Corporate liberalism for Mercosur, published in Legal Today on Feb.19, 2024
Brazil currently occupies the 127th position in the Index of Economic Freedom published by the Heritage Foundation in 2023 (www.heritage.org), which is considered one of the most important Think Tanks in the United States. Brazil is classified as a largely non-free country in economic terms.
This global ranking is of concern to both the progressive government of Lula da Silva in Brazil and the liberal government of Javier Milei in Argentina, despite their claims of having opposite economic ideals. In Latin America, Chile ranks 22nd in the ranking, followed by Uruguay at 27th, Peru at 44th, Mexico at 61st, Colombia at 62nd, Paraguay at 76th, Ecuador at 119th, and finally, Argentina at 144th. The decline in economic freedom in Brazil and Argentina effectively explains the protectionism and high degree of bureaucratization that have characterized Mercosur in recent decades, obstructing the celebration of trade liberalization agreements with the European Union and Canada for several years. This also explains the consistent demands of Uruguay and Paraguay to reorganize Mercosur, aiming to liberalize and integrate regional economies by sector to increase overall exports.
New directives in Brazil and hidden dimensions of liberalization: On January 24, the National Department of Business Registration and Integration (DREI) of the Ministry of Entrepreneurs and SMEs of Brazil issued its first Regulatory Instruction of the year (DREI 1/24) based on a public consultation to streamline and debureaucratize the corporate registration process using Artificial Intelligence in Business Meetings.
In Argentina, the change is more ambitious, with a voluminous law of Bases and Starting Points for the Freedom of Argentines being fervently debated, introducing new rules for the functioning of the state and economic life. Debureaucratization in Argentina is being radicalized through a process of economic deregulation.
The economic liberation process in Argentina aspires to at least match Uruguay's position in the Heritage ranking, although the government does not officially mention it, instead redirecting its model of economic freedom to align with the German ranking, where it is positioned at 14th. Brazil, as the largest attractor of investments in the region, aims to progress in the Heritage ranking by debureaucratizing its economy, while also aiming to improve competitiveness compared to Mexico, which is already among the moderately free countries.
The aforementioned Brazilian regulation debureaucratizes two previous regulatory instructions, which were linked to the incorporation of public limited companies, limited companies, the registration of individual entrepreneurs, and cooperatives. It eliminates the requirements for document certification for the establishment of foreign subsidiaries in Brazil. These new directives also provide models for drafting corporate clauses and documents, accelerating the registration process for entrepreneurs and legal entities for transformation, incorporation, and merger operations.
Debureaucratization with Artificial Intelligence and electronic signatures: The use of Artificial Intelligence for the examination of corporate registration acts is the most innovative aspect of the regulations, aiming to eliminate conflicts of interest and maintain impartiality in registration decisions. The acceptance of electronic signatures in commercial registration acts is homogenized in accordance with Law 14,063, which legislates its use before public entities. Foreign partners can now electronically sign independently of their social representative in Brazil.
Automatic transformation between corporate types of small businesses: The process of corporate transformation from one type to another is streamlined, with the regulatory instruction following the model created by the previous government. This time, it applies to converting Individual Microenterprises (MEI) into Single-Member Limited Companies (SLUs). The only differences between MEI and EIRELI (Individual Company of Limited Liability) lie in the billing limit and the separation of responsibility between an individual and a legal entity.
Until now, MEIs had a low turnover ceiling, close to 18,000 euros per year, could have a single employee and no other partner, and had unlimited liability, paying only a single tax through SIMPLES. On the other hand, EIRELIs were larger structures, with assets affected by corporate liability, a turnover ceiling of up to almost one million euros per year, and choosing the most appropriate tax system for their operations.
Currently, everything is converging towards uniformization under SLUs. Additionally, SLUs are frequently formed to expedite succession planning. According to the new regulatory instruction, in the case of the death of the managing partner of the SLU, the inventor or executor of the will must record their designation based on their powers in a separate act for greater security and to avoid conflicts.
Foreign partners: two-column statutes in different languages: The new regulatory instruction harmonizes the admission of two-column documents in two languages for all commercial boards in the country. Previously, it was common practice in busy jurisdictions such as Sao Paulo and Rio de Janeiro to translate bylaws or corporate documents in a foreign language into Portuguese. The requirement of a public translator for all documents is definitively waived, although official translations are exclusively required for consular stamps and apostilles when written in another language.
Financing instruments for startups and decision-making bodies: Specific Purpose Companies (SPEs) are liberalized by the new regulatory instruction, allowing them to have a certain or indefinite duration related to their corporate purpose. These companies can become ordinary companies by filing a corporate decision to that effect. Startups incorporated as public limited companies can issue convertible debentures within their legal framework, as per complementary law 182/21 (legal framework for startups), enabling them to capitalize debentures acquired by other natural or legal persons.
Limited companies will now be able to establish a board of directors to support the deliberations of their directors. Limited companies offer a valuable option for structuring larger businesses that compete with stock companies by offering better protection for the identity and admissibility of partners. Additionally, the redemption of quotas in the limited company is permitted for preservation in treasury and subsequent subscription offers. During the period of conservation in treasury, they will not generate voting rights. In the case of usufruct of social quotas, the sole owner must be summoned to have an active voice in social meetings even if lacking the right to vote.
Finally, it is clarified that the publication of financial statements by large limited companies is optional, following the same principles applied to all limited companies in Brazil.
Free establishment of companies and registration disparities in Mercosur: It is worth comparing the functions of the trade registries of the member countries to understand why Brazil systematically pressures for debureaucratization of the corporate registration process. Brazilian Boards of Trade are autonomous bodies organized by state, with limited powers of supervision and regularization of companies. Their main function is to provide authenticity, security, and effectiveness to the legal acts of companies. They contribute to the regulatory oversight of companies by supporting oversight agencies and producing economic statistics. They can cancel company registrations where applicable, but cannot alter the corporate proposal in the registration application.
In other countries, such as Argentina, the role of the General Inspection of Justice (IGJ) is more interventionist in corporate life. This entity defends a paradigm of commercial freedom linked to the Ministry of Justice and not to the treasury as in Brazil. The powers of the IGJ must be reviewed.
Other processes of access and debureaucratization continued this long path towards a free establishment in Mercosur that, in a disorderly manner and at the impulse of some, will one day become a positive reality. The time has come to assume that the legal key to the economic integration process of Mercosur is found precisely and as Brazil, with the least liberal government of the bloc, understands it, in the corporate and integrated regulation of trade registries. The model of the January regulatory instruction must be replicated to establish free circulation of companies as capital and factors of production.
translated from Spanish using chatgpt.