MP 881/2019: The New Single-Member Limited Company

Provisional Presidential Decree no. 881, of April 30, 2019 (“MP 881”), recently approved by the National Congress and sanctioned by the President, entitled “Declaration of Economic Freedom Rights” introduced various modifications to legal provisions with the objective of simplifying and making less bureaucratic certain business procedures. Among these, special attention should be given to the amendment to the Civil Code including the possibility of incorporating a limited company by one or more persons, creating the concept of a single-member limited company.

Relaxation of the rules governing limited companies in order to allow just one partner meets a widespread and long-standing demand of the market and may have the effect of abolishing the figure of the “fictitious partner”, that is, a partner with a symbolic holding only to comply with the requirement for a plurality of partners under the earlier text. By way of example, a study carried out by the Getúlio Vargas Foundation (FGV) in 2014 reveals that 22.45% of limitadas had a controlling partner who held more than 99% of the equity capital1.

It should also be mentioned that, prior to MP 881, with the enactment of Law no. 12.441, of July 11, 2011, an individual entity with limited liability had been created, called an “EIRELI”, set up by a single person and which could not be considered a partnership, but rather a legal entity sui generis subject to the subsidiary application of the provisions governing limitadas. Moreover, an EIRELI requires a minimum capital duly paid up at the moment of its constitution or increase, in an amount equivalent to at least 100 minimum salaries (R$ 99.800,00 as of today’s date). It is also forbidden for individual persons to hold more than one entity of this type.

On the other hand, a single-member limited liability company does not require a minimum capital and the rules governing the payment up of the capital are flexible. There is also no restriction in the law as to the number of single-member companies that a person may hold. As a result, the EIRELI, since there are more requirements for its formation and limitations on its use, may possibly become less attractive and may fall into disuse, being widely substituted by the single-member company. In any case, it is important to point out that an EIRELI already in existence may be transformed into a single-member company, if this is better suited to its business model.