Brazil: A New Brazilian Commercial Code And Its Effects On Brazilian Corporate Law

In 2002, with the enactment of the new Brazilian Civil Code, the Brazilian Commercial Code lost much of its relevance and content, since the rules that regulated business activity were largely incorporated into the new Civil Code. More importantly, the changes introduced by the Civil Code in corporate law brought uncertainty and changes to known concepts and rules. From the perspective of foreign investors, the introduction of unreasonable supermajority quorums for decisions in limited partnerships were particularly disruptive to the business environment.

Because of all the controversy surrounding the Civil Code, since 2011 Brazilian Congress has been discussing a new Commercial Code. To expedite the discussion, projects go in parallel in the House and Senate, and the latest version of the latter has recently been published for public consultation (, on which this article is based.

The project of the new Commercial Code revokes the corporate rules introduced by the new Civil Code, restores certain traditional concepts while  modernizing others.  As far as corporate law is concerned, the project of the new Commercial Code is desigend based on four main concepts: increased legal certainty, improvement of the business environment, simplification and modernization of rules.

An example of legal certainty brought by the new project can be seen in the articles dealing with the disregard doctrine, whereby by piercing the corporate veil assets of quotaholders and officers of a limited liability company may be called to answer for company debts in the event of of fraud. While the doctrine is universal and useful to inhibit the misuse of corporate form by abusing entrepreneurs, in Brazil it is often applied by labor and tax courts without giving the defendand the right to be heard before his or her assets are frozen as guarantee by the court. The project of the new Commercial Code formalizes the notion that the mere failure of assets in equity of the company does not authorize the piercing of the corporate veil and that the freezing of any personal assets can only be ordered by a court after the defendant is assured the right to legal defense.

The improvement of the business environment is addressed by both from the point of view of the companies as well as entrepreneurs. On the companies level, the project introduces the concept that companies involved in litigation with other companies have a presumption of equality and that the parties are represented by professionals and have sufficient technical and economic condition to defend their rights in court. This is a major breakthrough in the disputes between companies, where often one of them claims to be a weaker economic party and unreasonably seeks shelter under the the Consumer Code, which exists to protect the interests of individuals as consumers. On the relationship between quotaholders, the project reverts to the traditional simple majority quorums for ordinary corporate decisions, revoking the 75% supermajority quorum that had been introduced by the Civil Code and that overnight made minority quotaholders with more than 25% part of the controlling group of the limited liability companies. 

Noteworthy is also the new methodology for overcoming impasses: whenever there is a deadlock among quotaholders that may endanger the continuity of the company, a "shotgun" mechanism will be adopted in court, with each member presenting an irrevocable pricing proposal for the quotas of the company. The quotaholder making the highest proposal then has the right buy the quotas of the other quotaholder. It is a fair mechanism that provides an incentive for the quotaholders to price correctly the value of the company and commonly used in shareholders agreements.

Brazilian law is not known for its simplicity, and therefore the initiatives of the project of the Commercial Code in this regard are very welcome. Simplification begins by reducing the number of types of companies, from the current 8 to only 4: Limited liability companies, Corporations, Silent Partnerships and Collective Name Companies. Cooperatives are also maintained, but in their specific law. Foreign investors will also welcome the possibility of a single quotaholder limited liability company, with only one quotaholder, which does away with the current practice of attributing one quota to a third party just to meet the current legal requirement of the plurality of quotaholders. Another important simplification relates to accounting: instead of trying to codify accounting practices, the project provides that the pronouncements of the Comitee of Accounting Rules (Comitê de Pronunciamentos Contábeis) now have legal effect, which makes much more sense in view of the dynamics of the evolution of accounting practices.

Finally, the project of the new Commercial Code at last aligns Brazilian corporate law with modern times and regulates in greater detail the matter of electronic documents. Pursuant to the project, all accounting information can be prepared and stored in electronic form, if the company so desires. The same applies to corporate acts, such as minutes of meetings -- although the Boards of Commerce that register such documents may yet have to adapt for this new dynamic in the same way courts have.

Compared to the Civil Code in force, the project of the new Commercial Code goes in the right direction to restore certain traditional corporate law concepts, and innovate in several others in the direction of simplification and modernization. The manner under which the project has been publicly discussed with the legal community and publicized on the Citizenship concepts (see link above) is also of note.  Anyone with equity interests in Brazil should follow the project closely, because it will sure bring new views and mechanisms to our corporate life.

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.

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