Economic Groups and Cross-Liability: What Entrepreneurs Need to Know

In an increasingly dynamic and interconnected business environment, it is common for companies to operate in coordination, sharing infrastructure, human resources, and commercial goals. However, this proximity can bring significant legal risks, particularly when the so-called economic group is established.

In this article, we explain what characterizes an economic group and the practical effects of cross-liability between companies. Understanding these concepts is essential for entrepreneurs, managers, and investors who wish to preserve corporate asset autonomy and avoid the improper extension of debts across formally distinct companies.

1. What Is an Economic Group?

An economic group can be formed formally—when structured through direct and declared corporate control, as in holdings and subsidiaries—or factually, when there is joint activity, asset commingling, shared management, or converging economic interests.

Labor Law, for example, expressly recognizes the concept of a de facto economic group under Article 2, §2, of the Brazilian CLT (Labor Code). In Civil Law, the analysis is conducted based on the principles of good faith, the social function of the company, and asset autonomy, as established in Articles 50 and 421 of the Civil Code.

2. Cross-Liability: Concept and Consequences

Cross-liability arises when one company is held accountable for obligations undertaken by another company within the same group, even if it did not directly participate in the legal relationship that gave rise to the debt. Such liability may result from:

·         Asset commingling between companies;

·         Common management or control;

·         Mutual economic interest in the business operation;

·         Lack of accounting and financial segregation.

In general, liability among companies can be:

·         Joint (solidary): all companies in the group are collectively responsible for liabilities;

·         Subsidiary: liability is triggered only if the principal debtor fails to meet its obligations.

3. When Is the Economic Group Recognized by the Courts?

Courts analyze concrete facts, not merely the formal structure of companies. Elements such as shared employees, use of the same headquarters, issuance of invoices by different companies for the same service, or cross-payment of expenses are strong indicators of an economic group.

Relevant case law:

·         “The configuration of an economic group does not require hierarchical subordination between companies, but rather the existence of coordination and unity of interests.” (TST – RR 11235-42.2017.5.03.0108)

·         “Joint liability may be recognized among companies with shared partners and asset commingling, even in the absence of a direct contractual relationship.” (STJ – REsp 1.097.735/SP)

4. Risks for Entrepreneurs and Practical Impacts

The main risk lies in the extension of one company’s liabilities to others within the group, jeopardizing the assets of otherwise solvent entities. Consequences may include the disregard of legal personality, forced execution of third-party assets, or the substantive consolidation of bankruptcy or judicial reorganization.

Other effects:

·         Loss of legal certainty among affiliated companies;

·         Impacts on tax and fiscal accounting;

·         Uncertainty in credit operations, mergers, or acquisitions.

5. How to Prevent Cross-Liability: Best Practices

To preserve corporate autonomy and avoid judicial recognition of an economic group or cross-liability, it is recommended to:

·         Maintain strict accounting segregation among companies;

·         Ensure financial and banking independence (separate accounts);

·         Formalize contracts between group companies, including for asset or service transfers;

·         Avoid centralized management or overlapping executive roles;

·         Keep formal and documented records of all intercompany transactions;

·         Maintain distinct corporate purposes and individualized business activities.

6. Final Considerations

Joint business operations can be strategically advantageous from a commercial perspective, but they must be supported by a solid legal and accounting framework. The recognition of economic groups and cross-liability by Brazilian case law serves to curb abuses and safeguard market good faith.

Therefore, entrepreneurs should seek preventive legal guidance to ensure that business expansion and corporate diversification do not compromise the financial and asset stability of the entire business ecosystem.