Brazil: New Brazilian Corporation Law

Last Updated: 3 December 2001
Article by Walter Stuber

Co-written by Manoel Ignácio Torres Monteiro

On November 5th, 2001 Law No. 10.303 was published bringing important changes in the Brazilian Corporation Law (Law No. 6.404 of December 15th, 1976) and Law No. 6.385 of December 15th, 1996 (the Brazilian Securities Law). Said changes concern not only the privately- and publicly-held Brazilian corporations but also the Brazilian Securities Market.

The changes will undoubtedly benefit minority shareholders.

Firstly, it is important to point out the several rules as to when the new provisions will come into force vis-à-vis privately- and publicly-held companies.

  1. Corporations ("Sociedades Anônimas") will have until March 5th, 2003 (one year after the effective date of the Law – 120 days after publication) to adjust their bylaws to the provisions thereunder.
  2. The Tag Along right granted to minority shareholders of publicly-held companies corresponding to 80% of the purchase price offered to the controlling shareholder will not apply to state-owned companies undergoing privatization that have their Invitations to Bid Notes published until October 31st., 2001.
  3. Any change in the type and number of shares resulting from the new provisions under the Law shall not entitle shareholders to exercise their right to withdraw, unless it is carried out until December 31st, 2002.
  4. The voting: non-voting right ratio (which was reduced from 66% non-voting - 33% voting to 50-50%) of shares that companies can issue shall be applicable to companies incorporated after publication of the Law and to privately-held companies that apply for license to trade bonds and shares in the market.
  5. The election of members of the Board of Directors by minority shareholders (shareholders with voting rights representing 15% minimum of the total voting stock and shareholders representing 10% minimum of the total issued stock) is limited to a list of three names, prepared by the controlling shareholder until the first General Shareholders’ Meeting of 2005.

It is worth mentioning that a Brazilian corporation can be classified as a public trade company even though it has not issued shares into the market. Corporations that issue debentures, for instance, have to apply for a license as a publicly-traded company. In that respect, all the new rules applicable to publicly-traded companies will also be applicable to corporations that have been authorized to issue debentures or other bonds.

The most important changes brought by the new Law are summarized below.

  1. Public offer for acquisition of shares
  2. As mentioned above, public offers for acquisition of control entails a tag along right to the minority shareholders corresponding to 80% of the value offered to the controlling shareholder.

    Furthermore, in case of public offers for acquisition of shares from minority shareholders and closing of the company’s capital, a new procedure was established pursuant to which shareholders representing at least 10% of the shares not held by the controlling shareholder may challenge the value offered by the controlling shareholder and request a new appraisal of the company. The majority shareholder is also required to support the value offered based on one or more criteria for appraisal of the company mentioned in the new Law.

    After the above mentioned public offer, if less then 5% of the total shares issued by the company remains in the market, the shareholders’ meeting may authorize the mandatory purchase of said shares by the company.

  3. Voting and Non-voting Stock
  4. The non-voting shares can not exceed 50% of the total number of shares issued.

    The non-voting shares of publicly-traded companies should receive preferential dividends in relation to voting shares. In case of privately-held companies the preferential dividend of 10% over voting shares was eliminated.

  5. Put Option
  6. The right granted by law to the minority shareholders to withdraw from the company by selling their shares to the company, was increased including the spin-off the company, except if the spun-off assets are transferred to a company which the main business activity is equivalent to the business activity of the original company. Furthermore, the Put Option may be exercised by the minority shareholder in case of a reduction in the mandatory dividend.

  7. Shareholders’ Agreement
  8. The enforceability of the provisions in the shareholders’ agreement is confirmed by the new Law, according to which the Chairman of the Shareholders’ meeting or Board meeting should not take into consideration votes that violate voting arrangements provided in the shareholders’ agreement. The exercise of the controlling power was also included among the subjects that can be regulated in the shareholders’ agreement.

  9. Shareholders’ Meeting
  10. The time for calling shareholders’ meetings of publicly-traded companies was extended from 8 to 15 days. Depending on the agenda of the meeting and upon request of the minority shareholders, said time may be extended by CVM’s decision for up to 30 days and its course can also be interrupted by an additional 15 days.

  11. Board of Directors
  12. Shareholders’ representing 15% minimum of the voting shares are entitled to elect one Board member. Shareholders with non-voting shares, representing 10% minimum of the issued stock are also entitled to appoint one Board member. Regardless of the number of members in the Board, the controlling shareholder will be entitled to elect the majority of Board members.

    The appointment of Board members who are not resident in the country is now allowed.

    The Board members can not hold officer offices in companies regarded as competition of the company.

  13. Arbitration
  14. The new Law makes specific reference to the possibility of solution of conflicts among shareholders or between the company and any shareholder by means of arbitration.

    The changes will undoubtedly benefit minority shareholders and the securities market to the extent that investors confidence increases and CVM has more powers to oversee the market. The changes should also benefit foreign investments into the Brazilian securities markets, since it grants additional rights to minority shareholders. On the other hand, the new set of shareholders’ protection rights might have adverse effects on foreign investors taking a majority stake in joint ventures with Brazilian shareholders.

    Even though the main reason for the enactment of the new Law is to boost the Brazilian Securities market, there are economic and tax aspects that should also be addressed by the Brazilian government in order to increase the investments (national and foreign) in the securities market.

    Economic and tax (incentives) changes usually have a much more effective result in boosting investments then changes in the law.

    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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Walter Stuber
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions