Business expansion into Latin America and Brazil is on the agenda of several foreign companies, from startups to large corporations.
Whether via commercial representation, distributors, joint venture and M&A, see below 4 relevant legal aspects to be considered when planning growth in Brazil:
1. Legal Format of the Expansion: it is important to evaluate the pros and cons of each option of legal formatting of the expansion, which may be through commercial representatives, distributors, creation of a joint venture with a Brazilian partner and / or the acquisition of a local company. Each route has its positive and negative aspects, and short, medium and long-term points of attention, and they need to be evaluated with discretion in a multi-area team (including financial, commercial, operational, legal and institutional).
2. Intellectual Property: if the expansion occurs through distribution, commercial representatives or joint venture, and involves access to the technology, know-how and / or brand name, care must be taken in regulating the use of intellectual property. Whether by means of a temporary use license, transfer of rights or otherwise. There are countless disputes between partners due to the difference in expectations regarding the rules on intellectual property in international partnerships.
3. Territory of Operation: if expansion occurs through commercial representation, distribution or joint venture, it is important to pay attention to the delimitation of the territory in which the partner will have the exclusive right (or not) to sell the product / service. Is the local partner allowed make selling efforst in Brazil only or also in neighbor countries? There are several cases of overlapping territories granted to different partners, disrespect for the delimitation of territory, and the lack of delimitation about the exact area of the territory. All of these situations generate judicial / arbitration conflicts and the payment of substantial indemnities by foreign companies.
4. Contract and Termination: our experience shows that it is not uncommon for companies in the process of expansion into Brazil to become “hostages” to their representatives, distributors and partners for 2 main reasons: (a) the absence of a written contract regulating the legal relationship or, if it exists, it is poorly elaborated; and (b) lack of contractual provision that gives the foreign company the right to terminate the commercial / corporate relationship at any time (or in certain relevant events).
In both scenarios, the situation of “hostage” is generated by the fear that the contractual termination constituted without parameters may result (and possibly will result) in the right to economic compensation to the business partner.
The above questions are not exhaustive and serve to demonstrate that projects of expansion into Latam and Brazil must include risk assessment and multi-area validation to provide greater chances of success.