Brazil: Vote Of Legal Entities In Shareholders' Meetings Of Brazilian Publicly-Held Corporations

Last Updated: 16 December 2014
Article by Walter Stuber

By unanimous decision of the Board of the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM), the voting exercise of legal entities in shareholders' meetings of publicly-held corporations will be facilitated from now on.

This means that investment funds, publicly-held or closely-held corporations, limited liability companies, foundations, associations or investment vehicles are no longer restricted to only grant a power-of-attorney to a shareholder, corporation officer (administrator) or lawyer in order to participate of assemblies. Therefore, a legal entity may choose for this purpose anyone who is empowered to represent it according to its bylaws (estatuto social) or articles of association (contrato social) and furnish to the designated representative the documents that validate such representation.

This flexibility does not apply to individuals, who must appoint another shareholder, a corporation officer or a lawyer as a proxy to this effect. According to the provisions of paragraph 1 of article 126 of Law No. 6,404, of December 15, 1976 (the Brazilian Corporation Law - BCL): "A shareholder may be represented at a general meeting by a proxy appointed less than one year before, who shall be a shareholder, a corporation officer or a lawyer; in a publicly-held corporation, the proxy may also be a financial institution. A condominium shall be represented by its investment fund officer."

The matter was discussed by CVM on account of a complaint made by Modal Administradora de Recursos Ltda. (Modal), that had one of its investment funds barred from voting at a shareholders' meeting of Brookfield Incorporações S.A. (BISA).

Modal granted a power-of-attorney to one of its employees, who were a member of the management team of investment funds, to attend the shareholders' meeting. BISA vetoed the participation of this employee because he was not a shareholder, corporation officer or lawyer. The case was decided by the Board of CVM. The Director Ana Dolores Moura Carneiro de Novaes gave reason to Modal, for understanding that the employee who attended the shareholders' meeting was duly authorized to represent the company by means of a power-of-attorney signed by two directors, which obeyed the requirements set forth by Modal´s articles of association.

In her analysis, Ana Novaes concluded that the best way to interpret paragraph 1 of article 126 of the BCL, which deals with the vote in assemblies, is to allow legal entities to be represented at shareholders' meetings through either its legal representatives or proxies duly constituted, in accordance with its bylaws/articles of association and the rules of the Brazilian Civil Code.

According to Ana Novaes, a different interpretation of this aspect would fall into contradiction because two individuals equally empowered to legally represent the same legal entity, i.e. the legal representative and the constituted proxy, would require different subjective qualities. The first could have any professional training, while the second would have to be a shareholder, corporation officer or lawyer. This does not seem to be the best interpretation of the law and just adds costs to the shareholders by requiring that they transfer a share to the proxy, for example, to circumvent the alleged legal requirement.

Ana Novaes noted that a legal entity, being a legal creation, depends on an individual to express its will in the business world. To this end, the general rule of representation of companies must apply. According to this general rule, the legal entities express their will through its administrators, pursuant to their bylaws or articles of association, or through persons duly appointed as proxies.

The other members of the Board followed the vote of Ana Novaes without any restrictions whatsoever. From now on, Brazilian publicly-held corporations must adopt this interpretation. Legal entities may be represented through their administrators or by proxies duly appointed pursuant to the company´s bylaws or articles of association and the Brazilian Civil Code.

This decision was published in the issue of the Brazilian financial newspaper Valor Econômico of December 15, 2014.

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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