Why make it simple?

BRAZIL is not an easy place to start a business. The World Bank ranks it 120th out of 183 countries—worse than Burkina Faso or Nigeria. Take one small example. Until recently, you needed at least two partners to form a limited-liability company. Sole traders had to find a “1% sócio”—an employee, friend or family member willing to lend his name to the articles of association, or a shell company set up solely to hold a tiny share.

Things may have just got a little easier. A new law, which supposedly came into effect on January 9th, allows a lone business-owner to set up an Empresa Individual de Responsabilidade Limitada (Eireli for short): a single-holder limited-liability firm. The main requirement is capital of 62,200 reais ($35,250).

This is a big deal. Alas, it may not happen as planned. In December the federal body that oversees state business registries told them to turn away firms trying to register Eirelis, as well as foreigners without permanent right of residence. No reason was given. Later, lawyers were briefed that the law’s aim was to let Brazilian sole traders protect their personal goods against lawsuits or bankruptcy—not to make life easier for big business or foreigners.

Since the restrictions have no basis in the law, challenges are inevitable. Husam Abboud of Establish Brazil, a company-formation specialist, is thinking of Brazilian-style direct action: simply trying to register an Eireli for a firm or a foreigner, and seeing what happens. “We won’t be trying just once, but many times,” he says cheerfully. “In Brazil, it always depends who’s on the desk on the day.”

A few speedy locals have already set up Eirelis. “It was quick and easy, because I didn’t have to hunt for a partner,” says Taise Litholdo, an architect. Sebastião Lino da Silva, an accountant in São Paulo, is helping a medical-research firm, which recently lost a partner, to convert into an Eireli. The remaining owner would otherwise have to find a new partner or close. João Marcelo Pacheco of Pinheiro Neto Advogados, one of Brazil’s largest law firms, says that some wealthy clients will use Eirelis to make their lives simpler.

All this amounts to a tweak, not a revolution. By January 18th only 14 Eirelis had been registered with São Paulo’s board of trade, Brazil’s biggest. “The truth is Eirelis are not really suitable for most small businesses,” says Mr Abboud. Few hot-dog vendors and hairdressers have enough spare cash to satisfy the capital requirement, he points out.

That is an argument for scrapping the capital requirement. The Socialist People’s Party, an opposition group, has asked the Supreme Court to rule it unconstitutional for discriminating against micro-traders.

Even if foreigners are allowed to set up Eirelis, breaking into Brazil will remain tough. The biggest hurdle—finding a permanent resident willing to hold power of attorney for foreign owners—will remain. Establish Brazil and its rivals will do this for foreign clients, but only until a local manager has been appointed, or an expatriate has arrived on a permanent business visa.

The snag is that acting for a foreign firm leaves agents vulnerable to Brazil’s capricious tax authorities and labour courts, which tend to ignore limited liability and pursue individual owners. “They want to be able to freeze someone’s bank account if problems arise,” explains Stephen O’Sullivan of Mattos Filho Advogados, another big São Paulo law firm. “And if they’re the only people in the country, they’ll go after the local managers, or even the lawyers.” Unsurprisingly, Mattos Filho is willing to fulfil this role only for old and valued clients. Eirelis may eventually make it easier to set up shop in Brazil. But only a little.