Does The Requirement Of CNPJ For Silent Partnerships ('SCP') In Brazil Affect Its Regulation?

On 03 June, 2014 the Normative Instruction N.º 1,470/14 ("Act"), issued by the Brazilian Federal Revenue became effective. This new rule imposes the Silent Partnerships ("SCPs") the obligation to hold a corporate tax identification number, the so called "CNPJ".

With the publication of this new Act, some discussions have been raised regarding the impacts on the current regulation of the legal personality of the SCP, as well as on the rules related to the limitation of liabilities of its partners.

The SCP is legally recognized as a corporate type and is governed by sections 991 to 996 of the Brazilian Civil Code, according to which it is possible to define the SCP as an "internal partnership", incorporated by means of an agreement to discipline the relationship between a venture partner ("active partner" - sócio ostensivo) and an investment partner ("silent partner" - sócio participante) for exploitation of a certain project or business.

The SCP has no legal personality and it is not mandatory its registration with any official body to be considered an existing entity. Due to the fact that the absence of legal personality derives from law1, even if the partners decide to provide the registration of the SCP articles with the Board of Commerce or with the public Registry of Deeds and Documents, such registration will not be able to confer any change in the legal status of the company, which remains as a company with no legal personality for all legal purposes.

As a general rule, according to section 986 of the Brazilian Civil Code, while the articles of incorporation of a company are not registered with the competent body, all partners shall be jointly and severally liable for all obligations assumed by the company.

In a limited liability company, as an example, in which the liability of each partner is limited to the amount of the non-paid stake of the capital stock of the company (section 1,052 of the Brazilian Civil Code), in case its articles of incorporation are not registered with the Board of Commerce or the Civil Registry of Legal Entities, as the case may be, the limitation on partners' liability will not be subject to the rules of section 1,052 but to the rules of section 986.

This means that once the articles of incorporation of a limited liability company is duly registered, the company will be entitled to a legal personality distinct from that of its members2. As a consequence, the company will, in principle, be liable for all...