There are two principal forms of corporate/business organisations: limited liability companies (sociedades limitadas) and corporations (sociedades anônimas).

The most common form of business organisation in Brazil is the limited liability company (sociedade limitada), which is regulated by Law 10,406 of 10 January 2002, as amended (the "Brazilian Civil Code)". A sociedade limitada should be incorporated through the execution of articles of association (contrato social) and registered before the commercial or civil registry of its place of incorporation. Its capital structure consists in equity participations called "quotas", and equity holders are called "quotaholders". A sociedade limitada may have one or more quotaholder, which may be either an individual or an entity, resident or non-resident (non-resident quotaholders must be represented by an individual resident in Brazil). Each quotaholder is liable for paying in the quotas subscribed by it/him or her, but all the quotaholders are jointly and severally liable for the full payment of all the stated capital stock, having recourse against the other quotaholders for payments made above its/his or her respective equity interest. Unlike the sociedades anônimas, unless the sociedade limitada qualifies under the "super limitada" threshold there is no mandatory independent statutory audit and there is no obligation to have its financial statements published in official gazettes and private newspapers. Effective control of a sociedade limitada requires 75% of the voting power. Small, medium, and large companies may use the sociedade limitada corporate form with a few variations in its corporate governance (Brazilian law allows sociedades limitadas to adopt several of the sociedades anônimas’ corporate governance mechanisms, including, for example, the creation of a board of directors).

Sociedades anônimas are regulated by Law 6,404 of 15 December 1976, as amended (the "Brazilian Corporations Law"). It is generally incorporated by two or more shareholders subscribing its capital stock and approving its bylaws (estatuto social), but may also be incorporated by a single shareholder, as a wholly owned subsidiary, as long as the shareholder is a legal entity. The capital stock of a sociedade anônima is divided into shares (ações), which may be of different classes or types (common or preferred shares). Subscriptions may be carried out through a public offering or a private placement. In either case, at least 10% of the subscribed capital stock must be fully paid in at the time of incorporation (or of capital increase, as applicable). As a general principle, the liability of a shareholder is limited to the price paid for the shares upon its subscription.

A sociedade anônima may be a closely held or a publicly traded company, depending on whether its securities have the authorisation of the Brazilian Securities and Exchange Commission (the Comissão de Valores Mobiliários or CVM) to be traded on the stock exchange or in the over-the-counter market.

The principal sources of corporate governance requirements in Brazil are:

• the Brazilian Civil Code, which contains a specific section for sociedades limitadas;
• the Brazilian Corporations Law, which applies to publicly traded corporations, closely held corporations and sociedades limitadas that expressly elect to be governed by such law;
• the company's organisational documents – the bylaws (for sociedades anônimas) or articles of association (for sociedades limitadas) and shareholders agreement (if any);
• rules, regulations and guidance enacted by the São Paulo stock exchange (B3 S.A. – Brasil, Bolsa, Balcão or "B3"), with varying degrees of applicability depending on the chosen listing segment, as explained below; and
• rules, regulations and guidance set out by the CVM, in relation to publicly held corporations, which includes the "comply or explain" Brazilian Corporate Governance Code co-ordinated by the Brazilian Institute for Corporate Governance – IBGC.

Public companies are required to comply with a host of mandatory reporting and other requirements, which may vary pursuant to the B3 listing segment its securities are listed under. Apart from the specific requirements under each listing segment, certain basic corporate governance requirements for public companies are highlighted below:

• obligation to submit and disclose audited financial statements on a quarterly and annual basis with CVM, prepared in accordance with the applicable regulation, consistent with Brazilian GAAP and IFRS;
• obligation to have a board of directors;
• obligation to provide for a statutory tag-along right, in which, in the event of a change in control of a publicly traded company, the new controlling shareholder must carry out a tender offer to the minority shareholders, extending 80% or 100% (pursuant to the listing segment joined by the company) of the price paid for the shares belonging to the controlling block;
• pursuant to CVM Rule 480, the obligation to prepare, update and submit to the CVM the formulário de referência (reference form), annually within five months of the end of the fiscal year (and keep its most relevant information updated). The reference form discloses to the market detailed information on issuer’s activities, risk factors, capital structure, financial data and management (among others);
• obligation to, on an annual basis, submit to the CVM a Corporate Governance Code Report (Informe sobre o Código Brasileiro de Govenança Corporativa) in which they must detail which recommendations set out in the Code were adopted and if any of the recommended practices were not adopted, the companies must explain why (the "comply or explain approach");
• pursuant to CVM Rule 481, the obligation to disclose certain information on an ordinary basis and prior to each shareholders’ meeting; and
• pursuant to CVM Rule 358, the obligation timely discloses material information and restrictions on trading based on private information.

As mentioned above, B3 provides for differentiated listing segments with rules setting out corporate governance practices and transparency requirements in addition to those already established under Brazilian corporate legislation. The basic difference between such segments is the level of demand for differentiated governance practices by the companies that adhere to their respective regulations.

The Novo Mercado has the highest level of corporate governance requirements. The following are some of the main requirements:

• the company's corporate capital must be represented only by common shares (that is, voting shares);
• the company must maintain a minimum "free float", which may vary between 15% and 25% of the company's share capital, depending on the average trading volume of the company’s shares or public offerings;
• a company's board of directors (board) must comprise at least five members, with a unified term of office of two years. At least 20% of the total board members or two (whichever number is higher) must be independent (pursuant to the B3 definition of independent board member);
• a company must prepare an annual agenda of its corporate events (such as ordinary corporate meetings, disclosure of the results or public meetings with market analysts and investors);
• in the event of a company's delisting or cancellation of registration as a publicly held company, the company or its controlling shareholder(s), as the case may be, must perform a tender offer for the acquisition of the company's remaining shares using the economic value criteria;
• any dispute involving the company must be settled by arbitration under the Market Arbitration Panel Rules;
• the positions of chairman of the board and chief executive officer (CEO) cannot be held by the same person;
• a company must prepare a trading policy regarding its securities, which must be applicable, at least, to the company itself, the controlling shareholder(s), company's officers, members of the board, members of the fiscal council (if established) and members of any statutory bodies with technical or advisory functions;
• mandatory establishment of a statutory or non-statutory audit committee; and
• mandatory implementation of a statutory public offering in the case of an acquisition of relevant participation in the company.

There are no other key corporate governance rules and requirements to be highlighted.

Over the past few years there has been a continuous stream of initiatives and proposals to promote and improve governance practices in Brazil. Such initiatives have included the approval of new regulations and amendments focused on the solidification of corporate governance practices, reduction of bureaucracy and modernisation of corporate-related rules and proceedings. Below is a summary of recent developments.

• New rules on mandatory disclosure/publications which aimed to reduce a company’s costs in relation to legal publications ‒ Law 13,818 of 24 April 2019 introduced two amendments to the Brazilian Corporations Law.
• Closely held companies with fewer than 20 shareholders and net equity of less than BRL10 million became exempt from publishing their corporate acts and financial statements in the official gazette and local newspaper (publications which were previously required by the Brazilian Corporations Law). Prior to its effectiveness (from 24 April 2019), this exemption was applied only to companies with fewer than 20 shareholders and net equity of less than BRL1 million.
• Corporations may publish a summarised version of the minutes of corporate resolutions and financial statements in the official gazette and local newspaper if their complete versions are made available on the websites of the official gazette and local newspaper (effective from 1 January 2020).
• Law 13,874 of 20 September 2019 ‒ the Economic Freedom Act of 2019 – of which the main goal was to stimulate the development of economic activities in Brazil – introduced a number of amendments to multiple laws and regulations. A notable amendment introduced by the Economic Freedom Act of 2019 was the provision allowing the incorporation of limited liability companies (sociedades limitadas) with a single shareholder. Before the enactment of this law, limited liability companies were required to have at least two shareholders.
• Trade Registration Department (DREI) is the federal authority responsible for the regulation of commercial registries in Brazil. DREI issued the Normative Ruling No 66 of 6 August 2019 (DREI NR No 66/2019) establishing that the companies’ corporate filings will be centralised in the commercial registry of the state where their head office is based. Previously, companies with branches located in other states were also required to perform filings in each of those states. This amendment simplifies the process for corporate filings and represents a reduction of cost and bureaucracy.
• There was a recent attempt by Eneva S.A. to take control of AES Tietê Energia S.A., a publicly held corporation listed under the B3’s level 2 segment where there was a discussion over the interpretation of AES’s bylaws and B3’s regulations. B3 acted proactively to interpret the provisions under discussion as opposed to submitting the discussion to its arbitration chambers, thereby expediting the resolution of the matter. Whether B3’s approach was the correct approach for the resolution of the matter is yet to be defined, but it indicates B3’s movement to expedite dispute resolutions.

Publicly traded companies are required to complete the reference form and submit it to the CVM on an annual basis (and keep its most relevant information updated). The reference form discloses to the market detailed information on issuer’s activities, risk factors, capital structure, financial data and management (among others).

All category “A” issuers (issuers authorised to trade all types of securities regulated under the securities market, as opposed to category “B” issuers which are not authorised to trade shares, share depositary receipts or securities which entitle the holder to acquire shares or depositary receipts) are required to disclose in their reference forms: (i) under the “risk factors” section, any ESG issue that may impact the decision of investors whether to buy or sell securities issued by the relevant issuer; and (ii) subject to “comply or explain” rules, “A” category issuers must disclose whether an annual ESG report is prepared/disclosed, and, if so, state the methodology which was adopted and also if the ESG report has been reviewed by an independent expert.

Additionally, as previously mentioned, publicly traded companies shall have internal rules to deal with their governance structure and information disclosure concerning any material event that should be reported to the market through a material fact.

Due to the global outbreak of COVID-19, social distancing has been recommended by the health authorities and resulted in limiting the operations of B3, CVM, commercial registries and public notaries. In addition, in view of the financial distress caused by the pandemic, Brazilian regulators have temporarily eased a number of undertakings mandatorily required by the Brazilian Corporations Law and CVM and other ordinary regulations, particularly by extending regulatory deadlines and simplifying procedures. Below is a summary of certain relevant measures regarding corporate governance approved/implemented to date.

On 30 March 2020, the federal government published Provisional Measure 931, providing special measures involving essential activities of corporations (sociedades anônimas), limited liability companies (sociedades limitadas) and co-operatives, such as:

• extension of the deadline to hold (and file the relevant minutes at the commercial registry) the annual shareholders general meeting (assembleia geral ordinária), whose agenda comprises the following main matters:

(a) approval of the financial statements and management accounts for the year ending on 31 December 2019; and

(b) election of the members of the board of directors or appointment of officers, extending the term of office of the current managers to the new election;

• vesting the CVM with powers ‒ exceptionally during the year 2020 – to extend the deadlines prescribed by the Brazilian Corporations Law for publicly held companies, especially those relating to disclosure of financial statements; and
• allowing shareholders to remotely attend and/or vote on general shareholders meetings (either for the ordinary shareholders meeting or any extraordinary shareholders meetings).

On 31 March 2020, the CVM issued Resolution 849 in furtherance of MP 931 (Resolution CVM 849), extending the deadlines for, among other things: (i) the disclosure of the annual financial statements for the year ending on 31 December 2019 and related periodic disclosures, and (ii) submission and disclosure of the annual reference form (formulário de referência), registration form and reports on the Brazilian Corporate Governance Code.

Specifically with regard to investment funds, Resolution CVM 849 authorises financial statements to be considered approved, provided that: (i) the corresponding annual meeting, convened as provided in Resolution CVM 849, is however not instated due to the absence of a minimum number of investors, and (ii) the respective audit report does not contain a modified opinion.

Brazilian law states that every corporation (sociedade anônima) must have a board of officers with at least two members, whose main duty is to carry out the day-to-day management. Additionally, the corporation may have a board of directors (if it is a publicly traded corporation or the administration has the powers to increase its capital within the limit set forth in its bylaws without convening a general meeting). The board of officers and the board of directors are the managers (administradores) of the corporation.

It is necessary for every corporation's bylaws to provide for a fiscal council (conselho fiscal), whose main function is to analyse all acts taken by the managers of the company (it works as a fiscal for the minority shareholders). The fiscal council may be permanent or function only if there is demand by the corporation shareholders (at least 10% or owners of common stock or 5% of owners of preferred stock).

In addition to the foregoing, a Brazilian corporation may (or, in the case of certain regulated companies, must) create additional committees or corporate bodies, the objectives and powers of which should be set forth in the bylaws. A specific committee to assist the board of directors in respect of certain activities of the corporation would be an example. However, the power and authority ascribed by law to the general shareholders' meeting, the board of directors, the board of officers and the fiscal council may not be delegated to any other committee or body that the corporation mandatorily has or may, at its discretion, choose to constitute.

The supreme management body of a corporation is the general shareholders' meeting. The Brazilian Corporations Law dictates subjects that the general shareholders meeting has exclusive powers, such as: (i) amendment of the bylaws; (ii) election of the corporation managers; and (iii) approval of mergers, acquisitions, spin-offs, liquidation, extinction, etc. It also takes the managers' actions into account every year and analyses the financial statements. In general, it has the powers to decide upon any material matter of the corporation and it is highly recommended, for governance purposes, that it convenes its shareholders to give their respective inputs on any material decision that the company has to take.

The Brazilian Corporations Law considers a controlling shareholder the entity/person that can (i) make, permanently, most of the decisions in the general meeting; (ii) elect most of the corporation managers; and (iii) exercise its powers to conduct the corporation activities. The controlling shareholder can be one or more shareholders and must abide to certain duties provided by law.

The limited liability company (sociedade limitada) is governed by its articles of organisation, which in turn provide for the management of the company through certain managers (or manager, as the sociedade limitada can be managed by a single manager) indicated in the articles themselves or otherwise designated by an act of the quotaholders of the company. A limited liability company customarily has no body similar or equivalent to the board of directors of a corporation, and the managers generally carry out their functions with less formality than the directors of a corporation (but a board of directors can be stated). A limited liability company may have a fiscal council should the articles of organisation choose to provide one, in which case such a body may be permanently active or only activated with reference to a given fiscal year when so requested by shareholders. Like a corporation, a limited liability company may choose to create additional bodies or committees, specifying the powers and authority of those bodies or committees in the articles of organisation. That said, the limited liability company may not delegate any of the powers or authority granted by law regarding the management and the fiscal council of the company to a different body or committee.

In those corporations where a board of directors exists, the board of directors is responsible, among other things, for establishing the general policies of the corporation and the overall orientation of the company's businesses. Other than the authority specifically set forth in the bylaws (eg, the authorisation for the execution of certain agreements by the company), the law provides for competence of the board of directors on specific matters (if the corporation, in fact, has a board of directors), including:

• the election and removal of the officers;
• the oversight of the management of the company;
• calling the general shareholders' meeting;
• opining on management's annual report and management's accounts; and
• the election and removal of independent auditors, if applicable.

The managers (in a limited liability company) and the officers (in a corporation) are responsible for the day-to-day management, carrying out the objectives laid down by the board of directors. The managers or officers (as the case may be) have the power to bind and represent the company, including the authority to grant powers of attorney. Furthermore, the bylaws of a corporation may provide that certain decisions be made by the board of officers as a collegiate committee.

The fiscal council, in and of itself, has no authority to make decisions. Rather, the fiscal council overseas the other management bodies of the company and their acts, thus assisting the shareholders' meeting. The law provides for competence of the fiscal council on specific matters, including:

• the oversight of the acts carried out by directors and officers;
• the drafting of an annual opinion with respect to the businesses and operations of the company, based on its financial statements for the fiscal year in which the fiscal committee is operating;
• rendering an opinion on proposals made by directors and/or officers to the general shareholders' meeting relating to the modification of the capital stock, the issuance of debentures or warrants, investment plans or capital expenditure budgets, dividends distribution, and the transformation, merger or spin-off of the company;
• denouncing errors, frauds or crimes which are identified by the fiscal council;
• convening the annual general shareholders' meeting in the event the directors and officers fail to do so for a period greater than 30 days, and calling special general shareholders' meetings in the event of severe or urgent matters;
• analysing on a quarterly basis the periodic financial statements of the company;
• analysing and opining with respect to the annual financial statements of the corporation; and
• carrying out the same functions during the liquidation of the company.

In a limited liability company, the fiscal council is responsible for the following, without prejudice to other responsibilities set forth in the law and in the articles of organisation:

• (a) the analysis, on a quarterly basis, of the constitutive and financial documents of the company;
• (b) the registration in the relevant book of the opinions of the fiscal council with respect to (a) above (concerning oversight of the acts carried out by directors and officers);
• (c) the drafting of an annual opinion with respect to the businesses and operations of the company, based on the financial statements of the company for the fiscal year in which the fiscal council is operating;
• (d) denouncing errors, frauds or crimes which are identified by the fiscal council;
• (e) convening the annual shareholders' meeting, in the event the managers fail to do so for a period greater than 30 days; and 
• (f) carrying out the same functions during the liquidation of the company.

The board of directors and the fiscal council are collegial bodies, making decisions as a group. Normally, both of these collegiate bodies have internal statutes that regulate the decision-making process. The managers (in a limited liability company) act individually and so, as a general rule, do the officers (in a corporation). In the case of officers of a corporation, however, the bylaws may provide that certain decisions be made by the board of officers acting as a collegial body. Unless a higher quorum is required, decisions are made by most votes among those members present and voting at a given meeting.

As a general rule, the general shareholders' meetings require the physical presence of a shareholder (in person or by proxy) for that shareholder to take part in the meeting and vote on matters on the agenda. Publicly held corporations, however, have the possibility to allow their shareholders to vote remotely. Meetings of the other bodies may generally be held without the physical presence of those participating as long as authorised in the bylaws or the articles of organisation, as applicable, and pursuant to certain rules provided for therein.

The number or the range of members of the board of directors, all of whom are elected by the general shareholders' meeting, must be set forth in the bylaws and may not, in any case, be fewer than three. There is no maximum number of members set by law. If the bylaws set forth a range of members of the board of directors, the shareholders' meeting shall decide on the exact number of members within the applicable range. The bylaws of a corporation must determine whether the chairperson of the board of directors is to be appointed by the general shareholders' meeting or by the board of directors itself. The bylaws may also provide that the board of directors have a deputy chairperson.

The bylaws should provide for the frequency of the ordinary meetings of the board of directors, without prejudice to extraordinary meetings according to the actual needs of the relevant corporation or its business. It is important that corporations have an internal statute of the board of directors to regulate its functioning.

As mentioned above, B3 also has special requirements for the board of directors of publicly held companies. The requirements vary depending on the listing segment that they trade within.

As a collegial body, all members of the board of directors have the same role, ie, to take part in the meeting of the board of directors and to vote on the matters under consideration. The chairperson of the board of directors has additional administrative functions within the board, such as being responsible for calling the meetings of the board, presiding over these meetings, and generally representing the board before the other bodies of the corporation (but not before third parties). Additionally, depending on what the bylaws provide, the chairperson may or may not have the casting vote to decide on matters under deadlock. If provided by the bylaws, the deputy chairperson may replace the chairperson in the general event of absence. Other than that, the deputy chairperson acts as an ordinary board member.

The Brazilian Corporations Law states that the board should have a minimum of three members, but no maximum number is set by law. That said, the regulations in special listing segments of the B3 have different requirements of composition.

The Brazilian Corporations Law provides for legal requirements for a person to be appointed, elected and installed as a director. In summary, convictions for certain crimes (such as bankruptcy offences, bribery or corruption) and/or declaration of incapacity by the CVM would disqualify a person from holding a position in the board of directors. In addition, holding a management position in a competing entity and other conflicts of interest are also grounds for prohibiting a person from being elected a director, except in those cases in which a specific waiver is granted by the general shareholders' meeting.

Only natural persons may be members of a board of directors or officers. This rule emphasises the personal nature of the role of directors and officers, as well as their corresponding individual duties and responsibilities. Foreigners may be members of the board of directors of Brazilian companies but they must have a representative in Brazil with broad powers to be processed in the name of the respective board member.

A maximum of a third of the members of the board of directors may be officers of the respective corporation. The bylaws of a corporation may provide for representatives of employees, chosen by the employees, to participate in meetings of the board of directors.

Regulations of the B3 in respect of certain listing segments require publicly traded corporations to have independent members in a number equivalent to at least 20% (but in no event fewer than two individuals) of the total number of members of the board.

Whenever the election of directors is carried out by the cumulative voting procedure and the holders of common shares or preferred shares exercise the right to appoint a member of the board, the shareholder, or shareholders bound by voting trust, holding more than 50% of voting shares have the right to appoint the same number of members appointed by all remaining shareholders, plus one member, regardless of the number of board members specified in the bylaws.

The election of directors, if the corporation has a board of directors, and officers, if the corporation does not have a board of directors, is typically a matter for the annual general shareholders' meeting. However, as a general rule, the election of a member of management may take place in any general shareholders' meeting. The CVM regulations require a series of preparatory acts in the case of publicly traded corporations for a person to be elected as a director in any given general shareholders' meeting.

The removal of members of the management (that is, of a director, if the corporation has a board of directors, or an officer, if the corporation does not) may be carried out at any general shareholders' meeting. However, in the event that the directors have been elected by a cumulative voting procedure, the removal of any director results in the removal of all the other directors, after which a new election must be held.

There are two basic voting procedures for electing directors: straight-ballot voting and cumulative voting. In the straight-ballot voting procedure, each share carries one vote, and each shareholder votes for one (and only one) whole ballot. Each ballot is a complete slate of members proposed to the board of directors. By voting for a ballot, each shareholder, in effect, votes to fill all seats of the board at once. The persons proposed for the board of directors on the ballot obtaining the majority of votes become the members of the board. The cumulative voting procedure provides that each shareholder has as many votes as the number of shares held multiplied by the number of positions of the board to be filled. Shareholders may accumulate all of their votes and give them to one candidate for a board position; or, alternatively, shareholders may distribute their votes among various candidates. In either case, the candidates accumulating the greatest number of votes are elected. The straight-ballot vote is the standard voting procedure and generally applies unless there is a request for cumulative voting.

As a general rule, shareholders holding shares representing at least 10% of the voting stock are entitled to request the adoption of the cumulative voting system in any given election. However, with respect to publicly held corporations, the minimum shareholding required for the exercise of the right to request the cumulative voting procedure decreases according to the capitalisation of the company, in some cases reaching as low as 5%.

In addition, shareholders holding shares representing at least 15% of the voting stock and shareholders holding preferred non-voting shares or with voting restrictions representing at least 10% of the total capital stock have, in each case, the right to elect one member of the board of directors in a separate election, with no participation of the controlling shareholder. In the event that the foregoing thresholds have not been met, shareholders holding voting stock, non-voting stock and stock with restricted voting may join forces to elect separately one director and the respective alternate director. The same share may not be used in the separate election and in the cumulative voting procedure. For publicly held corporations with a single class of common shares, the minimum shareholding required for the exercise of the right of a separate election is 10% of the capital stock of the company.

When so provided for in the bylaws, the employees of a corporation may choose a representative to sit on the board of directors. This representative is elected by means of a separate election.

As a general rule, for closely held corporations there are no specific rules requiring the appointment of independent managers. In practice, however, the directors and officers do not have full autonomy from the general shareholders' meeting (and the controlling shareholder, as applicable) or its resolutions, considering the hierarchical position of the general shareholders' meeting in the political structure of a corporation and its legitimate political power to direct the functioning of the administrative bodies of the corporation. Nevertheless, from an operational and legal standpoint, the directors preserve their discretion to act according to their convictions and always in compliance with law and in the corporations' interests.

The stock exchange regulations applicable to corporations listed in the "New Market" (Novo Mercado) segment require that at least 20% (but in no event fewer than two individuals) of the listed corporations' board members must be independent directors. A director is deemed "independent" for the purpose of the regulations if she or he is formally independent, meaning that the director is not a party related to the indicating shareholder. These regulations provide that a director will be considered "independent" if she or he:

• has no ties to the corporation, other than a possible equity interest;
• is not a controlling shareholder, spouse or close family member (to the second degree) of a controlling shareholder, and has no ties to any company or entity related to a controlling shareholder;
• has not been an employee or officer of the corporation, or of the controlling shareholder, or of a subsidiary of the company, at any time in the past three years;
• is not a direct or indirect supplier to the corporation or buyer from the corporation of goods or services, to an extent that would imply loss of independence;
• is not an employee or senior manager of any company that is a service or product provider or consumer of the corporation to an extent that would imply loss of independence;
• is not a spouse or close family member (to the second degree) of any senior manager of the corporation; and
• is not entitled to any payment by the corporation other than the consideration earned as a director.

With respect to conflicts of interest, directors and officers are subject to certain specific fiduciary duties including a duty of loyalty under which managers may not, among other things:

• use any corporate or commercial opportunity which may come to her or his knowledge, by virtue of her or his position, for her or his own benefit or for the benefit of a third party, whether or not damage is caused to the company; or
• fail to exercise or protect the company's rights or seek to obtain advantages for herself or himself or for a third party.

Moreover, directors and officers are prohibited from taking part in any decisions related to corporate transactions in which that manager has a conflicting interest with the company. Managers are required to inform the board of directors or the officers of the corporation of the existence of the conflicting interest and to register the nature and extent of the interest in the minutes of the meeting of the board of directors or officers.

Pursuant to the Brazilian Corporations Law, the duties of directors and officers are generally:

• to exercise reasonable care, meaning that the managers must exercise such care and diligence as is usually employed by all industrious and honest persons in their own affairs (the duty of exercising reasonable care being considered the broadest duty, carrying the basic structure for all other duties, directing the discretion of the managers and having the purpose of achieving the efficient management of the company's business);
• to avoid the misuse of powers and authority, either conferred by law or the bylaws, by using them solely to achieve the purpose and in the interests of the company, taking into consideration the common good and the social role of the company;
• loyalty (standard of loyalty), which includes the duty of secrecy and the duty to protect sensitive information of the company between the company and the managers, and prevents the use of privileged information;
• to abstain from acting whenever there is a conflict of interest; and
• to inform shareholders in general and the market, as applicable.

A manager must fulfil her or his or her duties to the company and must carry out his or her functions in the interest of the company, always in compliance with his or her duties, regardless of any particular interest of the shareholders, or group or class of shareholders, that appointed the manager.

The general shareholders' meeting (and the controlling shareholder, as applicable), as the supreme body of the corporation, can re-examine all acts of the other bodies of the corporation, including the managers. This power of re-examination of the general shareholders' meeting works as a corporate enforcement, including by remediating the breach of the managers' duties and possibly mitigating its effects. Further, there is always the possibility of a judicial remedy, with a lawsuit filed either by the company or a third party that has suffered a direct damage.

As a general rule, a lawsuit against the managers for breach of duties has to be filed by the company itself. There are, however, exceptions, the first one being the possibility of the corporate claim being filed by shareholder(s) if the company remains inert in filing such a suit. The second conceptual exception occurs if a third party (which can be a shareholder) suffers a direct damage, such claim being an individual claim (as opposed to corporate claim). In this case, the relevant third party may seek any remedies available, including indemnification. The CVM may also file an administrative procedure against directors and officers of publicly held companies due to the breach of their statutory fiduciary duties or the commission of acts that are not compliant with the company's bylaws. Companies listed in level 2 and the Novo Mercado segment of B3 are required to provide that arbitration will be the mechanism for dispute resolution, which provision is binding on the shareholders.

Directors may be held liable for damages caused as a result of breaches of their statutory fiduciary duties, as well as damages resulting from acts performed with negligence or wilful misconduct. Violations of applicable laws and regulations (including regulations covering mandatory disclosure, tender offers, conflicts of interest, etc) and of the company's bylaws may bring about claims against the directors and result in their liability. Members of management may not be held personally liable for obligations undertaken on behalf of the company in the ordinary course of business so long as they have acted as required for the careful management of the company.

Each officer performs her or his duties on an individual basis and according to her or his respective assignments, positions, powers and authority. No director or officer will be personally liable for acts or omissions of other officers unless she or he was involved in those acts, negligent in discovering the acts or failed to prevent the acts once she or he became aware of them. Neither will any director or officer be personally liable for an act of the relevant board so long as that director or officer, as the case may be, expressly makes manifest his or her dissent in writing. Indemnity agreements, hold harmless arrangements and bylaws indemnity provisions may be put in place, as may insurance policies (D&O and E&O). Mandatory disclosure requirements apply as discussed below.

Shareholders determine the aggregate or individual total compensation payable to the management (including stock-based compensation and additional benefits offered), taking into consideration in each case the manager's position, professional standing, responsibility undertaken, skills, time devoted to the company and compensation available in the market for a person holding a similar position. If shareholders approve compensation on an aggregate basis, the board of directors may receive the authority to approve its allocation between the directors and officers. A share of the company's profit may be payable to the management if certain statutory requirements are met.

Information regarding compensation must also be disclosed in the "reference form", which will include information on policies or practices adopted by the company regarding:

• management compensation;
• quantitative data on total compensation paid;
• variable compensation offered and paid;
• stock-based compensation;
• outstanding options;
• vested and exercised options (and number of shares delivered);
• pension plans;
• individual compensation (highest, average and lower, on a no-name basis);
• insurance and similar arrangements;
• other compensation payable (for other activities, positions or services);
• and any other information management deems material.

Mandatory disclosure also applies to indemnity agreements benefiting management, as well as to any other transaction entered into by members of the management of the company that is a related-party transaction required to be entered into at arm's length.

The relationship between the company and its shareholders is basically governed by statutory laws, internal regulations (contrato social for a sociedade limitada and estatuto social for a sociedade anônima and also by shareholders agreements, if any). The shareholders, together and as a whole, take part in the general shareholders' meeting, and as such the shareholders participate as a body of the company.

Individually, the shareholders have rights and obligations before the company. Several rights of the shareholders are exemplarily referred to in the law on a non-exhaustive basis, such as the rights to:

• participate in profits;
• participate in the distribution of assets, in the event of liquidation;
• monitor how the company's business and affairs are being carried out;
• exercise pre-emptive rights to subscribe to new shares upon an increase in capital, in proportion to the number of shares held; and
• withdraw from the company in certain cases provided for in the law. 

Shareholders basically have two obligations: to pay in the subscribed shares and to exercise their voting rights in the interest of the company, should the shareholder have voting rights and when effectively exercising such rights.

A sociedade limitada is governed by its contrato social which, in turn, provides for management of the company through certain managers indicated therein or otherwise designated by an act of the shareholders of the company. It is common, though not mandatory, that the managers of a sociedade limitada are shareholders. The management of a sociedade limitada can even be delegated to all shareholders in the contrato social. In a sociedade limitada, certain company decisions require the approval of shareholders as a matter of law, and the contrato social may also provide for additional matters that require approval of the shareholders, including matters concerning the day-to-day operations of the business.

In a sociedade anônima, as a general rule, shareholders (as such) have no power to, individually, get involved in the management. Nevertheless, the general shareholders' meeting has authority to decide on any and all matters relating to the corporation and is considered the supreme body of a corporation. As such, the general shareholders' meeting may take any measures on behalf of the corporation as it may deem appropriate for the purpose of protecting and developing the corporation, including reviewing the decisions of any other body of the corporation. 

Although the controlling shareholder is not itself a body of the corporation, Brazilian law recognises the phenomenon of a controlling shareholder, acknowledges its power in the hierarchical structure of the corporation, and regulates its duties and responsibilities. In practical terms, if there is a controlling shareholder, or if two or more shareholders join forces on a regular basis to exercise control at the shareholders' meetings to such an extent that they are, in effect, the controlling shareholders, the controlling shareholder will, as a general rule, determine the outcome of decisions in respect of matters coming before the shareholders' meeting, in effect making the controlling shareholder the supreme administrator of the corporation. In this manner, the controlling shareholder directs the management of the corporation and makes up a part of its governance structure. Regardless of this, from an operational and legal standpoint, the directors preserve their discretion to act according to their convictions and always in compliance with law.

In a sociedade limitada, shareholders' decisions may be adopted at shareholders' meetings. Or, as in most cases, any such decisions may also be adopted by means of a shareholders' resolution, duly signed by all shareholders, regardless of whether the resolution was adopted at a meeting at which the shareholders were present, or was adopted by circulating the resolution for signatures. A copy of any such minutes or decisions, as applicable, duly authenticated by the managers, must be presented to the Commercial Registry for filing.

A shareholders' meeting must be held at least once a year within the first four months after the closing of the prior fiscal year in order to:

• vote to accept (or not) the financial statements prepared by management;
• designate managers, if necessary; and
• decide on any other matter brought before the shareholders' meeting. 

The Civil Code provides for two different types of shareholders' meetings for sociedades limitadas: the assembleia geral and the reunião de sócios. Certain procedures for calling an assembleia geral may be waived if all shareholders attend the assembleia geral or otherwise declare, in writing, that they are aware of the place, date, time and agenda of the relevant assembleia geral. An assembleia geral must be called by means of public announcements published at least three times and no later than eight days prior to the date of the assembleia geral. The assembleia geral will take place on its original scheduled date if shareholders representing at least three quarters of the capital stock are present at the meeting. If no such quorum is achieved, the assembleia geral must be adjourned to a later date, to be determined by the company through publication of a second announcement, at least five days prior to the rescheduled date. The assembleia geral may take place on the rescheduled date with any number of shareholders present.

Sociedades limitadas owned by ten or fewer shareholders may opt to resolve on the matters subject to the decision of the shareholders by means of a reunião de sócios instead of an assembleia geral, should the articles of organisation of the company so provide. The contrato social may contain specific provisions regarding how the calling, voting of proposals and other procedures in connection with the reunião de sócios are to be carried out, and should require less formality and procedures than those of an assembleia geral. If the contrato social is silent, the legal provisions in the Civil Code regarding the assembleia geral will apply to the reunião de sócios.

In a sociedade anônima, the shareholders' decisions are reached at the general shareholders' meetings. There are two kinds of general shareholders' meetings: the annual (ordinary) general meeting, and the extraordinary general meeting. Each year, the shareholders must meet in an annual (ordinary) general shareholders' meeting within the first four months after the close of the prior fiscal year to vote to approve (or not) the financial statements prepared by management, decide on the allocation of the corporation's profits and elect the members of the board of directors (if the corporation has a board of directors) or officers (if the corporation does not have a board of directors), if necessary. An extraordinary shareholders' meeting may be called at any time for the purpose of deciding upon matters relating to the corporate purposes of the corporation or those considered to be convenient to the protection or development of the corporation, including any corporate action that may result in an amendment to the bylaws.

The Brazilian Corporations Law does not authorise resolutions to be passed by simple written consent with no meeting held. A copy of any minutes of the general shareholders' meeting must be presented to the Commercial Registry for filing.

Call notices for shareholders' meetings in a publicly traded corporation must be published at least three times, and the first call must be published, as a general rule, at least 15 days in advance (in a closely held corporation the first call must be published at least eight days in advance). Certain procedures for calling an assembleia geral may be waived if all shareholders attend the assembleia geral or otherwise declare, in writing, that they are aware of the place, date, time and agenda of the relevant assembleia geral.

Shareholders may be represented at a general shareholders' meeting by a proxy appointed as such less than one year before the date of the meeting, who must also be either a lawyer, another shareholder, an officer, a director of the corporation or a financial institution (in case of a publicly traded company); no maximum term is required in case of powers granted under a shareholders' agreement.

In a sociedade anônima, the assembleia geral will take place on its original scheduled date if shareholders representing at least one quarter of the voting capital stock are present at the meeting. However, if the assembleia geral has been called to decide on the amendment of the bylaws, the presence of at least two thirds of the voting capital stock is required. In a second call, the meeting may be called to order with any number of shareholders present at the meeting.

The basic rights of a shareholder that could serve as basis for a claim against a company are either political rights or economic rights, to:

• share in profits;
• participate in the distribution of assets, in the event of liquidation;
• monitor how the corporation's business and affairs are being carried out;
• exercise pre-emptive rights to subscribe to new shares upon an increase in capital, in proportion to the number of shares held; and
• withdraw from the company in certain cases provided for in the Brazilian Corporations Law.

In the majority of cases in which shareholders are seeking recovery for damages, the common practice of corporate litigation reveals that shareholders customarily seek protection from acts of abuse or violations committed either by another shareholder (frequently the controlling shareholder) or by management, in the event of a violation of legal and statutory duties. A company may appear as a defendant. However, in light of the fact that it is not currently common in Brazil for shareholders to seek remedies against a company, it is often the case that a company may participate in the litigation as an intervening party.

As managers of a corporation, directors and officers are all subject to the same legal duties:

• to act with the same level and care and diligence that a reasonable person would apply in carrying out his or her own business matters;
• to put the interests of the corporation ahead of the interests of whoever elected him or her; and
• to serve the corporation with loyalty and avoid taking advantage of business opportunities or participating in any business decisions where he or she may have a conflict of interest. 

Shareholders are entitled to hold directors and officers liable for breach of such legal duties. The most common actions filed by shareholders usually allege:

• breach of duty of care (the broadest duty);
• misuse of powers and authority;
• breach of duty of loyalty (standard of loyalty), which includes the duty of secrecy and the duty to protect sensitive information of the company, and prevents the use of privileged information;
• acting with conflict of interest; or
• breach of duty to inform shareholders in general and the market, as applicable.

Publicly traded companies must disclose to the market any material acts or facts relevant to their business, as further detailed by the CVM, which regulates the mandatory disclosure obligations pursuant to the spirit of full disclosure set forth in the Brazilian Corporations Law.

Any individual or entity (acting alone, in concert with a third party or representing the same interest) who carries out a material trade involving shares of a company must notify the company immediately after making the trade (with information regarding the person's intention, if any, to interfere in the controlling block or the management of the company, as well as any intention of entering into any shareholders' or voting agreement). A trade is deemed material whenever (and each and every time) it results (individually or in aggregate with other trades) in one crossing a 5% threshold stake in the total outstanding shares of a type or class of shares (either by increasing or decreasing its holding).

Shareholders are also required to comply with disclosure rules in the context of tender offers launched for shares of a publicly traded company. Controlling shareholders are also required to notify the company of any decisions that may impact the price of the company's securities (or impact any decision to buy, sell or hold such securities) and the exercise of other shareholders' rights, such as a transfer of control to a third party.

Publicly traded companies must disclose their annual financial statements, together with the management report, the independent auditor's report (and the opinion of the fiscal council, if active), at least one month prior to the date the annual ordinary shareholders' meeting will take place (required by the Brazilian Corporations Law to take place within four months from the end of the fiscal year).

Listed companies must also disclose their:

• "DFP" (a standard form of financial statements created within CVM's system with information gathered from the audited annual financial statements) within three months from the end of their fiscal year; and
• "ITR", quarterly financial information (including in electronic format, complete with information extracted from the company's quarterly financial information) together with a special review report issued by the independent auditors. 

Information included in the annual financial statements must also be included in the reference form which publicly traded companies are required to file and keep duly updated with the CVM.

Companies listed in special segments of trading of B3 are required to disclose their financial information both in Portuguese and in English. If listed on the Novo Mercado segment, they are also required to hold a public presentation (either in person, by teleconference or videoconference) of the information disclosed in their quarterly earnings results or financial statements (within five business days of their respective release). If listed on the level 2 or level 1 listing segments, they are required to hold at least one annual public meeting with analysts and other third parties to discuss their financial and economic situations, projections and expectations.

Depending on a company's business activities, whether its fiscal committee is active and whether there are any pro forma financial statements, etc, other specific financial reporting requirements may apply.

Closely held companies are also required to disclose their financial statements by publishing them in printed newspapers as specified by law.

As a general rule, the fact that a shareholders' agreement in respect of a publicly traded company has been executed must be disclosed upon release of a material fact and filed with the CVM (depending on the type of securities listed by the company). A description of such arrangements must also be included in the reference form. No disclosure requirement applies to closely held companies.

As a condition for enforceability against third parties, companies are required to file their financial statements (and also file evidence of their publication), minutes of shareholders' meetings, minutes of meetings of the board of directors or officers, meetings of the fiscal council, and any other corporate act. Publicly held companies must also disclose such documents on their respective websites and file them with the CVM. The material so filed is publicly available.

Publicly held companies must appoint external auditors registered with the CVM and these external auditors must be independent. Accordingly, the external auditors are prohibited from rendering certain services to the company they audit – such as issuing valuation and appraisal reports, reviewing and issuing reports on provisions and technical reserves, etc – and trading, directly or indirectly, in securities issued by the company.

As a general rule, publicly held companies are also required to change their independent external auditors at least every five years. If, however, the company has a permanently activated audit council, the company may continue to use the same external auditors for a period of up to ten years before it is required to make the change. Once a change in auditors has taken place, the company may not reappoint the previous auditors for a period of at least three years. Finally, a publicly held company must disclose information regarding its relationship with the external auditors, such as the amount of fees charged and paid and policies adopted to prevent conflicts of interest.

Unless the company falls within the definition of a "large enterprise" (based on its gross revenue threshold or on the total amount of its assets) or has a private equity investment fund (FIP) as a shareholder, a closely held company is not required to appoint independent external auditors.

Requirements for the appointment of directors and a listing of their statutory duties are set down in the Brazilian Corporations Law. In general terms, the activation of a fiscal council is not mandatory.

A publicly traded company may adopt a management risk and internal controls policy, in which case the policy must be publicly disclosed by means of a detailed description included in the reference form. This description will specify the responsibility of each committee, management body or similar structure (and each of their members). If no such policy is adopted, the company must disclose that fact and justify its decision in this regard. Managers must comply with such a policy and make certain that the external auditors are reviewing and reporting their assessment and recommendation concerning the company's internal controls. Managers are required to comment on any recommendation in this regard presented by the external auditors and any action taken to implement any such recommendation or, if the recommendation is not implemented, specify the reason.