Shareholders' Rights & Shareholder Activism 2024 Comparisons

The answers in this Law & Practice chapter refer to one specific type of company, namely the Brazilian limited liability company (sociedade anônima). Although there are other types of companies that are very common in Brazil, such as sociedades por quotas, these are typically small to medium-sized companies, normally run by family members or by individuals with personal bonds. These companies are not allowed to offer securities publicly and have a simpler form of corporate governance. Thus, they will not be subject to analysis herein.

Companies (sociedade por ações) in Brazil may be either privately held (companhia fechada) or publicly held (companhia aberta). A company is publicly held when it is registered with the Brazilian Securities Commission (Comissão de Valores Mobiliários (CVM)). Also, publicly held companies are divided into two categories: category A companies, for which the public issuance of any securities is allowed, and category B companies, for which only the public issuance of securities that are not shares or securities convertible into shares is allowed.

The type of company foreign investors use depends on the objectives of the investors (see 1.1 Types of Company).

Companies may have common or preferred shares. A common share, as a general rule, entitles its owner to one vote at any shareholders’ meeting.

Law 14,195, enacted on 26 August 2021, approved an amendment to Law no 6.404 of 15 December 1976, as amended (the “Brazilian Corporate Law”), to include the cumulative voting share, which allows common shares to have more than one vote per share under the conditions provided therein.

Preferred shares in general do not have voting rights and must have certain privileges granted and established in the by-laws, in addition to the economic privileges provided for in the law. One of these privileges, in closely held corporations, may be priority in the distribution of dividends (fixed or minimum) and/or in the reimbursement of the capital in the case of liquidation, with or without a premium. In public companies, one of the privileges may be the tag-along right, that is, the right to be included in the offer for the acquisition of control of the company, and being paid an amount per share corresponding to 80% of the price offered by the new controlling shareholder to the former owners of the company.

Rights of the Shareholder

According to the Brazilian Corporate Law, neither the by-laws of a company nor actions taken at a shareholders’ meeting may deprive ashareholder, regardless of its equity stake in the company, of the following rights.

• The right to participate in the distribution of dividends.
• The right to participate, in proportion to the holder’s share of the company’s capital stock, in the distribution of any remaining assets in the event of liquidation of the company.
• The right to participate in any shareholders’ general meetings and discuss the matters of the agenda.
• Pre-emptive rights in the event of a subscription of shares, convertible debentures or subscription warrants, except in certain specific circumstances under the Brazilian Corporate Law, including the possibility of exclusion or reduction of pre-emptive rights by the board of directors up to the limit of the company’s authorised capital stock if the distribution of those shares is effected through a stock exchange, a public offering or an exchange of shares in a public offering, the purpose of which is to acquire control of another company.
• The right to withdraw from the company under circumstances such as:
1. reduction of the mandatory dividend;
2. creation of preferred shares or any changes thereto;
3. merger and acquisition of the company; and
4. any amendment to the company’s corporate purpose.
• The right to call a shareholders’ general meeting if the directors of the company fail to call a meeting within 60 days from the date they were required to do so under the provisions of the Brazilian Corporate Law.
• The right to monitor the management of the company in accordance with the Brazilian Corporate Law.
• The right to propose a liability proceeding against the officers and directors of the company if no such lawsuit is proposed within three months of approval by the shareholders’ general meeting.

Shareholders’ rights may vary depending on the type and class of shares, as detailed in 1.3 Types or Classes of Shares and General Shareholders’ Rights.

Also, certain rights may only be exercised by shareholders representing a determined percentage of the company’s capital stock:

General Meetings

Shareholders representing 5% or more of the capital stock of the company may call a shareholders’ general meeting if the directors or officers of the company fail to call a meeting within eight days after receipt of a duly justified shareholder request to call the meeting, indicating the proposed agenda.

Shareholders representing 5% or more of the voting capital or 5% of the non-voting capital of the company may call a shareholders’ general meeting if the directors or officers of the company fail to call a meeting within eight days after receipt of a request to call a meeting to establish the fiscal council.

Shareholders representing 0.5% or more of the capital stock of the company may require a list of the addresses of the shareholders for whom the company required a proxy to a shareholders’ general meeting in order to send them the same request.

Board of Directors

Minority shareholders representing at least 10% of the voting capital may require the adoption of a multiple voting system, by means of which each share is entitled to as many votes as there are board members, and shareholders are entitled to the right to vote cumulatively for only one candidate or to distribute their votes among several candidates; and

In a separate election, shareholders representing at least 15% of the voting capital of the company and non-voting shareholders representing at least 10% of the capital stock of the company may each elect one member of the board of directors and its alternate; in case the holders of voting and no voting shares do not reach the required percentage, shareholders (either voting or non-voting) representing at least 10% of the capital stock of the company may elect one member of the board of directors and its alternate.

Fiscal Council

A fiscal council must be established at a shareholders’ general meeting upon the request of shareholders representing 10% of the voting capital or 5% of the non-voting capital.

In a separate election, the holders of non-voting shares will have the right to elect one member and an alternative, and the holders of voting shares representing 10% of the voting capital will also have the same right.

The members of the fiscal council must provide information about matters of their responsibility whenever required by shareholders representing at least 5% of the capital stock of the company.

Other Variations

Shareholders representing at least 5% of the capital stock of the company may require, in a shareholders’ general meeting, the officers and directors to disclose information about shares acquired and sold in the last fiscal year, including from stock option plans, benefits received from affiliated companies, conditions of the employment agreement and material facts related to the company.

If the shareholders’ general meeting decides not to propose a liability proceeding against any officers or directors of the company, shareholders representing at least 5% of the capital stock of the company may do so.

Shareholders representing at least 5% of the capital stock of the company have the judicial right to require the exhibition of the books of the company whenever the shareholder is suspicious that acts in violation of the law or the by-laws have occurred, or that irregularities have been committed by any of the management bodies of the company.

It is worth mentioning that the minimum percentage for the exercise of some of the aforementioned rights can decrease depending on the amount of the capital stock of the company, as provided for in CVM Resolution 70/22 (applicable to publicly held companies only).

There are no minimum share capital requirements, except as required by law, as is the case for financial institutions. At least 10% of the issuance price of the shares subscribed in cash must be paid in the constitution of the company.

Companies must have at least two shareholders, which can be either individuals or legal entities.

As a rule, all shareholders of Brazilian companies, whether individual or legal entities, may be resident or domiciled abroad. Certain sectors have a restriction on the participation of a foreign investor or require specific government authorisation, such as financial institutions, mining and exploration of mineral and energy resources, the oil sector and broadcasting and the news media sector.

It is very common for shareholders to enter into shareholders’ agreements and joint venture agreements.

The typical provisions of shareholders’ agreements are related to the exercise of voting rights, including preparatory meetings, election of members of the board of directors, mechanisms for the transfer and sale of the shares – such as the right of first refusal and tag- and drag-along rights – and deadlock provisions.

The typical provisions inserted in joint venture agreements are related to the parties’ contributions, the sharing of profits and loss, risks and liabilities, control issues and decision-making, restriction on the sale of shares, exit strategies, confidentiality and non-competition clauses, dissolution and dispute-resolution mechanisms.

Shareholders’ agreements and joint venture agreements are enforceable in Brazil.

As a rule, such agreements are not public unless they are shareholders’ agreements involving a publicly held company, in which case they must be disclosed to the market.

Annually, in the first four months following the end of the fiscal year, the company must hold one annual general meeting (assembleia geral ordinária) to:

• take the administrators’ accounts and examine, discuss and vote on the financial statements;

• resolve on the allocation of net income for the year and the distribution of dividends; and
• elect the administrators and members of the fiscal council, when applicable – as they may also be elected at an extraordinary shareholders’ meeting – and approve their compensation.

In relation to the notice of the annual meeting, see 2.2 Notice of Shareholders’ Meetings.

Pursuant to the Brazilian Corporate Law, all notices for shareholders’ meetings, either annual or extraordinary, must be published at least three times in a high-circulation newspaper.

Publicly Held Companies

The first notice must be published at least 21 days prior to the shareholders’ meeting and no later than eight days before the date of the meeting on the second call. The CVM may also, upon the request of any shareholder:

• determine the postponement of the shareholders’ meeting for up to 30 days in the case of insufficient information provided for the meeting; and
• suspend, for up to 15 days, the process of calling for a particular extraordinary shareholders’ meeting in order to understand and analyse the proposals to be submitted at the meeting.

Closely Held Companies

The first notice is published at least eight days prior to the shareholders’ meeting, and no later than five days before the date of the meeting on the second call.

However, the notice can be shortened by bringing together all the shareholders; in this way, the lack of publication of the announcements or the failure to observe the deadlines can be considered resolved.

Shareholders’ meetings are usually called by the board of directors. However, shareholders’ meetings may also be called by:

• any shareholder, if the board of directors fails to call a shareholders’ meeting within 60 days from the date set forth by applicable laws or by-laws;
• shareholders holding at least 5% of the company’s total capital stock, if the board of directors fails to call a shareholders’ meeting within eight days from the receipt of a request for such a meeting, indicating the issues to be discussed and appropriate reasons;
• shareholders holding at least 5% of the company’s voting shares or 5% of the company’s non-voting shares, if the board of directors fails to call a shareholders’ meeting within eight days of the receipt of a request to call a meeting for the formation of the fiscal council; and
• the fiscal council, if the board of directors delays calling the annual shareholders’ meeting by up to one month.

It is worth mentioning that the minimum percentage for the exercise of some of the above-mentioned rights can decrease depending on the amount of the capital stock of the company, as provided for in CVM Resolution 70/22 (applicable to publicly held companies only).

Pursuant to the Brazilian Corporate Law, all notices for shareholders’ meetings must be published at least three times in a high-circulation newspaper. In the case of publicly held companies, there is also the obligation to disclose the call notice on the websites of the company, CVM and Brazilian Stock Exchange (B3).

The Brazilian Corporate Law establishes that closely held companies with annual gross revenue of up to BRL78 million may publish the information required by the applicable legislation electronically.

All documents pertaining to the matters relating to the meeting must be available to the shareholders at the time the meeting is called. For publicly held companies with free float, CVM Resolution 81/22 requires minimum information to be provided depending on the matter to be resolved at the meeting.

Specifically in relation to the annual meeting, management must make available to the shareholders the following documents one month before the date of the meeting:

• the report issued by the officers on the corporate business and the main administrative facts of the ended fiscal year;
• a copy of the financial statements;
• the independent auditors’ report, if any;
• the opinion of the fiscal council, including dissenting votes, if any; and
• other documents related to the items included in the agenda.

Shareholders representing at least 5% of the capital stock of the company (or less, depending on the capital stock in the case of publicly held companies) have the right judicially to require the exhibition of the books of the company whenever the shareholder is suspicious that acts in violation of the law or the by-laws have occurred, or that irregularities have been committed by any of the management bodies of the company.

Shareholders’ meetings can be attended remotely. Brazilian laws and regulations grant shareholders of either closely or publicly held companies the flexibility to allow meetings to be held virtually.

As a general rule, the Brazilian Corporate Law provides that a quorum for the purposes of initiating a shareholders’ meeting shall consist of shareholders representing at least 25% of the total number of votes attached to the voting shares on the first call or, if that quorum is not reached, any percentage of the company’s voting capital stock on the second call. When the purpose of a shareholders’ meeting is to amend the company’s by-laws, a quorum consists of shareholders representing at least two-thirds of the total number of votes attached to the voting shares on the first call, and any percentage on the second call.

In respect to the quorum for the approval of the items of the agenda, see 2.8 Shareholder Approval.

All the resolutions of shareholders must be approved at a duly convened meeting (see 2.8 Shareholder Approval in relation to the matters that must necessarily be approved by the shareholders and their respective quorum of approval). In addition to those matters, the by-laws may reserve other matters to be decided by the shareholders.

The Brazilian Corporate Law has adopted the principle of majority, which means that 50% of the voting shares plus one additional share present at the meeting has authority to decide on the matters to be resolved by the shareholders.

However, the affirmative vote of shareholders representing at least 50% of the total number of votes attached to the voting shares is required to approve the following matters (qualified quorum):

• a change in the company’s corporate purpose;
• a reduction in the percentage of minimum mandatory dividends to be distributed to the shareholders;
• any merger into or consolidation with another company;
• any spin-off;
• the participation of the company in a group of companies (grupo de sociedades, as defined in the Brazilian Corporate Law);
• application for cancellation of any voluntary liquidation;
• dissolution of the company; and
• merging all common shares into another Brazilian company, so that the company becomes a wholly owned subsidiary of that company (incorporação de ações).

For publicly held companies with a significant free float, as exemplified by cases where the companies’ three previous shareholders’ meetings were attended by common shareholders representing less than 50% of its total voting capital stock, the CVM may authorise a reduction of that quorum.

The by-laws of closely held companies may determine a higher quorum than the ones provided for in the Brazilian Corporate Law.

Meetings may be held live, in the company’s headquarters, or virtually.

A common share, as a general rule, entitles its owner to one vote at any shareholders’ meeting. Law 14,195, enacted on 27 August 2021, approved an amendment to Law No 6,404, of 15 December 1976, as amended, or the Brazilian Corporate Law, in order to include the cumulative voting share, which allows common shares to have more than one vote per share under the conditions provided therein.

Cumulative voting is also permitted in the election of the board of directors, when it is requested (see 6.1 Rights to Appoint and Remove Directors).

According to the Brazilian Corporate Law, the shareholder may be represented in the meeting as follows:

• if a natural person, by an attorney-in-fact constituted for less than one year (which must be a shareholder, a manager, a lawyer or a financial institution);
• if a legal entity, by its legal representatives or by an attorney-in-fact appointed pursuant to its by-laws; and
• if an investment fund, by its fund manager or by an attorney-in-fact appointed pursuant to its by-laws.

Since 2017, shareholders of publicly held companies may also exercise their voting rights in annual shareholders’ meetings and extraordinary shareholders’ meetings, either called to elect members of the fiscal council or the majority of the members of the board of the directors, or whenever the company decides, through the distance voting ballot (boletim de voto a distância), which allows shareholders to cast their votes in a form that can be delivered to the shareholders’ custodian, the share registrar agent of the company or directly to the company (CVM Resolution 81/22).

Also, Brazilian law and regulation allows the public request of proxy, although this is not often used.

Shareholders representing 5% or more of the capital stock of the company may call a shareholders’ general meeting if the directors or officers of the company fail to call a meeting within eight days after receipt of a duly justified shareholder request to call the meeting indicating the proposed agenda (see 2.3. Procedure and Criteria for Calling a General Meeting).

For publicly held companies, the CVM allows shareholders representing percentages of the capital stock varying from 0.5% to 5%, depending on the amount of the capital stock, to include in the boletim de voto a distância candidates for the fiscal council and/or the board of directors, and/or to make proposals regarding matters to be deliberated in the shareholders’ meeting (CVM Resolution 81/22).

Shareholders may challenge a resolution passed at a general meeting if it does not comply with the law, the by-laws of the company or a shareholders’ agreement. There is no minimum percentage of capital stock required to challenge a resolution. The Brazilian Corporate Law established the statute of limitation to cancel a resolution passed at a general meeting at two years.

For more information regarding possible measures to be taken by the shareholders against the company or its management, see 10.1 Remedies Against the Company and 10.2 Remedies Against the Directors.

Institutional investors and other shareholder groups can influence and/or monitor the actions of the company by attending general meetings and voting on matters submitted to them for approval, including the company’s financial statements and the appointment of members to the board of directors.

According to Brazilian Corporate Law, it is also a fundamental right of shareholders to monitor the management of the company.

There are no legal provisions in Brazil concerning shareholders who hold their shares through a nominee according to Brazilian Corporate Law.

Under Brazilian law, a meeting is always required for matters to be decided by the shareholders. The call notice may be dismissed if all the shareholders are present at the meeting.

The right of pre-emption is one of the fundamental rights of shareholders under Brazilian Corporate Law and applies to the various types and classes of shares that may constitute the company’s share capital, as well as to securities convertible into shares. The law provides that the right may be exercised not only by payment in cash, but also by the capitalisation of credits or the subscription of assets. The purpose of the pre-emption rights is to prevent abuses that would dilute a shareholder’s interest in the company’s share capital.

Under this provision, the shareholder has the right (but not the obligation) to subscribe, on a preferential basis, to new shares issued in the event of an increase in the company’s share capital, in the same proportion as the portion they already own, thereby maintaining the same position as before the increase.

Shareholders may waive their pre-emption rights.

The by-laws of a closely held company may establish limitations on the transfer of shares if such limitations are regulated in detail and do not prohibit transfers nor subject the shareholder to the discretion of the management or of a majority of the shareholders.

Shares of a publicly held company may only be traded after payment of 30% of their issue price.

Depending on the segment of corporate governance of B3 chosen by the company, there is a lock-up period of 12 months (limited to 40% of their shares in the second six-month period) on the shares held by the controlling shareholders and management rights after the company’s initial public offering (IPO).

Shareholders are entitled to grant security interests over their shares. Shares may be sold by their owners, either privately or in the securities market, in the case of publicly held companies with shares admitted to trading.

The by-laws of a privately held corporation may set forth restrictions on the transfer of shares but cannot eliminate that right. Shareholders in a publicly or privately held corporation may enter into agreements granting rights of first refusal and co-sale, among other rights, which are enforceable if registered in the proper corporate books.

In the case of publicly held companies, and pursuant to CVM Resolution 44/21, whenever the direct or indirect ownership interest of any shareholder or group of shareholders increases or decreases by 5%, 10%, 15% and successively in 5% increments, of each type or class of the company’s shares, that shareholder or group of shareholders must report to the company the following information:

• the name and qualification of the person providing the information;
• the purpose of the interest and expected amount;
• the number of shares and other securities and derivative financial instruments relating to those shares, whether a physical or financial settlement, specifying the quantity, class and type of the referenced shares;
• the terms of any agreement regulating the exercise of voting rights or the purchase and sale of their marketable securities; and
• if the shareholder resides or is domiciled outside Brazil, the name and taxpayer identification number of their agent or legal representative in Brazil.

Also, the participation of the controlling shareholder must be disclosed in the company’s annual form (Formulário de Referência), and all trades made by the controlling shareholder with securities issued by the company – or referenced in them – must be disclosed monthly by companies listed in one of the special listing segments of B3.

A company’s shares may be cancelled after they have been issued. Some of the scenarios that may lead to the cancellation of shares are described in the following.

Buyback

This occurs when a company buys its own outstanding shares on the market. Share buybacks may be used to increase the value of the company’s remaining shares, reduce the number of outstanding shares, increase earnings per share and/or signal that the company believes its shares are undervalued. The repurchased shares may be held in treasury or cancelled by the company.

Capital Reduction

A capital reduction is a process via which a company reduces its share capital. In some cases, this involves the cancellation of shares, which requires a detailed analysis and consideration of the rights of the company’s shareholders. The Brazilian Corporate Law sets out the rules for a capital reduction to ensure that the process is transparent and fair to all shareholders. One of the first procedures required for a capital reduction is to call a shareholders’ general meeting so that shareholders can discuss and vote on the proposed capital reduction and share cancellation. It is essential that the proposal be detailed and justifies the need for and objectives of the capital reduction.

Redemption of Shares

This is the process by which the company’s shares are definitively withdrawn from the market, meaning that they are permanently taken out of circulation and may or may not reduce the company’s share capital. When shares are redeemed with a reduction in share capital, the value of the remaining shares is not changed. On the other hand, if shares are redeemed without a reduction in share capital, the value of the remaining shares will change.

See 4.1. Cancellation.

Legal Restrictions

According to CVM Resolution 77/22, the acquisition of its own shares by a publicly held company is prohibited if:

• the shares belong to the controlling shareholder;
• it is conducted on organised securities markets at prices higher than market prices;
• the offer period for the shares is ongoing, in accordance with the relevant regulations; or
• it requires the use of resources greater than those available.

The trading of its own shares by a publicly held company must be completed within 18 months from the approval of the transactions via the general meeting of shareholders or the board of directors. In addition, publicly held companies must not hold more than 10% of each type or class of shares outstanding in the market.

Legal Requirements

Annually, in the first four months following the end of the fiscal year, the company must hold one annual general meeting (assembleia geral ordinária) to, among other matters, resolve on the allocation of net income for the year and the distribution of dividends. The mandatory dividend is equivalent to a minimum percentage of the relevant year’s earnings, adjusted according to the provisions set forth in the Brazilian Corporate Law.

If such distribution is not advisable in light of the financial condition of the company at that time, the Brazilian Corporate Law allows management to suspend such distribution.

Any suspension of the mandatory distribution must be reviewed by the fiscal council. In addition, the management of companies with publicly traded securities must submit a report setting forth the reasons for the suspension to the CVM within five days after the shareholders’ meeting. Profit not distributed as a result of such suspension is allocated to a separate reserve account and, if not absorbed by subsequent losses, is required to be distributed as soon as the financial condition of the company permits the payments.

In addition, the by-laws may authorise the board of directors or officers to approve the distribution of interim dividends in periods of time other than during the annual shareholders’ meeting, based on the profit of the ongoing fiscal year or reserves established in previous fiscal years.

As a general rule, the members of the board of directors are elected and removed by the vote of the majority of the shareholders in a duly convened shareholders’ meeting (see 2.8 Shareholder Approval and 2.1 Types of Meeting, Notice and Calling a Meeting).

However, the Brazilian Corporate Law grants shareholders who – individually or collectively – hold at least 15% of the common shares or 10% of the preferred shares, on a separate ballot, the right to select one director each and their alternative. If the holders of common or preferred shares do not achieve the required percentage as an individual class, together (with 10%) they can elect one member.

Election by Voting System

Also, shareholders may require a cumulative voting system to elect board members. Thus, any shareholder or group of shareholders holding at least 10% of the company’s capital may request that, at a shareholders’ meeting to elect the board of directors, the number of votes of each voting share be the same as the number of board members to be elected. Each shareholder may then vote for one board member with all his or her votes or distribute the votes among different members of the board of directors.

CVM Resolution 70/22 allows the minimum voting capital percentage required for the adoption of the multiple voting system in publicly held companies to be reduced from 10% to as low as 5%, depending on the value of the company’s capital stock.

The number of board members may exceed the maximum set forth in the by-laws of the company if separate voting procedures are requested by the shareholders and, concomitantly, the election of the board of directors is conducted through the multiple voting system. Should this occur, shareholders or a group of shareholders bound by voting agreements representing more than 50% of the total number of votes attached to the voting shares would be entitled to select the same number of directors elected by the other shareholders plus one, regardless of the number of directors specified in the company’s by-laws.

Shareholders may challenge a decision/action taken by the company’s board of directors (see 10.1 Remedies Against the Company and 10.2 Remedies Against the Directors).

The appointment and removal of the auditors of the company is a matter reserved to the board of directors. The members of the board elected by the minority shareholder in a separate ballot (see 6.1 Rights to Appoint and Remove Directors), if any, have a veto right on this matter.

The duty of disclosure is established in the Brazilian Corporate Law, and its purpose is to disclose information about the securities issued by the company that the director/officer manages, as well as those belonging to the same group, along with material acts or facts that may have a significant influence on the company’s business.

This obligation specifically applies to directors/officers of publicly held companies and includes the right of shareholders representing 5% or more of the share capital at the general meeting to request further information, such as:

• the number of securities issued by the company or by controlled companies, or companies in the same group that they have acquired or disposed of – directly or through other persons – during the previous fiscal year;
• the stock options that they have contracted or exercised during the previous fiscal year;
• the benefits or advantages, whether indirect or ancillary, that they have received or are receiving from the company and from affiliated companies, controlled companies or companies in the same group;
• the terms of the employment agreements that the company has signed with members of the board of officers and the senior executives; and
• any relevant acts or facts related to the company’s activities.

In addition, the directors must report annually on their activities in the company in a clear, concise, and timely manner.

Under the Brazilian Corporate Law, the controlling shareholder must use their power to ensure that the company fulfils its corporate purpose. The controlling shareholder has duties and responsibilities to the other shareholders of the company, as well as to its employees, and must respect and fulfil their rights and interests.

The controlling shareholder of a listed company, as well as the shareholder or group of shareholders who elects a member of the board of directors or a member of the fiscal council, is also required to immediately inform the CVM, the B3 or the organised market on which the securities issued by the company are traded of any change in their shareholding in the company, in accordance with the conditions determined by the CVM.

In addition, a controlling shareholder is liable for any damage caused by acts performed through the abuse of their power, such as:

• directing a company towards an objective that is not in accordance with its corporate purpose clause – or that is detrimental to the national interest – or causing it to favour another Brazilian or foreign company to the detriment of the interests of the shareholders;
• providing for the liquidation of a viable company, or for the transformation, merger or division of a company, in order to obtain an advantage for themselves or a third party to the detriment of the other shareholders, the employees of the company or the investors in securities issued by the company;
• providing for any amendment of the by-laws, the issuance of securities or the adoption of any policy or decision that is not in the best interests of the company and is intended to prejudice the minority shareholders, the employees of the company or the investors in securities issued by the company; and
• electing an officer or a member of the fiscal council known to be unfit for the position or unqualified.

The shareholders’ meeting is exclusively responsible for authorising the management of the company to request judicial recovery or bankruptcy, and to approve the dissolution and liquidation of the company. The approval of the dissolution of the company and the cancellation of any voluntary liquidation are subject to a qualified quorum (see 2.6 Quorum, Voting Requirements and Proposal of Resolutions).

However, shareholders are not entitled, individually or as a group, to initiate an insolvency proceeding against the company (as a financial or operational creditor would be able to do).

Although there were temporary measures approved in connection with insolvency proceedings a result of the COVID-19 pandemic and the resulting economic crisis, there were no changes in relation to shareholders’ rights, as previously described.

Legal Liabilities

Pursuant to the Brazilian Corporate Law, officers and directors are not personally liable for obligations assumed by the company by virtue of a regular management act, in which case only the company is liable. A regular management act is one that is performed within the limits of the duties of the officers and directors, without violation of the law or the articles of incorporation/by-laws.

However, the company is not liable for illegal acts performed by its managers. For the liability for those acts, see 10.2 Remedies Against the Directors.

Also, in Brazil, the legal framework does not welcome the “class actions” existent in US and UK legislation to require indemnification from the company. A similar action, public civil action (ação civil pública), can normally be brought by the public prosecutor’s office or associations authorised by law, but these are not used to request this kind of indemnification.

If shareholders feel they are being harmed, they can always file a claim individually to the judiciary to guard their rights, based on the principles of civil liability. For that purpose, they will have to demonstrate that the conduct of the company has caused a damage to that shareholder. However, this kind of legal claim is highly unusual.

As discussed in 10.1 Remedies Against the Company, officers and directors are not personally liable for obligations assumed by the company by virtue of a regular management act. Officers and directors are personally liable when they have (i) acted under wilful misconduct or fault (even if within their duties) or (ii) violate the law or the by-laws (strict liability/lack of need to demonstrate wilful misconduct or fault). Thus, even if an act by officers or directors causes harm to the company, they shall only be personally liable if it is shown that their decisions were made in bad faith or through an unlawful act.

In those cases, the company has the obligation, after the shareholders’ vote has been taken at a formal general shareholders’ meeting, to file a civil liability lawsuit against the officers and directors, as the case may be, to recover the damages caused to the company or its assets. It is important to mention that, if the matter is not part of the original agenda of the shareholders’ meeting but is connected to any matter or topic that will be discussed or voted on, it can be included in the extraordinary general meeting’s agenda at any time (previous to or even during the meeting). The director(s) or officer(s) against whom the lawsuit could be filed will be impeded and must be replaced at the same time.

In addition, the Brazilian Corporate Law also provides for an individual lawsuit to be filed by shareholders or third parties against members of the management, to recover direct losses for acts caused by those managers. In this case, there is no need for a previous formal approval from the general shareholders’ meeting or for a minimum percentage that must be held by a shareholder.

For the purposes of liability, members of the fiscal council or committees created by the company’s by-laws are also considered members of the management and can be held liable in the aforementioned scenario.

As discussed in 10.2 Remedies Against the Directors, officers or directors are personally liable towards the company if they cause damages to it and if it is shown that their decisions were made in bad faith or through an unlawful act.

As a rule, the general shareholders’ meeting shall decide if a lawsuit should be brought against the management. If the meeting so decides, it is up to the company to file the lawsuit as soon as possible.

Shareholder Resolutions

However, in certain special situations, the Brazilian Corporate Law grants to shareholders legitimacy to propose legal measures on behalf of the company, with the objective of preserving the company’s assets against losses caused by illegal acts of the management.

Thus, if the resolution is approved by the shareholder meetings and the aforementioned civil liability lawsuit is not filed by the competent bodies of the company within three months, any shareholder of the company may do so, proposing the action for the benefit of the company.

Also, in cases in which the shareholders’ meeting rejects the proposal to file a civil liability lawsuit against the managers, this action may also be proposed by shareholders representing at least 5% of the share capital. It is worth mentioning that this minimum of 5% for the exercise of the aforementioned rights can decrease, depending on the amount of the capital stock of the company, as provided for in CVM Resolution 70/22 (applicable to publicly held companies only).

There are no specific rules in Brazil regulating shareholder activism. The Brazilian Corporate Law, applicable both to public and private companies, sets forth special rights with the purpose of protecting minority shareholders, and these rights can be used for shareholder activism. Also, the rules issued by the CVM and by B3, applicable to publicly held companies only, provide for additional shareholders’ rights. For a list of the main rights established by the Brazilian Corporate Law, the CVM and B3, see 1.3 Types or Classes of Shares and General Shareholders’ Rights and 1.4 Variation of Shareholders’ Rights.

Shareholder Rights

In Brazil, the following rights that shareholders tend to use more for activism can be highlighted:

• the right to call a shareholders’ meeting whenever the managers of the company delay the call for more than 60 days, in the cases set forth in the Brazilian Corporate Law or the by-laws of the company (applicable to any shareholder);
• the right to call a shareholders’ meeting whenever the managers of the company fail to do so within the term of eight days, upon their justifiable request that a meeting be called, which shall also indicate the matters to be discussed (applicable to shareholders holding at least 5% of the capital stock of the company);
• the right to request to the CVM the interruption of the term between the first notice of call and the shareholders’ meeting date for up to 15 days, in order for the CVM to analyse the agenda of the meeting (applicable to any shareholder of publicly held companies, in accordance with CVM Resolution 81/22);
• the right to file a lawsuit to obtain indemnification from directors or officers, as the case may be, for damages caused to the company, whenever the general shareholders’ meeting decides that such a lawsuit shall be filed and the company fails to do so within a period of three months after the meeting (applicable to any shareholder);
• the right to file a lawsuit to obtain indemnification from directors or officers, as the case may be, for damages caused to the company, whenever the general shareholders’ meeting decides that such a lawsuit shall not be filed (applicable to shareholders holding at least 5% of the capital stock of the company);
• the right to request the adoption of a multiple vote system for the election of members of the board of directors (applicable to shareholders holding at least 10% of the voting capital of the company);
• the right to request the setting-up of a fiscal council (applicable to shareholders holding at least 10% of the shares with voting rights or 5% of shares with no voting rights);
• the right to separately elect one member of the fiscal council and its respective alternative (applicable to shareholders holding at least 10% of the shares with voting rights or to any shareholder with no voting rights); and
• the right to separately elect one member of the board of directors of the company (applicable to shareholders holding at least 15% of the shares with voting rights or 10% of the shares with no voting rights).

Amendments to the rule

It is worth mentioning that the minimum percentage for the exercise of the aforementioned rights can decrease, depending on the amount of the capital stock of the company, as provided for in CVM Resolution 70/22 (applicable to publicly held companies only).

Specifically in relation to the COVID-19 pandemic, a very welcome rule was an amendment in the Brazilian Corporate Law (and the issuance of regulation from the CVM for publicly held companies) allowing companies to hold general shareholders’ meetings virtually. This was a topic much discussed by the market but never implemented (until the pandemic), and the belief is that this allowance is here to stay, with many public and private companies deciding to hold their meetings virtually over the last two years even when the social distancing rules were lighter.

Shareholder activism is not a common practice in the Brazilian market, since, historically, most Brazilian corporations have a controlling shareholder – usually a founder, who is also a member of the board of directors or a director – and a low level of capital dispersion. However, this scenario has been gradually changing over the last few years for a number of reasons, such as the following.

• Growth of the Brazilian capital markets, reflected by a larger number of companies becoming public and making successful IPOs, and by a growing number of investors (including individuals trying to diversify their investment portfolios and institutional investors). According to information disclosed by B3 in March 2022 and May 2024 about the profile of the investors, the number of taxpayer registry (CPF) numbers of Brazilian federal individuals entered into the B3 system has been increasing each year, from 1.4 million in December 2019 to 4.3 million in the first quarter of 2021. Since 2020, the investor base has grown by more than 80%.

• A significant increase in environmental, social and governance (ESG) practice by Brazilian companies and a larger number of companies listed in the special listing segments of B3, which require stricter rules of corporate governance and minority protection.
• A real effort from companies to create mechanisms to allow for greater capital dispersion, adopting the ethos of “true” corporations.
• A large number of Brazilian companies being affected by compliance/corruption investigations, which has resulted in a considerable reduction in their share value – in turn followed by minority shareholders’ losses – causing their shareholders to be more aware of their rights and, consequently, allowing them to engage in more active participation.
• A more proactive role of proxy advisory firms, such as ISS and Glass Lewis, which have released guidelines relating to the agenda of several companies.
• A more proactive role of independent (or “activist”) asset-management firms investing in companies with assets that are undervalued by the market with the intention to implement changes in the management or policies of the company.
• Recent initiatives and rules issued by the CVM allowing for more transparency, disclosure and participation of minority shareholders in general meetings, such as:
1. enhancement of the content of the Formulário de Referência, which obliges companies to disclose in a very detailed manner most of the aspects of their corporate governance rules, including the highest, lowest and average remuneration received by the members of the management;
2. the creation of the corporate governance form, which provides for ideal corporate governance principles and requires companies to explain why each of them has – or has not – been adopted;
3. the creation of the boletim de voto a distância, which allows shareholders to send their written votes in advance of the meeting if they were present;
4. the possibility of entirely virtual shareholders’ meetings, which allow a larger number of participants of publicly held companies; and
5. the possibility of decreasing, depending on the amount of the capital stock of the company, the minimum percentage established by the Brazilian Corporate Law for the exercise of certain rights, such as the right to file a lawsuit to obtain indemnification from directors or officers to the benefit of the company.

Shifts in the Capital Market

The aforementioned changes in the Brazilian capital markets have led to an increase in shareholder activism and participation, although the number of precedents is still not very significant.

Noteworthy examples

A recent example is the general shareholders’ meeting of Vale SA – the company with the highest market value among all those on Brazilian capital markets – held on 30 April 2021 (the first one after the company implemented the structure of a true corporation, with a free float of approximately 60% of its capital stock), in which there was a dispute among shareholders over the ability to elect the independent members of the management of the company (as a company listed in the Novo Mercado special listing segment of B3, it is required to have at least two (or 20%, whichever is higher) independent members on the board of directors). In a nutshell, the management presented a list proposing 12 members to the board, and a movement led by a lawyer and former director of Vale presented an alternative list. Also, one of the main financial investors of Vale required the adoption of the multiple voting system (see 1.4 Variation of Shareholders’ Rights and 6.1 Rights to Appoint and Remove Directors for an explanation of this system). After two days of discussions regarding the procedure to be used for the multiple voting, four members who were not indicated by the management on its original list were elected by the shareholders.

Another prominent recent example of shareholder activism took place during a general meeting called to approve the merger between Linx SA and a subsidiary of StoneCo Ltd, a publicly held company listed in the Novo Mercado special listing segment of B3, in which an asset management firm gathered together several other investors and requested of the CVM that the term between the first call notice and the date of the shareholders’ meeting of Linx be interrupted, so that the CVM could analyse an allegation of a conflict of interest of the controlling shareholders of the company. Although the request was ultimately denied by the CVM, it was certainly one of the most important activism movements led by investors in recent years.

For activist strategies, see 8.1 Legal and Regulatory Provisions.

The most common actions that shareholders take are:

• participating in general meetings, requiring explanations of and voting against certain matters such as the remuneration of members of the management, which shareholders tend to pay more attention to and are more vocal about;
• the setting up of a fiscal council; and
• using the mechanisms provided for in the Brazilian Corporate Law to elect members to the fiscal council and board of directors.

There are no current surveys or data in Brazil that indicate that any particular sector or industry is the target of activist behaviour by shareholders.

Shareholder activism in the Brazilian capital markets has traditionally been led by institutional investors (hedge funds, pension funds, investment funds and family offices), which tend to be more engaged in monitoring and participating in decision-making processes, and in the company’s overall activities. However, recently, independent (activist) asset-management firms – which invest in companies with assets undervalued by the market with the intention of implementing changes in the management or in the policies of the company – have been playing a leading role in shareholder activism in Brazil. They are often criticised for trying to implement changes that promise only short-term results; in contrast, institutional investors traditionally tend to look for long-term results.

There is no information available regarding the number of activist demands in the past year in Brazil.

In the recent past, acts or strategies implemented by activist shareholders were mostly viewed in a negative light by the company and its controlling shareholders. This was detrimental to both the company and its minority shareholders, where common ways to try to eliminate the activism “problem” included trying to limit minority shareholders’ rights or procrastinating with respect to – or failing to address – their demands and requests (until the investor filed a claim before the CVM, for instance).

This situation, although evident in many publicly held companies, has been changing as activist shareholders have gained space and visibility, demonstrating the importance of the active participation of minority groups in the daily life of the company as a way of improving corporate governance practices. Thus, the management of many companies no longer necessarily sees activism as something that must be eliminated or confronted. Indeed, there are many situations in which the investor relations department fosters conditions whereby investors and management can engage in conversations to try to reach an agreement about the issue causing conflict.

Currently, it is clear that conflicts still exist (and always will), but companies, as a general rule, tend to try to maintain friendly initial relations with activist shareholders and address their demands (if those demands are not abusive), in order to avoid conflicts and negative consequences for the company itself and the members of its management.