Brazilian Silent Partnership (SCP) to Raise Private Capital for Real Estate Developments

Access to traditional bank financing does not always keep pace with the funding needs of a real estate development project. Land acquisition, architectural and engineering designs, regulatory approvals, construction planning and marketing expenses often need to be funded well before the first unit is sold.

For this reason, Brazilian real estate developers increasingly turn to private investors to finance specific projects. One of the legal structures commonly used for this purpose is the Sociedade em Conta de Participação (SCP), a contractual form of unincorporated partnership governed by Brazilian law.

Although the SCP is sometimes translated as a “silent partnership”, it is a specific legal arrangement under the Brazilian Civil Code and should not be assumed to operate in exactly the same manner as similarly named structures in other jurisdictions.

In practice, SCP agreements are often treated as relatively simple investment contracts. They are not.

A poorly structured SCP may leave essential matters unresolved, including management powers, allocation of profits and losses, reporting obligations, project risks, expected investment period, liability towards third parties, governance, investor exit mechanisms and taxation.

When properly structured, an SCP can provide an efficient vehicle for private investment in Brazilian real estate projects. When poorly designed, however, it can become a source of corporate disputes, tax issues and conflicts between developers and investors.

What is an SCP?

A Sociedade em Conta de Participação is an unincorporated partnership governed by Articles 991 to 996 of the Brazilian Civil Code.

Unlike a Brazilian limited liability company or corporation, an SCP does not have separate legal personality. Its agreement produces effects primarily between its partners, and registration of the agreement does not grant the SCP separate legal personality.

The structure involves two distinct categories of partners.

The ostensible partner (sócio ostensivo) operates the business in its own name. It enters into agreements, assumes obligations and is the party that deals with clients, suppliers and other third parties.

The participating partner (sócio participante), historically referred to as the “silent partner”, contributes capital and participates internally in the economic results of the venture without ordinarily appearing in the project’s external relationships.

Under Brazilian law, obligations towards third parties are generally assumed exclusively by the ostensible partner. The participating partner maintains an internal contractual relationship with the ostensible partner and is also entitled to monitor the management of the venture. If the participating partner directly intervenes in the ostensible partner’s dealings with third parties, however, Brazilian law may impose joint liability in relation to the obligations in which it intervened.

How is an SCP used in Brazilian real estate developments?

In real estate projects, the ostensible partner is commonly either the developer itself or a special purpose entity (Sociedade de Propósito Específico – SPE) established for the particular development.

The developer or SPE manages the project, contracts with suppliers, negotiates with purchasers and assumes the obligations arising from these external relationships.

The investor enters the SCP as a participating partner and makes a capital contribution linked to the specific project. In return, the investor becomes entitled to a share of the project’s results according to the criteria established in the SCP agreement.

This structure may be particularly relevant during the early stages of a development, when significant expenditure is required before the project generates sufficient sales proceeds or becomes eligible for conventional financing.

In Brazil, a project may also require formal registration of the real estate development with the competent Real Estate Registry before units can be legally marketed under the applicable real estate development regime. Investors entering at an earlier stage therefore assume risks that are different from those faced by purchasers acquiring units after the project has reached a more advanced regulatory and commercial stage.

As compensation for taking this earlier-stage risk, private investors may negotiate economic conditions that differ substantially from the prices or returns available once the development is formally launched.

SCP, loan or equity investment: what is the difference?

These structures follow different legal and economic models.

A loan agreement creates a debtor-creditor relationship. The investor lends funds and is entitled to repayment under the agreed terms, generally with interest or another agreed form of remuneration. The investor is not, merely by virtue of the loan, participating in the project’s profits as a partner.

A traditional equity investment involves the investor becoming a formal shareholder or quotaholder of the developer or of the project’s special purpose entity. This generally requires the corresponding corporate documentation and may give the investor voting, information and governance rights according to the entity’s corporate structure and shareholders’ or quotaholders’ agreements.

An SCP, by contrast, creates an internal economic participation in the venture. The participating investor shares in the agreed results but does not ordinarily appear before third parties as a shareholder or partner of the ostensible partner. External obligations related to the SCP’s business are undertaken by the ostensible partner.

The distinction is important because the economic substance, risk allocation, tax consequences and governance rights are different in each structure.

What should developers consider when raising funds through an SCP?

A properly drafted SCP agreement should, at a minimum:

clearly identify the specific development to which the investment relates;
define the amount and timing of the investor’s contribution;
establish how the funds may be used;
regulate financial reporting and access to project information;
define how and when profits or other results will be calculated and distributed;
establish how potential losses will be allocated;
clearly define the management powers of the ostensible partner;
regulate early withdrawal or transfer by the investor;
address what happens if the development becomes commercially or legally unfeasible;
ensure consistency between the agreement, accounting treatment and tax structure; and
avoid vague or inappropriate promises of guaranteed returns where the economic arrangement is genuinely based on participation in the venture’s results.

Financial reporting deserves particular attention.

The participating partner’s ability to understand how the project is performing depends heavily on access to reliable accounting and financial information. Brazilian law expressly preserves the participating partner’s right to supervise the management of the partnership, and disputes frequently arise when the agreement does not establish clear reporting procedures, deadlines and supporting documentation.

Governance should therefore be designed at the outset rather than addressed only when a disagreement arises.

What should an investor review before investing through an SCP?

An investor considering an SCP connected to a Brazilian real estate development should conduct appropriate legal and commercial due diligence.

Relevant matters typically include:

title and Real Estate Registry records relating to the land;
ownership and encumbrances affecting the property;
the regulatory and registration stage of the development;
the project’s economic feasibility;
the terms of the SCP agreement;
construction and completion risks;
projected sales pace and cash flow;
potential purchaser cancellations and defaults;
the experience and financial standing of the developer or ostensible partner; and
the quality and frequency of financial reporting to investors.

The investor should also understand an important structural feature of the SCP: the assets and contributions allocated to the SCP form a special pool for purposes of the internal relationship between the partners, but that segregation does not generally operate against third parties in the same way as the assets of a separate legal entity.

This makes due diligence on the ostensible partner particularly important.

An SCP should therefore not be viewed simply as a mechanism that makes an investment “invisible” or automatically shields the investor from every form of risk. Its protections depend on a combination of statutory rules, careful contractual drafting, proper implementation and the specific facts of the transaction.

Can an SCP be used to raise funds from any investor?

This is one of the areas requiring the greatest strategic caution.

Brazilian Law No. 6,385/1976 governs the Brazilian securities market and gives the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) authority over public offerings of securities.

Brazilian legislation also recognizes certain publicly offered collective investment arrangements as securities when they provide rights to participation, partnership or remuneration and the expected returns arise from the efforts of the entrepreneur or third parties.

As a result, the fact that an investment is documented through an SCP does not, by itself, remove the transaction from Brazilian securities regulation.

The manner in which investors are approached is therefore critical.

A privately negotiated investment involving identified parties and a specific real estate project presents a very different regulatory profile from a campaign broadly advertised to the market, offered to an undefined number of investors and based on standardized promises of financial returns.

Where the fundraising arrangement has the characteristics of a public offering of securities, the Brazilian securities regulatory framework may apply, including the requirements established by CVM Resolution No. 160/2022, as amended, or an applicable exemption or alternative regulatory regime.

Brazil also has a specific framework for investment crowdfunding. CVM Resolution No. 88/2022, as amended, regulates certain public offerings carried out through registered electronic investment platforms under an exemption from the ordinary registration regime, provided that the applicable requirements are satisfied.

Developers should therefore avoid assuming that an SCP agreement alone is sufficient to characterize a fundraising transaction as private.

The investor solicitation strategy, number and profile of investors, marketing methods, contractual terms and economic substance of the arrangement should all be reviewed before the fundraising begins.

Why the legal structure matters

The flexibility of the SCP is precisely what makes it attractive for real estate investment — but also what makes careful structuring essential.

A sophisticated SCP agreement should align the interests of the developer and the investor from the beginning. The parties should know how capital will be deployed, who controls business decisions, what information will be available, when results will be calculated, what risks each party assumes and what happens if the original business plan changes.

The legal structure should also be consistent with the project’s accounting and tax treatment. Using one contractual model while implementing a different economic arrangement in practice can create unnecessary corporate, tax and regulatory exposure.

Conclusion

The SCP can be an effective structure for private capital investment in Brazilian real estate developments, particularly where a developer seeks project-specific funding without admitting the investor as a formal shareholder of the development company or special purpose entity.

Its apparent simplicity, however, can be misleading.

A properly structured SCP requires careful contractual drafting, tax analysis, appropriate due diligence and a minimum level of governance between the parties. The fundraising strategy must also be assessed from a Brazilian securities law perspective, particularly where investments are marketed beyond a limited private group.

For foreign investors and developers entering the Brazilian market, understanding these distinctions is particularly important. Legal concepts that appear similar to partnerships, joint ventures or investment agreements used in other jurisdictions may have materially different consequences under Brazilian law.

Botti Mendes Advogados advises real estate developers, construction companies and investors on the legal structuring of Brazilian real estate projects, including SCP agreements, special purpose entities (SPEs), land-for-units transactions, private investment structures and legal risk assessment.

References

BRAZIL. Law No. 6,385 of December 7, 1976. Governs the securities market and establishes the Brazilian Securities and Exchange Commission (CVM), as amended.

BRAZIL. Law No. 10,406 of January 10, 2002. Brazilian Civil Code, particularly Articles 991 to 996 concerning Sociedade em Conta de Participação.

BRAZIL. Superior Court of Justice (STJ), Third Panel. Decision concerning the exceptional application of Brazilian consumer protection legislation to Sociedade em Conta de Participação arrangements involving vulnerable occasional investors. REsp No. 1,943,845. August 9, 2022.

FEDERAL DISTRICT AND TERRITORIES COURT OF JUSTICE (TJDFT), Second Civil Panel. Interlocutory Appeal No. 0708094-60.2019.8.07.0000. Sociedade em Conta de Participação. Duty to render accounts. Ostensible partner. Judgment dated July 24, 2019.

BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM). CVM Resolution No. 88 of April 27, 2022, as amended. Public offerings by qualifying small businesses through electronic investment crowdfunding platforms.

BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM). CVM Resolution No. 160 of July 13, 2022, as amended. Public offerings of securities in the Brazilian capital markets.

TOMAZETTE, Marlon. Curso de Direito Empresarial – Teoria Geral e Direito Societário. Vol. 1. 15th ed. São Paulo: Saraiva Jur, 2024.