-member limited liability company to the Brazilian legal system and putting an end to the existence of the individual limited liability company, born of Law no. 12441/2011.
EIRELI was created to provide a solution to an old problem faced by those seeking to establish a company whose assets and responsibility were dissociated from the partners, enabling the existence of a company consisting of a single holder of shares.
Before the creation of individual limited liability companies, entrepreneurs seeking to open a new venture had only two options, i) to continue with their venture as an individual entrepreneur, whose liability is unlimited, or ii) to find someone who believed in the idea to set up together a limited liability partnership.
However, over time it was realized that the requirement for a plurality of partners ended up creating fictitious companies, in which one of the partners owned the vast majority of the shares and took all the decisions, while the other partner, who held a much smaller amount of shares, did not even participate in the acts and decision-making.
This created an instability and insecurity environment, leading to the impersonation of a non-collective entity and, mainly, the possibility/need of separation of assets between the entrepreneur and the single-member company.
This equity separation concerns the limitation of liability and has a dual function, to protect the entrepreneur, providing conditions for it to separate the company’s assets from its personal assets and protect creditors, both of the company and the individual, safeguarding the payment of debts contracted by each of the entities separately.
The first function gives the entrepreneur the security that its personal assets will not be affected by the company’s actions, making it take bolder and more enterprising decisions. Thus, if decisions are wrong, the entrepreneur will be aware that only the company’s assets will be affected.
The second function, on the other hand, makes creditors aware that the backing for payment of debts contracted by the entrepreneur is the company’s assets; therefore, they will be able to grant credits, terms, and negotiation conditions for the company, knowing its capital stock, assets, and financial soundness.
It was necessary to formalize this separation of assets, and the doctrine started to adopt non-corporate forms of single-member organizations. In Brazil, as Erasmo and Marcelo well demonstrated, this discussion began in 1947, when deputy Freitas e Castro presented the first bill on the subject; however, the debate did not continue.
The Brazilian Corporation Law allowed the incorporation of the first single-member company, the wholly-owned subsidiary, whose sole shareholder is the Brazilian company. The possibility of sole temporary ownership in corporations was also introduced for the first time, which the jurisprudence first extended to the limited liability company and it was formalized in the legislation with the Brazilian Civil Code
Nine years after the Brazilian Civil Code, on July 11, 2011, Law no. 12.441 was enacted, adding article 980-A to the Civil Code in an attempt to solve the problem of establishing a company whose assets and responsibility were dissociated from the figure of its sole partner; thus, Individual Limited Liability Company – EIRELI – emerged.
However, the doctrine has already criticized this novelty because article 44 of the Brazilian Civil Code was amended to include item VI, confusing whether it would be a new legal entity or a new corporate type. Moreover, to be constituted, it required a minimum capital stock of 100 (one hundred) minimum wages, and the constitution of more than one per individual was prohibited.
The establishment of minimum capital stock at a high value ended up moving this figure away from small and medium-sized companies, distorting the legislator’s intention of “taking smaller businesses out of informality”[1]. In the discussion, whether or not it was a new corporate type, the doctrine followed the understanding that, even if it had not been the legal option, in practice, EIRELI had many characteristics of a single-member limited liability company.
Once the Economic Freedom Law was approved and the idea of establishing a sole proprietorship was sown, “the main reason for Eireli’s existence, which was to fulfill the role of the only instrument for limiting the responsibility of those who undertake individually, ceased to exist”[2] and, as well highlighted in SEI Circular Letter no. 3510/2021/ME of the Brazilian Department of Business Registration and Integration – DREI to all Boards of Trade:
now the limited liability company also fulfills this role and does it in a more attractive way for the entrepreneur, given the need to pay in minimum capital for incorporation and the sole individual partner has no limitation on the number of limited partnerships it can form.
The maturing of this debate brought conditions for the Brazilian legislator to absorb criticism and improve the law in Brazil, remedying the defects and bringing a more robust and organized figure, offering more freedom to entrepreneurs and more security to creditors.
Thus, replaced by the single-member limited liability company, EIRELI ceases to exist after 10 (ten) years of troubled existence in the Brazilian legal system.
[1] Idem. Page 55.
[2] BRAZIL. SEI OFFICIAL LETTER No. 3510/2021/ME. Available at https://www.gov.br/economia/pt-br/assuntos/drei/legislacao/arquivos/oficios-circulares-drei/2021/orientacoes-sobre-a-realizacao-de-arquivamentos-diante-da-revogacao-tacita-da-empresa-individual-de-responsabilidade-limitada-constante-do-inciso-vi-do-art-44-e-do-art-980-a-e-paragrafos-do-codigo-civil.pdf. Acces on Sept. 30, 2021.
Available at: https://www.migalhas.com.br/depeso/354624/morte-e-vida-da-eireli
Autor: Fernanda Regina Negro de Oliveira • email: fernanda.oliveira@ernestoborges.com.br
