Piercing the Corporate Veil: A Guide

This page is a translation of the original Portuguese text, provided for convenience. It deals with Brazilian law. If there is any discrepancy, the Portuguese version prevails. Read the original in Portuguese

Disregard of legal entity, known in the United States as piercing the corporate veil, allows creditors to reach the personal assets of a company’s owners when the company has been used abusively or fraudulently.

The Major Theory of Disregard: The Civil Code

Article 50 of the Civil Code, as amended by Law 13.874/2019 (the Economic Freedom Law), sets out the requirements for disregarding a company’s legal personality under the major theory, the stricter of Brazil’s two standards. This theory requires proof that the company’s legal personality was abused. The abuse can take one of two forms: misuse of corporate purpose (desvio de finalidade) or commingling of assets (confusão patrimonial).

Under paragraph 1 of Article 50, misuse of corporate purpose occurs when the company is used to harm creditors or to commit unlawful acts of any kind. It is not the same as simply expanding or changing business activities beyond those listed in the company’s stated purpose. You must show a deliberate intent to use the company as a tool for unlawful ends.

Commingling of assets, defined in paragraph 2 of Article 50, means there is no real separation between the assets of the company and those of its owners. It exists especially when there is: repeated payment of an owner’s obligations by the company, or the reverse; transfers of assets without adequate consideration; or other acts, carried out without observing legal formalities, that show the company lacks financial independence.

Law 13.874/2019 made an important change by stating expressly that the mere existence of a corporate group, a simple shortage of assets, or an irregular shutdown of the company is not enough, on its own, to justify disregarding the company’s legal personality. This limit protects the independence of the legal entity and the security of business relationships, reserving disregard for cases of real abuse.

The Minor Theory: Consumer, Environmental and Labor Law

The minor theory of disregard does not require proof of fraud or abuse. It is enough to show that the company’s legal personality stands in the way of the creditor being compensated. The Consumer Protection Code (Law 8.078/1990) adopts this theory in Article 28, paragraph 5, which provides that a court may disregard the company’s legal personality whenever it is an obstacle to compensating consumers for the harm they suffered.

In environmental matters, Article 4 of Law 9.605/1998 (the Environmental Crimes Law) allows disregard when the company’s legal personality is an obstacle to compensation for environmental damage. The case law of Brazil’s Superior Court of Justice (STJ) has applied this provision broadly, allowing owners to be held personally liable for environmental harm even when they did not personally carry out the harmful conduct. Learn more about single-member law firms

In Labor Law, labor courts apply disregard very frequently. Article 855-A of the CLT (Brazil’s Consolidated Labor Laws) authorizes the disregard procedure in labor cases, and the courts have allowed owners to be held liable when company assets are not enough to pay what is owed to workers, using more flexible criteria than the Civil Code. Learn more about starting a business

This theory requires proof that the company’s legal personality was abused. The abuse can take one of two forms: misuse of corporate purpose or commingling of assets.

In tax matters, Article 135 of the National Tax Code (Law 5.172/1966) makes managing partners and administrators personally liable for tax obligations arising from acts committed in excess of their powers or in violation of the law. Súmula 435 of the STJ (the court’s published summary of its settled position) presumes the managing partner is liable when the company stops operating at its registered address without notifying the proper authorities. Learn more about judicial reorganization

How the Disregard Procedure Works

The 2015 Code of Civil Procedure (Law 13.105/2015) governs the procedure for disregarding legal personality in Articles 133 to 137. The procedure can be started at any stage of the case, at the request of a party or the Public Prosecutor’s Office (Ministério Público). The owner or company targeted by the request must be formally served so they can respond.

Once the procedure begins, the main case is suspended until a decision is issued. The judge reviews the legal requirements for disregard and, if the request is granted, extends liability to the owners’ personal assets or, in a reverse disregard, to the company’s assets. The decision is interlocutory and can be challenged through an interlocutory appeal (agravo de instrumento).

Reverse disregard allows a creditor of an owner to reach the company’s assets when the debtor has moved personal assets into the company, emptying out his or her own estate to defeat creditors. Courts have often applied this in family law cases, when one spouse uses a company to hide assets from the division of marital property.

In enforcement proceedings and in the enforcement of judgments, the disregard procedure is the proper way to redirect collection to the owners. Seizing an owner’s assets directly without first going through this procedure is void, because it violates the rights to be heard and to a full defense guaranteed by the Federal Constitution.

Asset Protection and Preventing Disregard

The best way to avoid having a company’s legal personality disregarded is to keep a strict separation between the owners’ assets and the company’s. That means: not using personal accounts for company transactions, not paying personal expenses with company funds, putting every transaction between owners and the company (such as loans and leases) in a written contract, and keeping the books fully up to date.

Good corporate governance also works as a shield against disregard. Minutes of owners’ meetings documenting decisions, compliance with tax and labor obligations, share capital in line with the company’s activities, and transparent financial statements all show that the company is independent and that its owners acted in good faith.

Estate planning tools, such as setting up a family holding company and separating activities into different companies, can reduce the exposure of the owners’ personal assets. However, these structures must serve a real economic purpose. If they are used solely to defeat creditors, they can amount to fraud.

For a preventive review of your corporate structure and guidance on asset protection, we recommend scheduling a legal consultation. Visit the about page to meet our legal team.

Frequently Asked Questions

Does disregard of legal entity reach all owners or only the administrators?

It depends on the legal basis. Under the Civil Code’s major theory, disregard reaches the owners or administrators who committed the abusive act (misuse of corporate purpose or commingling of assets). Under the minor theory (CDC, environmental and labor law), it can reach all owners, regardless of whether they took part directly in the harmful act, as long as the company lacks sufficient assets. The judge decides case by case.

Does an irregular shutdown of the company automatically justify disregard?

Not automatically. Law 13.874/2019 expressly provides that an irregular shutdown, on its own, is not enough to disregard a company’s legal personality under the Civil Code. In tax matters, however, Súmula 435 of the STJ presumes the managing partner is liable when the company stops operating without notifying the proper authorities. In Labor Law, an irregular shutdown is often used as grounds for disregard.

How long does the disregard procedure take?

The time varies with the complexity of the case and the court division handling it. On average, the procedure can take three to twelve months, including service on the owners, the time to respond, the presentation of evidence and the court’s decision. In urgent cases, the judge can grant urgent preliminary relief (tutela de urgência) to freeze the owners’ assets before the procedure ends, preventing them from being dissipated while the case is pending.

As informações deste artigo são de caráter informativo e não substituem consulta jurídica individualizada. Cada caso possui particularidades que exigem análise específica.