Appointing a Distributor in Brazil

Quick Read:

• Little bureaucracy: Appointing an agent in Brazil does not require any formal steps (appointment can even be made by conduct, which is a risk).
• Flexible: Parties have great freedom to decide on the terms of their distribution arrangements (which differs from the appointment of agents).
• Terminations can be tricky: Distribution agreements governed by Brazilian law may result in higher termination compensation payments.
• Common mistakes: Foreign suppliers often: (a) fail to register trademarks and “.br” domains; (b) ignore tax and import cost effects on pricing; and (c) skip legal and litigation due diligence on the distributor and related parties.
• Use a detailed agreement: A well-drafted agreement reviewed by a Brazilian lawyer materially reduces risks and enforcement costs.

Introduction

When companies consider entering the Brazilian market, they generally aim to sell their goods or services. The appointment of agents can be tricky, as mandatory provisions force foreign companies to be bound by Brazilian law. However, the appointment of distributors is different, as the Superior Court of Justice has consistently ruled that distribution agreements may be governed by foreign law.

Should you appoint an agent or a distributor?

It depends. Often the decision between appointing an agent or distributor will depend on the sophistication of the buyers (and their willingness to deal with the bureaucracy and risks of importing goods into Brazil) and the taxes applicable to the product, service or IP right being supplied to Brazil.

Invariably, foreign companies seek distributors willing to take on all the risks. While that may sound ideal from the supplier’s viewpoint, the high taxes on imported goods and services inevitably affect sales volumes, as distributors’ margins generally price products or services out of the market.

In addition to the problems with Brazil’s mandatory laws applicable to agents, appointing an agent shifts the commercial risk to the final customer (this is rarely welcomed). Furthermore, it leaves all problems of dealing with the bureaucracy to clear customs (in the case of goods) or make foreign international payments and withhold the relevant taxes (in the case of services). Hence, appointing an agent is only suitable in very specific cases.

Are there any formalities required for the appointment of distributors? What if there is no formal contract with the distributor?

No. Distributors may be appointed orally or by conduct (and proving the contents before a court can be complicated). However, an appointment that is made informally or via an agreement that is signed by the parties in Brazilian territory and without an express clause choosing that a foreign law govern the agreement will mean that the Brazilian Civil Code will most likely govern the distributorship.

Brazil’s Civil Code states that unless the parties agree otherwise the distributor is:

• responsible for all expenses relating to the distribution arrangement; and
• entitled to the remuneration relating to deals made within the distributor’s territory
  (even if the distributor did not bring about the deal).

The Civil Code also provides rules governing the termination of distributorships.

How are distribution agreements terminated under Brazilian law?

If Brazilian law governs the distribution agreement, the Civil Code will likely apply to its termination.

The Civil Code provides that the distributor is entitled to damages if the principal, without just cause, “stops supplying or reduces the supply so much that keeping the contract in place becomes commercially unviable”. The purpose of this provision is to protect distributors where suppliers force distributors to terminate the agreement by controlling the supply of goods or services.

If the distribution agreement is not for a fixed term, the notice period must be reasonable, considering the distributor’s efforts and the amounts invested by the distributor. This is often a complex assessment, as the Civil Code does not prescribe specific methods to calculate the distributor’s entitlements.

What if a foreign law governs the distribution agreement?

The Superior Court of Justice has consistently ruled in favour of allowing foreign laws to govern distribution relationships. However, that does not mean that all distributorship-related rules will be governed by the law chosen by the parties, as there are Brazilian laws that cannot be excluded by contract.

For instance, where the Consumer Protection Code applies to the purchase, the manufacturer, the supplier and the distributor will be strictly liable for any faulty product (this also applies to the provision of services). In these cases, limitation-of-liability clauses will be ineffective.

What are the common pitfalls associated with appointing an agent in Brazil?

In addition to ignoring the effect of mandatory laws on distribution relationships, suppliers often:

• neglect to file for trademark protection in Brazil (which can be easily done now under the Madrid Protocol);
• do not make arrangements for registration of the “.br” domain name;
• ignore that Brazil’s transfer pricing rules will apply to exclusive distributorships;
• do not obtain a due diligence report on the distributor and the distributor’s related parties; and
• fail to have a detailed agreement in place that is customised for Brazil’s legal environment.

Have you filed for registration of your trademark in Brazil?

Brazil follows the first-to-file trademark registration system and removing an existing trademark that was unduly registered by a third party can be an expensive process. It is recommended that arrangements be made to register the trademark as soon as the decision to enter the Brazilian market is made. Click here for further information on how trademarks work in Brazil.

Will you be liable for the employment obligations of your distributor?

Courts can (and often do) find principals liable for employment-related obligations when a distributor’s employees can be regarded as employees of the principal. This will occur if the distributor’s employees can prove that:

• there is direct interference of the principal in the activities of the distributor;
• the principal exerts control over termination of employment contracts of the distributor;
• the principal set sales goals directly to the distributor’s employees; and
• the principal (rather than the distributor) is the beneficiary of the services provided by the distributor’s employees.

The principal will be held liable if the distributor is unable to pay for the employees’ employment-related rights.

Have you obtained a due diligence report before appointing the distributor?

Unfortunately, too often foreign principals are overly trusting – and this ends up being a costly mistake. Brazil is a highly litigious country with complex and sophisticated rules.

Before appointing a distributor, principals should retain lawyers to prepare a due diligence report on the company and its key persons (such as shareholders). This report should include:

• a review of the corporate documents from the relevant Company Registries where the distributor operates;
• obtaining the Federal State and Municipal tax, social security and employment litigation-related certificates where the distributor operates; and
• undertaking State and Federal court searches (including the Employment Court hierarchy) and analysing court matters that appear to be of relevance.

In addition to this basic due diligence process, it is recommended that principals undertake an analysis of whether the distributor would be ready, willing, and able to meet its obligations under the distribution agreement from a financial and commercial perspective.

Do you have an agreement customised for the Brazilian legal environment?

Companies with agents worldwide often have contract templates for all jurisdictions. However, due to Brazil’s specific rules on distributorships, it is important that Brazilian lawyers review the relevant terms and adapt them to Brazilian law before presenting them to the prospect agent.

Relying on a choice-of-law and court (including arbitration) provision will do little to avoid the mandatory nature of some Brazilian laws that will apply to the distribution relationship.

Thus, having a well-drafted agreement customised to the Brazilian legal environment and adhering to its terms throughout the agency relationship will go a long way toward minimising the principal’s exposure to undesired risks.

Questions?

Contact me if you would like further information. My firm is ready to assist you.

appointing distributor in Brazil Brazil Contract Distribution Agreements Distributor Distributorships Due Diligence How to appoint a distributor in Brazil

Last modified: 18 February 2026