Partner Due Diligence in Brazil: Legal Points for Foreign Companies

What foreign companies should review before appointing a Brazilian partner, distributor, consultant, broker or intermediary.

A local partner may help a foreign company understand the Brazilian market, reach clients and coordinate local operations.

But the relationship may also create legal, regulatory, financial and reputational exposure.

Partner due diligence is the process of verifying who the counterparty is, who controls it, what role it will perform and whether the proposed commercial structure creates material risks.

The purpose is not to eliminate every possible risk. It is to identify relevant concerns before the foreign company signs a contract, grants authority or makes payments.

Which Partners Should Be Reviewed?

Due diligence may be appropriate before appointing:

• distributors;

• commercial representatives;

• consultants;

• brokers;

• sales agents;

• customs or logistics providers;

• regulatory advisors;

• joint-venture partners;

• suppliers;

• contractors;

• intermediaries dealing with public authorities.

The level of review should reflect the relationship.

A service provider performing a limited technical task may require a simpler assessment than an intermediary receiving commissions, representing the company or interacting with government officials.

Verify the Company’s Identity and Ownership

The first step is confirming that the proposed partner exists and that the information provided is accurate.

The review may include:

• legal name and trade name;

• CNPJ registration;

• registered address;

• corporate activities;

• shareholders or quotaholders;

• directors and administrators;

• beneficial ownership;

• related companies;

• corporate history;

• current registration status.

Brazil’s Federal Revenue Service provides an official service for checking CNPJ registration and cadastral status.

Corporate records should also be compared with the commercial presentation made by the partner.

Unexplained changes in ownership, recently created companies, inconsistent addresses or undisclosed related entities may require further clarification.

Confirm Authority to Act

The individual negotiating the relationship may not have legal authority to represent the Brazilian company.

Before signing, review:

• articles of association or bylaws;

• corporate registry extracts;

• appointment documents;

• signing rules;

• powers of attorney;

• requirements for joint signatures;

• limits imposed on directors or representatives.

The foreign company should also define what authority the partner will receive.

Relevant questions include:

• Can the partner negotiate on behalf of the company?

• Can it sign contracts?

• Can it receive payments?

• Can it use the company’s trademarks?

• Can it appoint subcontractors?

• Can it make representations to public authorities?

The contract should reflect the actual authority granted.

Understand the Partner’s Real Role

Due diligence should not be limited to corporate documents.

The company should understand what the partner will actually do.

This includes:

• how clients will be obtained;

• who the partner will contact;

• whether public officials or state-owned companies are involved;

• whether licenses or permits will be requested;

• whether subcontractors will be used;

• whether the partner will handle funds;

• whether the partner will make payments on the company’s behalf;

• whether exclusivity is requested.

A vague description such as “business development services” may not be sufficient.

The activities, deliverables and permitted conduct should be clearly defined.

Review Government and Regulatory Exposure

Additional review is appropriate when the partner will interact with:

• ministries or government agencies;

• municipalities;

• regulatory authorities;

• customs officials;

• state-owned companies;

• public procurement processes;

• licensing or inspection bodies.

Brazil’s Anti-Corruption Law provides for objective administrative and civil liability of legal entities for harmful acts committed in their interest or benefit. The law also reaches certain foreign companies with a presence or representation in Brazil.

The review should therefore identify:

• the nature of public-sector interaction;

• whether the partner has government relationships;

• whether owners or executives are politically exposed persons;

• how permits or approvals will be obtained;

• whether any intermediary will contact public officials;

• whether the compensation depends on a government decision.

Government access should not be treated as a substitute for technical qualifications or lawful procedures.

Examine Payments and Commissions

The payment structure may reveal risks that are not visible in the contract’s general description.

Review:

• amount and calculation method;

• fixed fees versus commissions;

• success fees;

• unusually high compensation;

• reimbursement of expenses;

• cash payment requests;

• payments to unrelated third parties;

• offshore accounts;

• accounts in another company’s name;

• vague invoices;

• advance payments without clear deliverables.

The commercial rationale should be understandable and documented.

Compensation should correspond to legitimate services, identifiable deliverables and the partner’s actual responsibilities.

A request to divide payments, use personal accounts or conceal the final recipient should be treated as a serious warning sign.

Check Public Records and Sanctions

Depending on the scope and risk level, due diligence may include searches involving:

• corporate registries;

• court proceedings;

• insolvency or enforcement records;

• tax status;

• regulatory sanctions;

• public procurement restrictions;

• adverse public information;

• CEIS and CNEP records.

The Anti-Corruption Law created the CNEP to publicize sanctions imposed on companies and requires public authorities to maintain information in the CEIS concerning ineligible or suspended entities.

A lawsuit or administrative proceeding does not automatically make a partner unsuitable.

The relevant questions are:

• What is the nature of the matter?

• Is it isolated or recurring?

• Does it relate to fraud, corruption or contractual misconduct?

• Was the information disclosed?

• What is the current procedural status?

• Does it affect the proposed relationship?

Findings should be evaluated in context rather than treated as an automatic pass-or-fail test.

Contractual Protections Are Important—but Not Enough

A well-drafted agreement may include:

• anti-corruption representations;

• compliance with applicable laws;

• conflict-of-interest disclosures;

• restrictions on subcontracting;

• record-keeping obligations;

• audit rights;

• reporting duties;

• approval rules for expenses;

• confidentiality;

• data protection;

• termination rights;

• obligation to report investigations or sanctions.

These provisions are useful, but they do not replace due diligence.

A compliance clause cannot correct a relationship that was never properly investigated or whose commercial structure is fundamentally unclear.

The company must also monitor the relationship after the contract is signed.

Common Red Flags

Warning signs may include:

• refusal to disclose ownership;

• inconsistent corporate records;

• unclear authority;

• unusually close government relationships;

• excessive or unexplained commissions;

• requests for cash or third-party payments;

• resistance to compliance clauses;

• vague service descriptions;

• refusal to provide supporting documents;

• use of multiple intermediaries without justification;

• pressure to sign before review;

• negative public records that were not disclosed;

• promises of guaranteed permits, contracts or government decisions.

A red flag does not always require immediate rejection.

It does require clarification, documentation and a risk-based decision.

Practical Due Diligence Checklist

Before appointing a Brazilian partner, confirm:

• Who legally owns and controls the company?

• Who has authority to sign?

• What services will the partner perform?

• Will it represent or bind the foreign company?

• Will it interact with public officials?

• How will it be paid?

• Are commissions commercially reasonable?

• Will subcontractors be used?

• Are relevant lawsuits or sanctions present?

• Has the partner disclosed conflicts of interest?

• Are compliance policies appropriate for the relationship?

• Does the contract provide monitoring and termination rights?

• Who approved the relationship internally?

The review should be documented and updated when the relationship changes.

How Brazilian Local Counsel Can Support the Review

Brazilian local counsel may assist by:

• reviewing corporate registration documents;

• identifying shareholders, administrators and authority;

• conducting relevant public-record searches;

• reviewing litigation and sanctions findings;

• assessing the proposed role and payment structure;

• identifying regulatory and public-sector exposure;

• reviewing compliance questionnaires;

• adapting contracts to the Brazilian context;

• preparing a risk summary for foreign counsel or management;

• coordinating with compliance, accounting and tax professionals.

The objective is to provide local legal context for the company’s commercial decision.

Local counsel does not replace the company’s internal compliance process, but can help ensure that Brazilian documents, public records and legal risks are properly understood.

Final Considerations

A Brazilian partner may provide market knowledge, relationships and operational support.

However, commercial convenience should not replace legal and compliance review.

Before appointing a distributor, consultant, broker, representative or intermediary, the foreign company should understand:

• who the partner is;

• who controls it;

• what authority it will receive;

• what activities it will perform;

• how it will be compensated;

• which legal and reputational risks may arise.

Partner due diligence should be proportionate, documented and connected to the actual role of the third party.

This article provides general information and does not constitute legal advice. Due diligence requirements depend on the parties, sector, activities, payment structure and applicable law.