The end of individual limited liability companies

What changes for sole proprietorships with the extinction of EIRELI – the Individual Limited Liability Company? Read the article written by our lawyers Gustavo Centeno Biglia and Letícia Grilo, specialists in Corporate Law and Mergers and Acquisitions, and understand the changes brought about by the end of this company type.

The sanctioning of Law No. 14195/2021, which stemmed from the Provisional Decree No. 1040/21, in addition to other provisions that are extremely relevant for the debureaucratization of Brazilian companies, also decreed the end of the company type of the Individual Limited Liability Company (“EIRELI”) ten (10) years after its creation.

 The creation of EIRELI by Law No. 12,441/2011, had the purpose of supplying a great demand that existed among entrepreneurs to instrumentalize the economic and social requirements of corporate responsibility and, among them, the limitation of the responsibility of sole proprietorships, creating this company type as a form of separation of assets and of the responsibility between the legal entity and the individual.

This type of company attracted small companies, as it is considered a more simplified business model and because it has a role in formalizing the activity of irregular entrepreneurs who did not register their businesses as sole proprietorships because of the unlimited liability this would bring. However, even if the intention was to facilitate business dynamics, the legal requirements for its constitution, such as the minimum pay-in of 100 minimum wages for the consolidation of the company’s stock, ended up killing this interest in adopting this corporate type.

After several protests about EIRELI’s legal requirements, the legislator sanctioned Law No. 13874/19, which allowed the constitution of a single-member limited liability company, which has the same purpose as the EIRELI, without the conditions that were previously required for its constitution.

Nevertheless, Law No. 14195/21 brought a definitive supervening single-member company model, without having, at first, removed EIRELI from the national order.

The Law provides for a transitional rule for the extinction of EIRELIs, with the National Department of Business Registration and Integration (DREI) and the Registries of Commerce having the responsibility to regulate and prepare the concrete effects of this revocation on substantive law so it can be duly supported.

In this regard, on September 9, 2021, DREI published Letter SEI No. 3510/2021/ME addressed to the Registries of Commerce with guidance on “filings, in view of the tacit revocation of the EIRELI contained in item VI, art. 44 and art. 980-A and paragraphs, of the Civil Code, with the advent of Law No. 14195/21.” However, this tacit repeal of an article is complex, since the incompatibility raised by DREI is not objective and evident, and, therefore, it would have been better if the repeals of the precepts related to EIRELI were done expressly.

Therefore, although the Law has established that the transformation of EIRELI into a Sole Proprietorship Company is independent of any change in articles of organization, it is necessary that business owners whose companies are still EIRELIs be attentive to future acts published by DREI so as to be made aware of the measures necessary to effect the transformation into a Sole Proprietorship Company.

By Letícia Grilo and Gustavo D. Centeno Biglia