The essential Corporate Law in Brazil (ii) Corporations SA

Brazilian law provides for different forms of association for the conduct of economic activities geared to the production or circulation of goods and services. Among the most usual are the corporation (“Sociedade Anônima S/A”) and the limited business company (LTDA), which are both subject to registration at the Commercial Board (“Junta Comercial”).

Regulation

Corporations are governed by their bylaws and by Law 6404/76 and are widely recommended when forming joint ventures in Brazil. The structure of a Corporation allows for the adoption of more robust corporate governance practices. The capital stock of a Corporation can also be controlled or fully owned by foreign legal entities and/or individuals.  The registry is fulfilled when registered at the Registro Público de   Empresas Mercantis (Junta Comercial).

Types

It can be either: (i) closely held (securities are not traded on the stock market) or (ii) publicly held (securities are traded on the stock market, subject to Law 6,385/76 and the Normative Rulings issued by the Brazilian Securities Commission (Comissão de Valores Mobiliários – CVM)), which corresponds to the U.S. Security Exchange Commission (SEC).

Share Capital

There is no minimum limit. Exceptions: financial institutions and trading companies, for example. The capital can be paid with currency or assets. At least 10% (or  50%, in case of financial institutions)  of the amount of  capital  subscribed in currency must be paid upon incorporation; the remaining amount must be paid during such term as set out in the Bylaws.

No minimum capital is required except for specific cases (financial institutions, trading companies, etc.). The Capital Structure follows the subsequent pattern: the capital is divided into shares, which can be either common or preferred shares, with or without a par value. Owners of shares can have their voting rights restricted and/ or be assigned additional economic benefits. A disproportional distribution of profits is not allowed by law, however, preferred shares may entitle shareholders to differentiated dividends. The number of non‑voting preferred shares may not exceed 50% of the company’s total shares. The advantages of the preferred shares of privately held companies are: (i) priority in the distribution of fixed or minimum dividends; (ii) priority in stock redemption, with or without a premium; (iii) accumulation of the advantages of items (i) and (ii). Shareholders: Minimum number: 2. They are entitled to the mandatory dividend. Liability of Shareholders:  Limited to the price of the subscribed or acquired shares. The corporation has a distinct existence from that of its shareholders. Hence it has capital autonomy in relation to the partners. It is the assets of the corporation that constitute the guarantee of creditors for debts incurred on its behalf. However, this rule is not absolute: for the protection of third parties, Brazilian legislation sets forth some cases wherein the partners are exceptionally accountable for the debts of the corporation. Examples: liability of the controlling shareholder for abuse of power in certain situations, the liability of partners for labor, tax and social security debts, liability for damages caused to consumers, liability for violations of the economic order (Antitrust Law), all arising from the application of the ‘piercing the corporate veil’ theory. These are exceptions established by law that cannot be quashed by a contractual provision. Transfer and assignment of shares: is free and does not depend on a by‑law change, operating by a term entered into the “Transfer of Registered Shares” book, dated and signed by the transferor and transferee, or their lawful representatives.

General Shareholders Meeting

Is the supreme body of the company. Convening quorum: in the first call, with the presence of shareholders representing a minimum of 1/4 of the voting share capital; in the second call, it will be called together with any number.  Types: annual (AGO) and special (AGE). AGO: powers to: (i) receive the administrator accounts and approve the financial statements; (ii) decide on the appropriation of net profits for the year and the distribution of dividends; (iii) elect the administrators and members of the Audit Committee, if applicable. Frequency: annually, in the first 4 months subsequent to the end of the fiscal year. AGE: powers to: (i) reform the corporate by‑laws; (ii) authorize the issue of debentures; (iii) suspend the exercise of shareholders rights; (iv) approve the valuation of assets contributed by shareholders for the formation of the share capital; (v) authorize the issue of participation certificates; (vi) decide on the transformation, merger and spin‑off of the company, or its absorption into another; (vii) approve its dissolution and liquidation, elect and depose liquidators and decide on their accounts; (viii) authorize the administrators to declare bankruptcy and request for judicial reorganization. For the voting of the following matters a qualified quorum is necessary, half the voting capital is needed for matters listed in Article 136 of the Corporations Acts; (ii) Simple majority is necessary for other matters. The Bylaws may require higher quorums for specific matters: a) creation of preferred shares or increase of existing classes of preferred shares, without maintaining a proportion with the other classes of preferred shares; b) alteration in the preferences, advantages and conditions of the redemption or amortization of one or more classes of preferred shares, or creation of a more privileged class; c) reduction of the mandatory dividend; d) merger by or of the company; e) participation in groups of companies; f) alteration of the corporate purpose; g) creation of the state of liquidation of the company; h) creation of participation certificates and (i) dissolution of the company. Frequency: whenever necessary. Reform of corporate by‑laws for: (i) a capital increase: requiring the prior opinion of the Audit Committee, if in operation. Types of increase: a) by capitalization of profits or reserves: implies the alteration of the par value of the shares or distribution to the shareholders of the new shares corresponding to the increase; b) by the public or private issue of shares: a condition for this type of increase is that at least 3/4 of the share capital has been paid up. The shareholders have the pre‑emptive right for the subscription of the increase, in proportion to the number of shares held thereby; (ii) capital reduction: requiring the prior opinion of the Audit Committee, if in operation. Situations: a) loss up to the sum of accumulated losses; b) if excessive. Opposition of creditors: the reduction only becomes effective 60 days after the publication of the AGE.

Administration

The management structure is composed by a Board of Officers (composed of at least two Officers, who must be an individual resident in Brazil) or a Board of Officers and a Board of Directors, as set forth in the corporate bylaws, furthermore they are responsible for the administration of the Corporation. All publicly held corporations, companies with authorized capital and quasi-public corporations must have a Board of Directors in place. Board of Directors: is responsible for fixing the generation of business and orientation of the company. It is composed of individuals, shareholders, residing in the country or otherwise (non‑residents shall necessarily have an attorney‑in‑fact in Brazil). Minimum number of members: 3. It is elected by the General Shareholders Meeting. Term of appointment: not more than 3 years, re‑election being permitted. Board of Executive Officers: is the executive body of the company and represents it before third parties. It is composed of individuals, shareholders or otherwise, residing in the country. Members of the Board of Directors, up to a maximum of 1/3, may be elected for executive officer positions. Minimum number of members: 2. They are elected and can be removed at any time by the Board of Directors (when there is one) or by the General Shareholders Meeting (when there is no Board of Directors). Appointment term: not more than 3 years, re‑election being permitted. The corporate by‑laws may establish that certain decisions that are the prerogative of the officers shall be taken in Board of Executive Officers meetings. In the event that the by‑laws are silent and in the absence of a decision of the Board of Directors, the representation and performance of the necessary acts for its regular operation will be the responsibility of any officer.