Undisclosed Partner and Liability Towards Third Parties: Legal and Doctrinal Analysis of the "De Facto Partner"

This article analyzes the figure of the undisclosed partner—also referred to as the de facto or covert partner—under Brazilian law, especially regarding the possibility of personal liability toward third parties. Although the Civil Code governs the formal constitution of business partnerships, business reality often reveals individuals who, while not officially listed in the company’s articles of incorporation, exercise control, participate in management, or directly benefit from the company’s activities. The analysis explores the relationship between the undisclosed partner and the disregard of legal personality, as well as case law that allows for direct liability in certain circumstances.

The incorporation of business entities in Brazil is subject to formal requirements set forth in the Civil Code and specific legislation, particularly regarding the identification of partners in the company’s articles of incorporation and its registration with the appropriate authorities. However, in practice, individuals not formally registered as partners may exert direct influence over the company’s management or operations—or may benefit financially from its business—without formally assuming such a position.

These individuals are commonly referred to as “undisclosed partners” or “de facto partners,” whose presence may stem from legitimate arrangements (such as confidentiality clauses in investment agreements) or from fraudulent purposes, such as concealing assets, evading liability, or obstructing judicial enforcement.

This article examines the legal limits on the conduct of undisclosed partners, the legal grounds for holding them liable toward third parties, and the circumstances under which the courts extend the legal effects of corporate acts to their involvement.

2. Concept and Characterization of the Undisclosed Partner

An undisclosed partner is someone who does not formally appear in the articles of incorporation but nonetheless participates, either directly or indirectly, in the corporate structure by exercising managerial, decision-making, or controlling authority, or by financially benefiting from the company’s operations.

Examples of such characterization include:

·         Acting as the actual controller of the company, while another person is formally listed as the manager;

·         Fully financing the company and receiving profits “off the books”;

·         Determining commercial or operational strategies without holding formal powers;

·         Using the company as a front to conceal assets or divert the corporate purpose.

The conduct of an undisclosed partner may therefore constitute a simulation or abuse of corporate form, justifying personal liability under Article 50 of the Civil Code.

3. Legal Grounds for Liability

Although Brazilian legislation does not expressly define the figure of the undisclosed partner, their liability arises from the combination of the following legal principles:

·         Article 50 of the Civil Code – Disregard of legal personality:

“In the event of abuse of legal personality, characterized by misuse of purpose or asset commingling, the judge may decide to extend the effects of specific legal obligations to the personal assets of the administrators or partners of the legal entity.”

·         Article 116 of the Civil Code – Simulation:

“A simulated legal transaction is null and void when it appears to confer or transfer rights that do not exist.”

·         Principles of objective good faith, the social function of the company, and the prohibition of abuse of rights (Articles 421, 422, and 187 of the Civil Code).

The prevailing doctrine holds that an undisclosed partner may be held liable when their involvement is essential to the commission of an unlawful act or when they directly benefit from a fraud against third parties.

4. Case Law on the Subject

“It is possible to hold an undisclosed partner liable who, although not formally registered, benefits from the company’s activities, including to the detriment of third parties, thereby characterizing abuse of the corporate form.” (STJ, REsp 1.790.874/SP, Justice Nancy Andrighi, judgment dated 08/21/2019)

“The use of third parties to conceal the true partner constitutes simulation and fraud, justifying the disregard of legal personality to reach the assets of the de facto partner.”(Court of Justice of São Paulo – TJSP, Civil Appeal 1009874-23.2022.8.26.0100, judgment dated 10/18/2023)

“The liability of the undisclosed partner does not necessarily require the formal disregard of legal personality when their direct and intentional involvement in the wrongdoing is proven.”(Federal Court of Appeals – TRF4, Civil Appeal 5005210-39.2019.4.04.7100, judgment dated 05/09/2023)

5. Distinction Between Legitimate and Fraudulent Undisclosed Partners

It is necessary to distinguish between two different situations:

Legitimate undisclosed partner:

·         Engaged in a lawful contractual arrangement (e.g., investment agreement, fiduciary structure, or confidentiality memorandum);

·         Has no direct managerial or controlling role;

·         Does not engage in harmful conduct nor seeks to hide assets.

Fraudulent undisclosed partner:

·         Acts with the intent to defraud creditors or disguise asset control;

·         Performs managerial actions without formal authority;

·         Improperly benefits from the company while evading liability.

Liability arises from the purpose and practical effects of the undisclosed partner’s conduct. Their inclusion as a defendant is permissible when their behavior is shown to be deceptive or harmful.

6. Evidence and Procedural Mechanisms

To hold an undisclosed partner liable, it is essential to demonstrate:

·         Direct involvement in the company (e.g., signing contracts, email correspondence, account management);

·         Receipt of profits without formal ties to the company;

·         Use of intermediaries to conceal true ownership or control;

·         Asset commingling with the legal entity.

Liability may be established through:

·         The Incidental Disregard of Legal Personality Procedure (IDPJ), when the company is a party to the case (Articles 133 to 137 of the Code of Civil Procedure);

·         Direct inclusion as a defendant, when objective liability is evident, and the conduct is proven to be intentional and wrongful.

7. Final Considerations

The figure of the undisclosed partner presents both practical and theoretical challenges in Brazilian corporate law. Although the articles of incorporation are the formal instrument of company formation, business reality demonstrates that appearances can be manipulated for the purposes of fraud, asset concealment, or evasion of responsibility.

The liability of the undisclosed partner must be based on objective evidentiary criteria, including acts of management, economic benefit, and intentional misconduct. When the abuse of corporate form is evident, the inclusion of the undisclosed partner as a defendant in civil or enforcement proceedings is justified, grounded in the principles of good faith, social function, and fraud prevention.

Preventive measures—such as well-structured contracts, transparent corporate governance, and regular accounting practices—are essential to avoid the improper characterization of an undisclosed partner and to protect all involved parties from litigation and undue exposure of assets.