Università di Roma – La Sapienza
Master in Diritto Privato Europeo
e della Cooperazione
Company Law - Brazil
Prof. Francisco Satiro
email.: f.satiro@usp.com f.satiro@uol.com.br
Agenda
1.
2.
3.
4.
5.
6.
7.
8.
Models of entities in Brazil
Managers’ duties and liabilities
Shareholders’ liabilities
Capital Markets – Evolution
Capital Markets – Structure
Capital Markets – Data
Acquisition of rural property in Brazil
Foreigners coming for business
Company Law in Brazil:
Models of Entities
• Most commonly used:
(i) Brazilian limited liability company
(sociedade limitada, Ltda.)
(ii) Brazilian
anônima, S.A.)
corporation
PS: individual enterpreneur
(sociedade
Company Law in Brazil:
Models of Entities
1985
to
2005
Company Law in Brazil:
Incorporations (1985-2005)
 BLUE – individual enterpreneurs
 RED – Limited Liability Companies
 GREEN – S/A (top)
Company Law in Brazil:
Limited Liability Company (Ltda)
Sociedade por Quotas de Responsabilidade Limitada
1919 - Decree 3.708 (revoked) –
Based on German Model
-
Only 18 sections
Consideration for quotas in kind allowed (not services)
Rio de Janeiro - 1919
Partner's limited liability
No minimum capital requirements
No pay up requirements
Company Law in Brazil:
Limited Liability Company (Ltda)
Sociedade por Quotas de Responsabilidade Limitada
1919 - Decree 3.708 (revoked)
-
Management - one designated officer or any partner
Complimentary rules – Corporations (SA)
Rio de Janeiro - 1919
Regular bureaucratic incorporation
Capital maintenance rule
No minimum capital requirement
Contractual freedom
Company Law in Brazil:
Limited Liability Company (Ltda)
Sociedade Limitada
• 2002 – New Civil Code (Law 10,406 of 2002)
(inspiration: Italian Civil Code)
• simpler governance structure
• lower degree of transparency and disclosure obligations
• minimum 2 partners (individuals or companies) resident in
Brazil or abroad
• nonresident partners shall appoint an
Brasilia (DF) 2002
attorney-in-fact in Brazil and enroll in
federal taxpayer
• partner’s liability is restricted to the actual
disbursement of the amount of subscribed
capital
• no minimum paid-in capital (money or
assets)
Company Law in Brazil:
Limited Liability Company (Ltda)
Sociedade Limitada
• 2002 – New Civil Code (inspiration: Italian Civil Code)
• managed by 1 or more officers (Brazilian or a resident alien)
• audit committee is optional
• allows partners to structure allocation of profits (default
arrangement being based on their percentage interest in the
capital)
Brasilia (DF) 2002
• Civil Code establishes percentages of
member consents for some acts such as: not
less than ¾ of the capital to amend the
articles of incorporation and approve
mergers and dissolution or unanimous
consent to convert into a corporation
• no mandatory publication
Company Law in Brazil:
Limited Liability Company (Ltda)
Sociedade Limitada
2002 – New Civil Code (inspiration: Italian Civil Code)
PROBLEMS:
-
Supermajority quorum for specific issues
Annual General Meeting required
Limitations on transferability of quotas
Publications – official gazette
Burocratic incorporation
Restrictions for husband x wife partnership
Unprecise rules on exclusion
OBS: not tax pass-through!
Brasilia (DF) 2002
Company Law in Brazil:
Limited Liability Company (Ltda)
Sociedade Limitada
PROPOSALS:
• Proposal 1 – New Commercial Code
Brasilia (DF) 2002
Company Law in Brazil:
Limited Liability Company (Ltda)
Sociedade Limitada
PROPOSALS:
Proposal 1 – New Commercial Code
Proposal 2 –S/A amendment (sec 194) – SA Simplificada
- Capital cap: US$ 24.000.000
- Sole holder allowed
- Internet notices and disclosure allowed
Brasilia (DF) 2002
- Remote voting
- Non proportional dividends allowed
- appraisal rights
- shareholders exclusion rules
Company Law in Brazil:
Limited Liability Company (Ltda)
Sociedade Limitada
PROPOSALS:
• Proposal 3 – Old Ltda Projected Law revival
• Proposal 4 – Adoption of UNCITRAL Model Law on
SAS
Brasilia (DF) 2002
Company Law in Brazil:
Corporation (S/A)
Sociedade Anônima (S.A.) - Law 6.404/1976
• initial shareholders must subscribe all the issued shares and
pay (minimum paid-in capital: 10% of their value)
• no minimum stated capital requirements (money or assets)
• no debt/equity restrictions
• public issue of securities is subject to prior registration with
Brazilian Securities and Exchange Commission (CVM)
• mandatory publication (e.g., articles
Recife, 1976
of incorporation, financial statement
and the minutes of the board and
shareholder meetings), except to
corporations with less than 20
shareholders and a net asset value
of
less
than
R$1,000,000
(€$330.000,00)
Company Law in Brazil:
Corporation (S/A)
Sociedade Anônima (S.A.) - Law 6.404/1976
• shareholders’ essential rights: dividends from income,
distribution of net assets upon liquidation, inspection rights,
preemptive rights and right to dissent (appraisal remedy)
• By-laws may divide shares into classes and preferences
preferences may exist with respect to: dividends (e.g., a higher
rate of dividend), liquidation or voting rights (e.g., separate
voting for separate classes of directors)
• Preferred shares (non-voting) or
shares with limited voting rights are
Recife, 1976
allowed - limited to 50% of the total
issued shares
Company Law in Brazil:
Corporation (S/A)
Sociedade Anônima (S.A.) - Law 6.404/1976
Corporate management structure:
• minimum 2 officers or officers + Board of Directors
• Board of Directors is mandatory only for publicly held and
authorized capital companies
Recife, 1976
• Board of Directors’ powers: overall
policy decisions, appointment and
removal of officers, call shareholder
meetings, etc.
• audit
committee
is
mandatory
(temporary or permanent basis): 3 – 5
members
Company Law in Brazil:
Limited Liability sole Proprietorship (EIRELI)
Empresa Individual de Responsabilidade Limitada
Law 12.441/2011
• Amendment to Civil Code (Section 980-A)
• sole proprietorship
• Member’s liability is limited to the paid-up capital
• 3 mandatory requirements:
Salvador, 2011
• paid-in minimum capital = 100 x
minimum
wage
in
Brazil
Recife, 1976
(R$67.800 or €$22.600,00)
• Activity under expression.
“EIRELI”
• each individual shall own only
one EIRELI
Company Law in Brazil:
Limited Liability sole Proprietorship (EIRELI)
Empresa Individual de Responsabilidade Limitada
Law 12.441/2011
• Company or segregated enterpreneur estate?
• Can a legal entity hold an EIRELI?
• Can legal entities hold more than 1 EIRELI
Salvador, 2011
Recife, 1976
• Can foreign investors use EIRELI?
• Can
EIRELIs
explore
non
commercial activities?
Company Law in Brazil:
Managers’ duties – Corporations Act
• Duty of care (LSA 152, NCC 1011): use the necessary care and
diligence that any average and honest person would use in the
management of his own businesses
• Duty of loyalty (LSA 153): not benefit or not cause third parties to
benefit from his manager position and keep company's business
information confidential (*)
• Duty to avoid conflicts of interest (LSA 154) : not take part in any
corporate transaction or resolution in which his personal interests
conflict with those of the company (*)
• Duty to disclosure (LSA 157): obey the information policies set out by
the Corporation Law and CVM Regulation (only to publicly held
companies’ managers)
(*) Apply, mutatis mutandis, to managers of a limited liability company
Company Law in Brazil:
Managers’ liabilities
• Managers’ will be personally liable for damages and losses
occurred due to either:
• fault, negligence, imprudence or wilful misconduct on the managers'
action
• it is evidenced that they were aware of the crime and did not take the
necessary steps to avoid it
• any breach of company's bye-laws
• non-compliance with the law provisions, including, Tax (Section 135, III
of Tax Code), labor, consumer, etc.
• Possibility to disregard the corporate entity in case of abuse –
legal provisions: Section 50 of Civil Code, Section 4 of
Environmental Law (Law N. 9,605/98), Section 2, §2
Consolidation of the Labor Law - CLT)
Company Law in Brazil:
Managers’ liabilities
• Managers may be criminally liable for, among others:
• fraud and/or provision of false information about the
company
• economic law crimes under Law N.7,492 of 1986
(Crimes Against the Financial System Law) and Law
N.1,521 of 1951 (Crimes Against the public economy)
• crimes in bankruptcy proceedings (law 11.101/05), for
example, fraud against creditors
• crimes set out in the Consumer Code (Law 8.078/90)
• insider trading (applicable only to publicly held
companies) (Law 6.385/76 – sect. 27-D)

Company Law in Brazil:
Shareholders’ liabilities
• controlling shareholders will be liable for damages and losses
caused by acts performed by abuse of their power (Corporation
Action,
Section
117)
e.g.,
approve
irregular
accounts/dissolution of efficient company
• Shareholders’ liability: possibility to disregard the corporate
entity in case of abuse (Section 50 of Civil Code)
• However, Courts are understanding as strict liability of the
shareholders and officers in Tax, Labor and Environmental
cases (Section 4 of Environmental Law n. 9,605/98; Section 2,
§2 Consolidation of the Labor Law – CLT; section 135 of Tax
Code)
Capital Markets in Brazil:
Historical Perspective
first wave
1964
•Dispersed legislation
concentrated on
broker-dealers and
financial institutions
•Corporations
governed by Decreelaw 2627 of 1940
•Organization of a
national savings
system
•Law 4595/64:
regulation of a national
financial system
second wave
1976
•Law 4728/65: the first
relevant special
legislation of the
Brazilian capital
markets
third wave
2001
•Establishment of a new
regulatory model and an
independent federal
agency (Brazilian
Securities Commission CVM)
•Prudential supervision
and focus on systemic •CVM (The Brazilian
risk
regulatory authority)
governed by Law 6385
•Stock Exchanges
of 1976 (Securities Law)
Crisis (1971-1972)
•Law 6404 of 1976:
•Tax incentives to
New Corporation Law:
promote investments
enacted to restore
in stocks, investment
investors’ confidence
funds and government and improve the
bonds
corporate provisions
fourth wave
•Revision and
amendments in Law
6385/76 and Law
6404/76 by Law 9457/97
and Law 10303/2001
•Stock Exchange
Regulation
(2001):Corporate
governance listing
segments – Bovespa
Mais, Novo Mercado,
Level 1 and Level 2
•Instruction CVM 475/07:
mandatory adoption of
IFRS standard as of 2010
Capital Markets in Brazil:
Structure
CMN
National Monetary Council
BACEN
Brazilian Central
Bank
Financial
Institutions
CVM
Brazilian Securities
Commission
Stock
Exchange
Publicly held
companies
Securities
Investors
OTC
Markets
Capital Markets in Brazil:
Structure
CMN (The National Monetary Council):
• oversees the activities of the Brazilian
Central Bank
• is responsible for monetary, credit and
financial policies
• establishes the overall determination of the
regulatory framework of the financial and
capital markets
Capital Markets in Brazil:
Structure
CVM (The Brazilian Securities Exchange):
• governmental agency subject to the directive
rules of CMN
• governed by Law 6,385 of 1976 that created the
CVM and provided for the definition of securities
(as amended by Law 10,303 of 2001)
• independent
administrative
authority
and
financial autonomy to regulate the securities
market and monitor the compliance with its rules
and procedures
Capital Markets in Brazil:
Structure
CVM (The Brazilian Securities Exchange):
• oversees the stock exchange and the OTC
market (securities market entities)
• assures the disclosure of any relevant
information about securities and its issuers
• protect securities holders against fraudulent,
illegal or unfair trading practices
• stimulate savings and investment in securities
Capital Markets in Brazil:
Structure
Main recent rules enacted by CVM:
• CVM Instruction N. 481 of 17 December 2009: disclosure of
information and regulation of proxies
• CVM Instruction N. 480 of 7 December 2009: requirements
and procedures for registration of the securities issuers
• CVM Instructions N. 331/332 of 4 April 2000: issuance and
trading Brazilian Depositary Receipts
• CVM Instruction N. 358 of 3 January 2002: disclosure and
use of the relevant information about material facts by
publicly-held corporations
• CVM Instruction N. 361 of 5 March 2002: tender offers
Capital Markets in Brazil:
Structure
Main rules enacted by CVM:
• CVM Instruction N. 400 of 29 December 2003: primary
and secondary public offerings of securities
• CVM Instruction N. 409 of 18 August 2004: investment
funds and the definition of qualified investors
• CVM Instruction N. 461 of 23 October 2007: manager
entities of organized securities markets (stock exchanges,
mercantile and future exchange and organized over-thecounter markets)
• CVM Instruction N. 476 of 16 January 2009: restrict
efforts public offerings.
Capital Markets in Brazil:
Structure
BM&FBOVESPA:
• central counterparty of its markets (stock exchange
trading and OTC markets) – not for clearing issues
• clearing and settlement services - CBLC
• trading is carried out by electronic systems.
• establishes requirements for listing publicly held
corporations at BM&FBOVESPA in ordinary markets and
in one of three special listing segments (Level 1, Level 2
and New Market [Novo Mercado]) related to the adhesion
to certain practices of corporate governance
Capital Markets in Brazil:
Structure
Listings Segments:
• purposes: (i) improve methods of disclosure to the
market,
including
shareholder
agreements
and
transactions involving assets issued by the company on
the part of the controlling shareholders or company
management and (ii) strengthen corporate governance
mechanics
• the basic difference among segments is the level of the
applicable governance practices
Capital Markets in Brazil:
Structure
Comparing the requirements of the Listings Segments:
BOVESPA Mais
Novo
Mercado
Only ON (common) shares
Characteristics
Only ON
may be traded and issued, but
of the issued
shares are
the existence of PN (preferred)
shares
allowed
shares is permitted
Minimum
percentage of
Shares Traded
on the Market
(free float)
25% free float by the 7th year
listed or minimum liquidity
conditions
Public share
Offerings
N/A
Level 2
ON and PN*
shares are
allowed
Level 1
Regular
Market
ON and PN shares are
allowed
At least 25% free float
N/A
Shall adopt mechanism to favor capital
dispersion and broader retail access
*Right to vote in certain circumstances (e.g. transformation, consolidation, spin-off, merger)
N/A
Capital Markets in Brazil:
Structure
Comparing the requirements of the Listings Segments:
Board of
Directors
Granting of Tag
Along Right
By-laws
sections
prohibited as of
May, 2011
BOVESPA
Mais
Novo Mercado
Minimum 3
members
(as
prescribed
by law)
2-year unified mandate, minimum 5
members, of which at least 20% shall be
Independent;
President cannot be CEO as of May, 2011;
Obligate to give an opinion on tender offers
launched to acquire the company’s shares
Level 2
100% for ON and PN
Shares
100% for ON shares
---100% for ON shares and
80% for PN shares until
May, 2011
Sections that set forth the (i) reduction of the
shareholders’ number of votes lower than 5%
N/A
of the stock capital, (ii) qualified quorum and
(iii) fundamental clauses (cláusulas pétreas)
Level 1
Regular
Market
Minimum 3
members (as
prescribed by law)
80% for ON shares
(as prescribed by
law)
N/A
Capital Markets in Brazil:
Structure
Comparing the requirements of the Listings Segments:
BOVESPA
Mais
Annual Balance Sheet
As
provided
by law
Adherence to the Market
Arbitration Pane as the
vehicle to solve corporate
disputes
Disclosure of Annual
Calendar of Corporate
Events
Obligation to hold a tender
offer by the economic value
criteria, in case of delisting
or deregistration process
Novo
Mercado
Level 2
According to standards of US
GAAP or IAS/IFRS
Shall be translated in English
N/A
Regular Market
As provided by law
Optional
Mandatory
Optional
Level 1
Mandatory
Mandatory
Optional
N/A
Capital Markets in Brazil:
Data
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Registered Securities Offerings
Registered Stock Offerings
Securities Offering Registered
Stock Trading (billions of shares)
Stock Trading (BRL billion)
Registered Debt Securities
Debt Securities Trading (SND)
Debt Securities Trading (Bovespa Fix and Soma Fix)
Securitization
Securities registered in 2011
BRL Billion
200
Registered Securities Offerings
194
180
167
160
140
131
125
120
161
100
88
80
72
60
40
28
29
26
13
20
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: CVM
BRL Billion
160
152
Registered Stock Offerings
140
120
100
80
67
60
34
40
32
27
17
20
6
6
9
11
2
0
2001
2002
2003
2004
2005
2006
Source: CVM
2007
2008
2009
2010
2011
(set)
Billions of shares
10000
Stock Trading
9222
9000
8347
8167
8000
7000
7532
7015
6000
5182
5000
4376
4621
3961
4000
3152
3000
2000
1000
524
0
2001
2002
2003
1 – Stock Exchange and Over the Counter Markets
2 – Spot Market (standard lot)
3 – Stocks +CDAs (Stocks Certificate), including BDRs
2004
2005
2006
2007
2008
2009
2010
2011
(jan-jul)
Source: BM&FBovespa
BRL Billion
160
152
Stock Trading
140
120
100
80
67
60
34
40
32
27
19
20
6
6
9
11
2
14
1
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
(April
18)
Source: CVM / Anbima
BRL Billion
Registered Debt
Securities
90
87
80
69
70
60
49
47
50
42
37
40
30
20
16
11
10
10
5
5
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
(April
18)
Source: CVM / Anbima
BRL billion
90
Debt Securities Trading
(SND)
80
86.6
82.4
70
64.6
60
50
38.7
40
27.3
30
21.5
20
23.8
19.2
17.4
14.7
14.1
10
0
2001
2002
2003
1- Debt Securities traded on Secondary market
2- SND: The National Debt Securities System
2004
2005
2006
2007
2008
2009
2010
2011
(jan-jul)
Source: SND
BRL Billion
1.6
Debt Securities Trading
(Bovespa Fix/Soma Fix)
1.41
1.4
1.2
1.0
0.8
0.6
0.41
0.34
0.4
0.32
0.2
0.10
0.13
0.15
0.18
0.15
0.07
0.04
0.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
(jan-jul)
1 – Debt Securities traded on secondary market
Source: BM&FBovespa
100%
0.24
1.55
1.67
9.11
1.66
0.68
0.48
0.23
0.21
0.18
0.17
99.32
99.52
99.77
99.79
99.82
99.83
2006
2007
98%
96%
94%
99.76
98.45
92%
98.34
98.33
90%
90.89
88%
86%
2001
2002
2003
2004
SND
2005
2008
2009
2010
2011 (janjul)
Bovespa Fix and Soma Fix
FSources: SND and BM&FBovespa
BRL Billions
Securitization
16
14.7
14
12.8
12.4
12
10.2
10.0
10.0
9.9
10
8.6
8.2
8
6
5.6
5.1
4
2.1
1.5
2
0.2 0.1
2.1
1.1
0.9
0.8
0.4
0.3
1.2
0.10.2
0
2002
2003
2004
2005
2006
2007
FIDC
FIDC: Receivables Investment Funds
CRI: Real Estate Certificate Receivables
2008
CRI
2009
2010
2011
2012
2013
(April
18)
Source: CVM / Anbima
BRL Billion
17.4
Securities registered in 2011
18
16
14
12
10
8
6.4
5.0
6
3.9
2.5
4
2.4
2
0
Stocks
Debt Securities
1 – Stocks: Stocks+Stocks Certificate
2 – Securitization: FIDC: Receivables Investment Funds
+ CRI: Real Estate Certificate Receivables
Securitization
FIP
Real Estate
Investment Fund
Others
Source: CVM
Law in Brazil:
Foreigners coming for business
• Governed by Law N. 6,815 of August 19, 1980
• Types of visas for work purposes:
short-term business travel: request to Brazilian Consulate in the jurisdiction
where the applicant resides
• cannot receive any type of remuneration by a Brazilian source
• period up to 90 days, renewable for an additional 90 days
Temporary work visa:authorization granted by the Ministry of Labor
• period up to 2 years and may be extended for an additional 2 years
• requirement: the professional must have a knowledge (know-how) not
available in Brazil
Permanent working visa: authorization granted by the Ministry of Labor
• to work as a director or manager, for example
• requirement: the company must have a foreign investment in Brazil
(register in Central Bank) of, at least, R$600,000/manager or
R$150,000 if the company provides at least 10 new job positions in 2
years from the appointment of the foreign manager
Law in Brazil:
Acquisition of rural property
By foreign person or foreign legal entity:
• Governed by Federal Law N. 5,709 of October 7, 1971
• Restrictions related to: (i) size of the property, which cannot
exceed 50 units called “módulos rurais”; (ii) rural subdivisions,
whereby the percentage of plots belonging to foreigners
cannot exceed 30%; (iii) properties in areas of national
security, where the approval of the federal agency that has
authority over national security is required;(iv) what fraction of
the surface of a municipality foreigners are entitled to own no more than ¼; and (v) any donations of Federal or State
land
Law in Brazil:
Acquisition of rural property
• Restrictions apply to foreigners who are:
(i) private individuals,
(ii) legal entities incorporated in a foreign country
(iii) to Brazilian companies controlled by foreigners?
• 1995 amendment to the Federal Constitution removed the
distinction between Brazilian companies and Brazilian companies
with foreign equity control
• AGU Opinion LA-01 (approved by the President on 2010): Brazilian
companies controlled by foreigners are subject to the restrictions
imposed by Law 5,709
• Opinion of the Inspector General’s Office of the Courts of Justice of
the State of São Paulo on December 2012: exempts real estate
registrars and notary publics from applying the restrictions imposed
by Law N. 5,709
Law in Brazil:
Acquisition of rural property
By foreign legal entity:
• Only if the purpose is the implementation of agricultural,
cattle-raising, industrialization or colonization projects which
shall be linked to their respective statutes
• such projects shall be approved by either Brazilian Agriculture
Ministry or the Department of Trade and Industry
• resident of Brazil may, upon specific decree, authorize the
acquisition of rural property beyond the provisions of the
current law, in cases where such property is the object of
priority projects involving the country’s development plans