The premature death of EIRELI

Provisional Measure No. 881, approved on April 30, 2019 and commonly known as “The MP of Economic Freedom”, has brought, among several innovations, the possibility of a limited liability company having only one partner thus making life very easy for most Brazilian entrepreneurs. However, faced with this possibility, many are wondering if this innovation will cause the early extinction of the “individual limited liability company” known as Eireli.
Eireli was created in 2011 with the objective of guaranteeing the limitation of liability of the individual entrepreneur, with the possibility of being incorporated by only one partner. This was to avoid the creation of limited liability companies in which one partner has 99% of the equity and another one as 1% to assure the plurality of quotaholders and also to formalize business activity.
Although it sounds interesting, Eireli has two relevant aspects, which, in practice, do little to prevent the informality of economic activity: the law requires an Eireli to have a share capital equal to or greater than 100 minimum wagesapproximately R$ 100,000.00) and determines that only an individual can be shareholder of an Eireli.
Faced with the possibility brought by the MP, with the incorporation of a limited liability company with a single shareholder without the need for minimum capital, the use of an Eireli no longer makes any sense, which in practice would result in the disuse of this type of company and, consequently, its extinction.
Although it produces immediate effects, the MP of the Economic Freedom depends on the approval of the National Congress for final transformation into law. In the event the MP becomes law, we believe that most entrepreneurs will have a preference for the limited liability company with one shareholder and, as a result, we will see Eireli’s early death in business practice.
By Karen Harumi Hamada, attorney at Candido Martins Advogados