According to the Brazilian Securities and Exchange Commission (the "CVM") Regulation No. 358, dated as of 2002, as amended ("CVM Regulation 358/02"), ownership by an investor of 5% or more of outstanding shares or securities entitling rights to such shares, issued by a publicly-held company in Brazil, triggers the investor's disclosure obligation, which must report such ownership to the Company that for its part will notify the CVM.
Increases or decreases in ownership of 5% or more, or trading resulting in 5% of the outstanding shares or securities entitling rights to such shares, including BDRs, also subject investors to further reporting requirements.
For the purposes of the Disclosure Threshold, the investor will be required to also add to its holdings any other shares and/or rights arising therefrom held by related parties, which means: (i) other investors acting alongside the investor, or representing the same interest the investor represents; and (ii) indirect trading of shares and/or rights arising therefrom. Specific rules apply to asset management-related arrangements.
The report referred to above of the relevant interest has to be disclosed by the investor to the issuer (which would then send it to the CVM through its website) detailing certain information provided for CVM Regulation 358.
If the investor is also a member of the board of executive officers or directors, fiscal council or other by-laws created body, then a specific form needs to be sent by the individual to the company describing shares held (as of the day on which the individual takes office and/or the company is registered with the CVM) and subsequent transactions, irrespectively of the percentage involved. This form is made public by the issuer on a consolidated basis.
Additionally, for disclosure of stake building, an analysis of each company's by-laws is important since there may be provisions: (i) requiring future acquisitions to be preceded by disclosure, or to occur only on organized securities markets (forbidding private transactions); (ii) imposing a public offering to acquire remaining shares should a specific percentage as detailed in each company's by-laws; and (iii) restricting voting rights should a specific percentage be met.
Finally, some industries require approval or notice by a public entity for a certain percentage to be acquired, or even to shareholders' agreement to either be executed or amended. There are industries were foreign investment is highly regulated, such as specific situations involving national security. Thus, a proper analysis is mandatory prior to any transactions involving regulated industries.
In summary, an informed decision on rules applicable to disclosure, approval and restrictions deriving from investments in Brazilian companies, namely publicly-held and regulated entities, is material to anticipate requirements, structures and timeframes, as well as to avoid or mitigate potential liabilities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.