Company Law - Brazil Prof. Francisco Satiro email.: [email protected]...

Company Law - Brazil

Prof. Francisco Satiroemail.: [email protected] [email protected]

Università di Roma – La Sapienza

Master in Diritto Privato Europeo e della Cooperazione

mailto:[email protected]

mailto:[email protected]

Agenda

1. Models of entities in Brazil

2. Managers’ duties and liabilities

3. Shareholders’ liabilities

4. Capital Markets – Evolution

5. Capital Markets – Structure

6. Capital Markets – Data

7. Acquisition of rural property in Brazil

8. Foreigners coming for business

Company Law in Brazil: Models of Entities

• Most commonly used:

(i) Brazilian limited liability company (sociedade limitada, Ltda.)

(ii) Brazilian corporation (sociedade anônima, S.A.)

PS: individual enterpreneur

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)

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)- Partner's limited liability- No minimum capital requirements- No pay up requirements

Company Law in Brazil: Limited Liability Company (Ltda)

Rio de Janeiro - 1919

Sociedade por Quotas de Responsabilidade Limitada

1919 - Decree 3.708 (revoked)

- Management - one designated officer or any partner- Complimentary rules – Corporations (SA)- Regular bureaucratic incorporation - Capital maintenance rule- No minimum capital requirement- Contractual freedom


Rio de Janeiro - 1919

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


Brasilia (DF) 2002• nonresident partners shall appoint an 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)

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

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


Brasilia (DF) 2002

- Burocratic incorporation- Restrictions for husband x wife partnership- Unprecise rules on exclusion- OBS: not tax pass-through!

Sociedade Limitada

PROPOSALS:

• Proposal 1 – New Commercial Code


Brasilia (DF) 2002

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

- Remote voting


Brasilia (DF) 2002

- Non proportional dividends allowed

- appraisal rights

- shareholders exclusion rules

Sociedade Limitada

PROPOSALS:

• Proposal 3 – Old Ltda Projected Law revival • Proposal 4 – Adoption of UNCITRAL Model Law on

SAS


Brasilia (DF) 2002

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)

Company Law in Brazil: Corporation (S/A)

• mandatory publication (e.g., articles 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)

Recife, 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 allowed - limited to 50% of the total issued shares

Recife, 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

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

Company Law in Brazil: Limited Liability sole Proprietorship (EIRELI)

Recife, 1976

• 3 mandatory requirements:• paid-in minimum capital = 100 x

minimum wage in Brazil (R$67.800 or €$22.600,00)

• Activity under expression. “EIRELI” • each individual shall own only one

EIRELI

Salvador, 2011

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

Company Law in Brazil: Limited Liability sole Proprietorship (EIRELI)

Recife, 1976

• Can foreign investors use EIRELI?• Can EIRELIs explore non

commercial activities?

Salvador, 2011

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

1964 1976 2001first wave second wave third wave fourth wave

• Dispersed legislation concentrated on broker-dealers and financial institutions

• Corporations governed by Decree-law 2627 of 1940

• Organization of a national savings system

• Law 4595/64: regulation of a national financial system

• Law 4728/65: the first relevant special legislation of the Brazilian capital markets

• Prudential supervision and focus on systemic risk

• Stock Exchanges Crisis (1971-1972)

• Tax incentives to promote investments in stocks, investment funds and government bonds

• Establishment of a new regulatory model and an independent federal agency (Brazilian Securities Commission - CVM)

• CVM (The Brazilian regulatory authority) governed by Law 6385 of 1976 (Securities Law)

• Law 6404 of 1976: New Corporation Law: enacted to restore investors’ confidence and improve the corporate provisions

• 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

BACENBrazilian Central

Bank

CVMBrazilian Securities

Commission

Stock Exchange

OTC Markets

Investors

Securities

Financial Institutions Publicly held

companies


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: StructureCVM (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


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


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


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-the-counter markets)

• CVM Instruction N. 476 of 16 January 2009: restrict efforts public offerings.


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


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

*Right to vote in certain circumstances (e.g. transformation, consolidation, spin-off, merger)


BOVESPA Mais Novo Mercado Level 2 Level 1 Regular

Market

Characteristics of the issued

shares

Only ON (common) shares may be traded and issued, but the existence of PN (preferred)

shares is permitted

Only ON shares are allowed

ON and PN* shares are allowed

ON and PN shares are allowed

Minimum percentage of Shares Traded on the Market

(free float)

25% free float by the 7th year listed or minimum liquidity

conditions

At least 25% free float

N/A

Public share Offerings N/A Shall adopt mechanism to favor capital

dispersion and broader retail access N/A

Comparing the requirements of the Listings Segments:


BOVESPA

Mais Novo Mercado Level 2 Level 1 Regular Market

Board of Directors

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

Minimum 3 members (as

prescribed by law)

Granting of Tag Along Right

100% for ON shares

100% for ON and PN Shares

----100% for ON shares and 80% for PN shares until

May, 2011

80% for ON shares (as prescribed by

law)

By-laws sections

prohibited as of May, 2011

N/A

Sections that set forth the (i) reduction of the shareholders’ number of votes lower than

5% of the stock capital, (ii) qualified quorum and (iii) fundamental clauses (cláusulas

pétreas)

N/A



BOVESPA

MaisNovo

Mercado Level 2 Level 1 Regular Market

Annual Balance Sheet As

provided by law

According to standards of US GAAP or IAS/IFRS

Shall be translated in EnglishAs provided by law

Adherence to the Market Arbitration Pane as the vehicle to solve corporate disputes

Mandatory Optional

Disclosure of Annual Calendar of Corporate Events

Optional Mandatory Optional

Obligation to hold a tender offer by the economic value criteria, in case of delisting or deregistration process

N/A Mandatory N/A


Capital Markets in Brazil: Data

1. Registered Securities Offerings

2. Registered Stock Offerings

3. Securities Offering Registered

4. Stock Trading (billions of shares)

5. Stock Trading (BRL billion)

6. Registered Debt Securities

7. Debt Securities Trading (SND)

8. Debt Securities Trading (Bovespa Fix and Soma Fix)

9. Securitization

10. Securities registered in 2011

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

20,000,000,000

40,000,000,000

60,000,000,000

80,000,000,000

100,000,000,000

120,000,000,000

140,000,000,000

160,000,000,000

180,000,000,000

200,000,000,000

2793530569726482348396

12926222742

29303242471

71526070188

124961643152

166977532752

130661114415

87607056336

193670211134

161000000000

Registered Securities Offerings

Source: CVM

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (set)

0

20000000000

40000000000

60000000000

80000000000

100000000000

120000000000

140000000000

160000000000

566202410861472403152086342830

920520294211141255040

26983911220

67322943532

3400399587632280348057

152007567043

16561864281

Registered Stock Offerings

Source: CVM

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (jan-jul)

0

1000000000000

2000000000000

3000000000000

4000000000000

5000000000000

6000000000000

7000000000000

8000000000000

9000000000000

10000000000000

7015401999605

7532475571211

9221707901929

8167382003143

43759530233264621016212330

5182213726499

3960983898709

3152478906539

8347391606388

524376089629

Source: BM&FBovespa

1 – Stock Exchange and Over the Counter Markets2 – Spot Market (standard lot)3 – Stocks +CDAs (Stocks Certificate), including BDRs

Stock Trading

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (April 18)

0

20000000000

40000000000

60000000000

80000000000

100000000000

120000000000

140000000000

160000000000

566202410861472403152086342830

920520294211141255040

26983911220

67322943532

3400399587632280348057

152007567043

18982000000

143000000001298000000

Stock Trading

Source: CVM / Anbima

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (April 18)

0

10000000000

20000000000

30000000000

40000000000

50000000000

60000000000

70000000000

80000000000

90000000000

52824040009614451500

41538852294

69464083040

46533786497

37458538000

1108034810515634956000

48500000000

86615000000

5070000000

Registered Debt Securities

Source: CVM / Anbima

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (jan-jul)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

17383.0

21454.223816.0

14096.0

19162.914703.8

27305.3

64641.9

86646.182407.6

38684.4

Source: SND

1- Debt Securities traded on Secondary market2- SND: The National Debt Securities System

Debt Securities Trading(SND)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (jan-jul)0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

41.79

338.82405.20

1,412.81

324.44

100.26 132.44 147.75182.87 150.85

67.25

Source: BM&FBovespa

Debt Securities Trading(Bovespa Fix/Soma Fix)

1 – Debt Securities traded on secondary market

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (jan-jul)0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

99.76 98.45 98.33

90.89

98.34 99.32 99.52 99.77 99.79 99.82 99.83

0.241.55 1.67

9.11

1.660.68 0.48 0.23 0.21 0.18 0.17

SND Bovespa Fix and Soma Fix

FSources: SND and BM&FBovespa

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (April 18)

0

2000000000

4000000000

6000000000

8000000000

10000000000

12000000000

14000000000

16000000000

200000000.0

1540000000.0

5134650000.0

8579125001.5

12777399200.0

9961555677.810020850000.0

8212657727.1

10233600000.0

14734000000.0

5593000000.0

108000000.0142,176,578.4287,598,926.1403,079,740.4

2,102,321,704.7

1,071,436,800.9868,298,374.2830,736,816.31,223,975,134.3

2,138,652,571.9

12,427,000,000.0

9,947,000,000.0

173,000,000.0

FIDC CRI

Securitization

FIDC: Receivables Investment FundsCRI: Real Estate Certificate Receivables Source: CVM / Anbima

Stocks Debt Securities Securitization FIP Real Estate Investment Fund

Others0

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

14,000,000,000

16,000,000,000

18,000,000,000

17413612171.3

2460000000.0

6363863170.2

2445100000.0

4956335656.8

3855958063.0

Securities registered in 2011

1 – Stocks: Stocks+Stocks Certificate2 – Securitization: FIDC: Receivables Investment Funds + CRI: Real Estate Certificate Receivables

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 BrazilPermanent 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


• 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


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

Date post:	17-Dec-2015
Category:	Documents
Upload:	ophelia-banks
View:	213 times
Download:	0 times

Company Law - Brazil Prof. Francisco Satiro email.: [email protected]...

Documents