One of the preliminary questions raised by foreign clients in Brazilian Mergers and Acquisitions (M&A) transactions is whether the deal, from a Brazilian law perspective, should be structured as a share deal or an asset deal. The purpose of this article is to provide preliminary thoughts on both types of transactions.

In a share deal the purchaser acquires shares of the capital stock of the target company from the current shareholders of said target company (which would be considered the "sellers" in the transaction). The target company would therefore become a controlled company of the purchaser.

In an asset deal the purchaser acquires assets of a company, being said company itself the "seller" in such transaction. The sale of an asset may be part of the company's ordinary business. For instance the company may sell a machine that is part of its assets and it will have low or no implications. However, when a company sells assets that represent an entire operational facility, or an entire business, or even an entire site (and all assets included therein), such sale of assets should be carefully analyzed and structured.

In Brazil an asset deal would not, per se, isolate the liabilities of the company (seller) and the purchaser of the assets may inherit the current liabilities of the company (seller) in relation to the acquired assets. If the acquired assets represent an entire site (facility, establishment), the purchaser may, in some cases, inherit the liabilities of the seller, not only related to the acquired assets, but other liabilities of the seller (labor, tax, civil, etc.). Important to mention also that acquisition of an entire facility is regulated by the Brazilian Civil Code.

Regarding the required documents and actions in a share deal, usually the parties, purchasers and sellers, execute a so called Share Purchase Agreement (SPA). Since the liabilities of the target company belong to the target company, it is therefore responsible for paying its own obligations/liabilities. Depending on the negotiation between the parties and what is agreed in the SPA, said liabilities (tax, labor, civil, etc.) of the target company may be indemnified by sellers. The SPA is executed to set forth rights and obligations of the parties, among other terms, such as representation and warranties, payment structure, and indemnification provisions.

It's worth noting that in a share deal the purchaser acquires an operating company (target company) so there is no need to obtain licenses and registrations to operate the business since the target company should already have the required licenses.

On an asset deal, the parties execute an Asset Purchase Agreement ("APA" or an Establishment Sale and Transfer Agreement in case the purpose is the acquisition of an establishment). As mentioned above, considering the asset deal does not insulate the purchaser from the seller's liabilities, it is very important to state in the APA the necessary terms to protect the purchaser, such as indemnification provisions. Note that in case an Establishment Sale and Transfer Agreement is executed, the document must be (a) filed with the competent Board of Commerce and (b) published in the official gazette.

The purchaser in an asset deal must incorporate a new company in the same place where the assets are located in order to obtain all the necessary licenses and registrations to run the business.

Different from other jurisdictions where the acquisition of assets may insulate the purchaser, in Brazil such type of transaction might not generate the same effects as expect in other jurisdictions. In any case, the structure of the deal must be carefully analyzed under a tax, labor, corporate, antitrust, regulatory and civil perspective.

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.