Business organisations may take various forms in Brazil, including sole proprietorships (microempreendedor individual (MEI); sociedade empresária limitada unipessoal), co-operatives, limited liability companies (sociedades limitadas), and joint stock companies (sociedades por ações). As the subject of this book is corporate governance, this chapter will focus on limited liability companies and joint stock companies, which are the most common forms of business organisations.

The central characteristics of both limited liability companies and joint stock companies are as follows.

• Limitation of liability ‒ the shareholders/quotaholders are not personally liable for corporate obligations, unless the requirements for lifting the corporate veil are met.
• Continuity of existence ‒ such business organisations have perpetual existence, unless a shorter term is specified in their organisational documents.

A limited liability company is a legal entity regulated by the Brazilian Civil Code and is formed by the filing of its articles of association (contrato social) with the appropriate commercial or civil registry. Its capital structure consists of equity participations called “quotas”, and equity holders are called “quotaholders”. A limited liability company may have one or more quotaholders, which may be either individuals or entities, resident or non-resident (non-resident quotaholders must be represented by an individual resident in Brazil). The corporate governance of limited liability companies generally involves only two bodies: the quotaholders and the officers, provided that most limited liability companies do not have a board of directors. Due to recent amendments, control of a limited liability company now only requires a simple majority of the voting power. Small, medium and large companies may use the limited liability company corporate form with a few variations in its corporate governance.

A joint stock company is a legal entity regulated by Law No 6,404 of 15 December 1976, as amended (the “Brazilian Corporations Law”). The capital structure of a joint stock company is divided into shares, which may be of different classes or types (common or preferred shares). A joint stock company is generally incorporated by two or more shareholders subscribing its capital stock and approving its by-laws, but may also be incorporated by a single shareholder, as a wholly owned subsidiary, as long as the shareholder is a Brazilian legal entity. In 2021, the Brazilian Corporations Law was amended and introduced super-voting shares with up to ten votes per common share, whereas, as a rule, a common share has one vote at shareholders’ meetings.

A joint stock company 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 (Comissão de Valores Mobiliários, or CVM) to be traded on the stock exchange or on the over-the-counter market.

There are three important differences between limited liability companies and joint stock companies, as set out below.

• Transferability of ownership/equity interests ‒ as a rule, ownership interest in limited liability companies cannot be transferred without the consent of at least 75% of the partners. However, equity interests in joint stock companies are freely transferable, unless otherwise agreed.
• Payment of disproportionate dividends – limited liability companies may pay dividends disproportionately to the equity interests, while joint stock companies should pay dividends proportionately to the equity interests held in each class of shares (ie, preferred shares may have certain privileges, but the dividends paid to all shareholders in the same class must be proportional to the equity interest in such class).
• Withdrawal rights ‒ quotaholders have the right to withdrawal from a limited liability company by serving a notice on the other partners, regardless of any cause. Shareholders of a joint stock company do not have such right.

The principal sources of corporate governance requirements in Brazil are:

• the Brazilian Civil Code, which contains a specific section for limited liability companies;
• the Brazilian Corporations Law, which applies to publicly traded joint stock companies, closely held joint stock companies and limited liability companies that expressly elect to be governed by such law;
• the company’s organisational documents – the by-laws (for joint stock companies) or articles of association (for limited liability companies) and shareholders agreement (if any);
• rules, regulations and guidance set out by the CVM in relation to publicly traded joint stock companies;
• the Brazilian Corporate Governance Code co-ordinated by the Brazilian Institute for Corporate Governance (IBGC); and
• 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.

Public companies are required to comply with several 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, public companies are obliged to:

• submit and disclose audited financial statements on a quarterly and annual basis to the CVM, prepared in accordance with the applicable regulation, consistent with Brazilian GAAP and IFRS accounting principles;
• have a board of directors, provided that they have independent directors and CEO (the positions of chairperson of the board and CEO of publicly traded companies cannot be held by the same person);
• 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;
• prepare, update and submit to the CMV 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 other things);
• submit to the CVM, on an annual basis, an Informe sobre o Código Brasileiro de Govenança Corporativa (“Corporate Governance Code Report”) detailing 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”);
• disclose certain information on an ordinary basis and prior to each shareholders’ meeting;
• timely disclose material information and restrictions on trading based on private information; and
• have at least 20% independent members on the board of directors.

As mentioned above, the 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 Law. The main difference between such segments are the required governance practices.

The Novo Mercado (“New Market”) has the highest level of corporate governance requirements, in particular:

• the company’s corporate capital must be represented only by common shares;
• the company must maintain a minimum “free float”, which may vary between 15% and 20% of the company’s total 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, and at least 20% of the total board members or two (whichever number is higher) must be independent;
• 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 traded company, the company, or its controlling shareholder(s), as the case may be, must carry out a tender offer for the acquisition of the company’s shares using the economic value criteria;
• any dispute involving the company must be settled by arbitration by a specific arbitration chamber;
• 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 stake in the company.

The ESG movement is key to Brazilian companies, especially because clients and customers increasingly want to be linked to companies that generate sustainable awareness with concrete actions.

Publicly traded companies should prepare, update and submit a reference form annually, within five months of the end of the fiscal year, and keep its most relevant information updated. All publicly traded companies registered under category “A” (issuers authorised to list shares, share depositary receipts or securities which entitle the holder to acquire shares or depositary receipts under the securities market) are required to disclose the following information related to ESG practices in their reference forms.

• Activities of the issuer – the company should state whether it discloses information in an annual or corresponding report, the methodologies used in preparing the report, whether it is audited by an independent entity, whether it considers any materiality matrix and ESG performance indicators, as well as how the UN Sustainable Development Goals (SDGs) are accounted for, whether the company observes the recommendations of recognised entities and related to climate issues, and finally provide information on whether the company carries out inventories of greenhouse gas emissions.

• Management comments – the company should disclose information on which initiatives are included on the company’s business plan in relation to ESG policies. 

• Risk factors – the company should provide information regarding any ESG issue that could impact investors’ decisions to buy or sell its securities issued.

• General meeting and management – the company should provide information about the composition of its management and audit committee, including the total number of members grouped by the self-declared identity of (i) gender; (ii) colour or race; or (iii) diversity attributes that it deems relevant. Further, the company should specify its objectives in relation to diversity. In addition, the company should state the role of management in assessing, managing and supervising climate-related risks and opportunities.

• Management compensation – the company should provide detailed information related to management compensation, including the board of directors, statutory and non-statutory officers and certain committees.

• Human resources – the company should set out the number of employees by groups, based on the activity, geographic location and diversity indicators, which, within each hierarchical level of the company, cover self-declared gender identity, the self-declared identity of colour or race, and age group.

The governance of Brazilian limited liability companies and joint stock companies may be composed of three major bodies: the quotaholders/shareholders, the board of directors, and the officers.

Provided that most Brazilian companies have concentrated ownership and do not have a board of directors, the quotaholders/shareholders have extensive legal power to appoint and elect the management and to approve key matters involving the company, such as:

• amendment of the by-laws;
• election of the joint stock company officers;
• preparation and approval of the business plan; and
• approval of mergers, acquisitions, spin-offs, liquidation, extinction, etc.

It also takes the officers' actions into account every year and analyses the financial statements. In general, it has the powers to decide upon any material matter of the joint stock company 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 must take.

The Brazilian Corporations Law considers a controlling shareholder to be the entity/person that can:

• make, permanently, most of the decisions in the general meeting;
• elect most of the management of joint stock company managers (Board of Directors and officers), on a permanent basis; and
• exercise its powers to conduct the joint stock company activities.

The controlling shareholder can be one or more shareholders and must abide by certain duties provided by law. The controlling shareholders have the duty to use their controlling power to make the company accomplish its corporate purpose and perform its social role, and have duties and responsibilities towards the other shareholders of the company, being responsible for any loss caused by abuse of power. If the company has a board of directors, the powers of the quotaholders/shareholders are generally significantly reduced, it being the responsibility of the board of directors responsible to elect the officers and to define the corporate policies.

Brazilian law states that (i) every limited liability company should have at least one officer, and (ii) every joint stock company must have a board of officers with at least one member, whose main duty is to carry out the day-to-day management.

The by-laws of every joint stock company should provide for a fiscal council (conselho fiscal), whose main function is to analyse all acts taken by the management 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 joint stock company shareholders (at least 10% of owners of common stock or 5% of owners of preferred stock).

In addition to the foregoing, a Brazilian joint stock company 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 by-laws. A specific committee to assist the board of directors in respect of certain activities of the joint stock company 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 joint stock company mandatorily has or may, at its discretion, choose to constitute.

A limited liability company customarily has no body similar or equivalent to the board of directors of a joint stock company, and the managers generally carry out their functions with less formality than the directors of a joint stock company (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 joint stock company, 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 joint stock companies where a board of directors exists, the board of directors is responsible, among other things, for establishing the general policies of the joint stock company and the overall orientation of the company’s businesses. Other than the authority specifically set forth in the by-laws (eg, the authorisation for the execution of certain agreements by the company), the Brazilian Corporations Law sets out the competence of the board of directors on specific matters (if the joint stock company, 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 officers 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 by-laws of a joint stock company 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 oversees the other management bodies of the company and their acts, thus assisting the shareholders’ meeting. The Brazilian Corporations 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 joint stock company; 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:

• the analysis, on a quarterly basis, of the constitutive and financial documents of the company;
• the registration in the relevant book of the opinions of the fiscal council (concerning 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 the financial statements of the company for the fiscal year in which the fiscal council is operating;
• denouncing errors, frauds or crimes which are identified by the fiscal council;
• convening the annual quotaholders' meeting, in the event the managers fail to do so for a period greater than 30 days; and 
• 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 collegial bodies have internal statutes that regulate the decision-making process. The managers (in a limited liability company) act individually and so, as a rule, do the officers (in a joint stock company). In the case of officers of a joint stock company, however, the by-laws 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.

The by-laws of the company must state the number (or an interval number) of members of the board of directors, all of whom are elected by the general shareholders’ meeting. The number of members of the board of directors should be at least three and there is no maximum number. If the by-laws 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 by-laws of a joint stock company 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 by-laws may also provide that the board of directors have a deputy chairperson.

The by-laws 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 joint stock company or its business. It is common that joint stock companies have an internal statute of the board of directors to regulate its functioning.

As mentioned in 1.3 Corporate Governance Requirements for Companies With Publicly Traded Shares, the B3 also has special requirements for the board of directors of publicly traded 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 joint stock company (but not before third parties). Additionally, depending on what the by-laws provide, the chairperson may or may not have the casting vote to decide on matters under deadlock. If provided by the by-laws, 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 composition requirements.

The Brazilian Corporations Law sets out the 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 cases where 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 and/or officers of Brazilian companies, provided they have a representative in Brazil with broad powers to receive service of process in the name of the respective board member or officer.

A maximum of a third of the members of the board of directors may be officers of the respective joint stock company. The by-laws of a joint stock company may provide for representatives of employees, chosen by the employees, to participate in meetings of the board of directors. Furthermore, the Brazilian Corporations Law prohibits, in publicly held companies, the accumulation of the position of chairperson of the board of directors and the position of chief executive officer or chief executive of the company.

The CVM regulations require that at least 20% of the total board members of publicly held companies are independent. Regulations of the B3 in respect of certain listing segments require publicly traded joint stock companies to have at least 20% independent members (but in no event fewer than two individuals) among 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 by-laws.

In Brazil, there are certain restrictions and requirements for individuals who wish to be appointed as directors or officers of companies. Here are some key points to consider.

• Legal capacity – directors and officers must have legal capacity, meaning they must be of legal age and mentally competent to fulfil their duties.
• Residency – non-resident directors and officers must appoint a representative in Brazil.
• Criminal record – individuals with certain criminal records may be restricted from serving as directors or officers, particularly if the crimes are related to financial misconduct, fraud, or other offences that could compromise their ability to carry out their duties responsibly.
• Specific requirements and regulations may vary depending on the type of company and the industry in which it operates (eg, banking, insurance, healthcare). Additionally, companies may have their own internal policies and criteria for selecting directors and officers, which may go beyond the minimum legal requirements.

The election of directors is a matter for the annual general shareholders’ meeting; if the joint stock company does not have a board of directors, the election of officers is a matter for the annual general shareholders’ meeting. However, as a rule, the election of a member of management may take place in any general shareholders’ meeting. Brazilian laws regulations require a series of preparatory acts in the case of publicly traded joint stock companies for a person to be elected as a director in any given general shareholders’ meeting.

The removal of members of the management may be carried out at any general shareholders’ meeting. If 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: (i) straight ballot voting, and (ii) 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 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 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 traded joint stock companies, 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 5% 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. If 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 traded joint stock companies 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 by-laws, the employees of a joint stock company may choose a representative to sit on the board of directors. This representative is elected by means of a separate election.

For closely held joint stock companies, there are no specific rules requiring the appointment of independent managers. As a result, the directors and officers do not have full independence 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 joint stock company and its legitimate political power to direct the functioning of the administrative bodies of the joint stock company. 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 joint stock companies’ interests.

The CVM regulations require that at least 20% of the total board members of publicly held companies are independent. The stock exchange regulations applicable to joint stock companies listed in the New Market segment require that at least 20% (but in no event fewer than two individuals) of the listed joint stock companies’ board members must be independent directors. A director is deemed “independent” for the purpose of the regulations if they are 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 they:

• have no ties to the joint stock company, other than a possible equity interest;
• are not a controlling shareholder, spouse or close family member (to the second degree) of a controlling shareholder, and have no ties to any company or entity related to a controlling shareholder;
• have not been an employee or officer of the joint stock company, or of the controlling shareholder, or of a subsidiary of the company, at any time in the past three years;
• are not a direct or indirect supplier to the joint stock company or buyer from the joint stock company of goods or services, to an extent that would imply loss of independence;
• are not an employee or senior manager of any company that is a service or product provider or consumer of the joint stock company to an extent that would imply loss of independence;
• are not a spouse or close family member (to the second degree) of any senior manager of the joint stock company; and
• are not entitled to any payment by the joint stock company 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 their knowledge, by virtue of their position, for their own benefit or for the benefit of a third party, whether damage is caused to the company; or
• fail to exercise or protect the company’s rights or seek to obtain advantages for themselves 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 joint stock company 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 by-laws, 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 their duties to the company and must carry out their functions in the interest of the company, always in compliance with their 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 joint stock company, can re-examine all acts of the other bodies of the joint stock company, 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 rule, a lawsuit against the managers for breach of duties must 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 traded companies due to the breach of their statutory fiduciary duties or the commission of acts that are not compliant with the company’s by-laws. Companies listed in the Level 2 and New Market segments of the 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 a breach of their fiduciary duties, as well as damages resulting from acts performed with negligence, wilful misconduct or abuse of power. Violations of applicable laws and regulations (including regulations covering mandatory disclosure, tender offers, conflicts of interest, etc) and of the company’s by-laws 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 (business judgement rule).

Each officer performs their duties on an individual basis and according to their respective assignments, positions, powers and authority. No director or officer will be personally liable for acts or omissions of other officers unless they were involved in those acts, negligent in discovering the acts or failed to prevent the acts once they 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 their dissent manifest in writing. Indemnity agreements, hold harmless arrangements and by-laws indemnity provisions may be put in place, as may insurance policies (D&O and E&O). Mandatory disclosure requirements apply as discussed at 4.11 Disclosure of Payments to Directors/Officers.

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. It is important to highlight that the super-voting (plural) shares instituted under Complementary Law No 182/2021 are not available for resolutions on the management’s compensation.

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 lowest, on a no-name basis);
• insurance and similar arrangements;
• other compensation payable (for other activities, positions or services); and
• any other information the management deems material.

Mandatory disclosure also applies to indemnity agreements benefiting management, as well as to any other transaction entered 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 and internal regulations (articles of association for a limited liability company, by-laws for a joint stock company, and 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 Brazilian Corporations Law on a non-exhaustive basis, such as the right 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
• dissent from the company in certain cases provided for in the Brazilian Corporations Law.

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

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

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

Although the controlling shareholder is not itself a body of the joint stock company, Brazilian law acknowledges the power of the controlling shareholder (an individual or a group of shareholders exercising control together) in the corporate governance, regulating its duties and responsibilities.

In a limited liability company, quotaholders’ decisions may be adopted at quotaholders’ meetings; or, as in most cases, any such decisions may also be adopted by means of a quotaholders’ resolution, duly signed by all quotaholders, regardless of whether the resolution was adopted at a meeting at which the quotaholders were present or was adopted by circulating the resolution for signature. A copy of any minutes or decisions, as applicable, duly authenticated by the officers, must be presented to the Commercial Registry for filing.

A quotaholders’ 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 the officers, if necessary; and
• decide on any other matter brought before the quotaholders’ meeting.

The Civil Code provides for two different types of quotaholders’ meetings for limited liability companies: (i) the general quotaholders’ meeting (assembleia geral), and (ii) the quotaholders’ meeting (reunião de sócios). Certain procedures for calling a general quotaholders’ meeting may be waived if all shareholders attend the general quotaholders’ meeting or otherwise declare, in writing, that they are aware of the place, date, time and agenda of the relevant general quotaholders’ meeting. A quotaholders’ meeting 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 general quotaholders’ meeting. The general quotaholders’ meeting 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 general quotaholders’ meeting 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 general quotaholders’ meeting may take place on the rescheduled date with any number of quotaholders present.

Limited liability companies owned by ten or fewer quotaholders may opt to resolve the matters subject to the decision of the quotaholders by means of a quotaholders’ meeting instead of a general quotaholders’ meeting, should the articles of organisation of the company so provide. The articles of association may contain specific provisions regarding how the calling, voting of proposals and other procedures in connection with the quotaholders’ meeting are to be carried out, and should require less formality and procedures than those of a general quotaholders’ meeting. If the articles of association are silent, the legal provisions in the Civil Code regarding the general quotaholders’ meeting will apply to the quotaholders’ meeting.

In a joint stock company, 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 at 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 joint stock company’s profits; and
• elect the members of the board of directors (if the joint stock company has a board of directors) or officers (if the joint stock company 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 joint stock company or those considered to be convenient to the protection or development of the joint stock company, including any corporate action that may result in an amendment to the by-laws.

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 joint stock company must be published at least three times, and the first call must be published, as a rule, at least 21 days in advance (in a closely held joint stock company the first call must be published at least eight days in advance). Certain procedures for calling a general shareholders’ meeting may be waived if all shareholders attend the general shareholders’ meeting or otherwise declare, in writing, that they are aware of the place, date, time and agenda of the relevant general shareholders’ meeting.

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 joint stock company 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 joint stock company, the general shareholders’ meeting 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 general shareholders’ meeting has been called to decide on the amendment of the by-laws, 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 joint stock 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 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, since 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 joint stock company, directors and officers are all subject to the same legal duties, namely:

• to act with the same level and care and diligence that a reasonable person would apply in carrying out their own business matters;
• to put the interests of the joint stock company ahead of the interests of whoever elected them; and
• to serve the joint stock company with loyalty and avoid taking advantage of business opportunities or participating in any business decisions where they 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 are required to disclose information in relation to the ultimate beneficial owner, up to controlling shareholder level if applicable.

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 the 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 the B3 are required to disclose their financial information both in Portuguese and in English. If listed in the New Market 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 in 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 and digital newspapers as specified by law. The Complementary Law No 182/2021 allows that closely held companies with annual gross revenues of up to BRL78 million may replace the mandatory publications in newspapers provided by law with electronic publications.

As a 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 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 traded companies must also disclose such documents on their respective websites and file them with the CVM. The material so filed is publicly available.

Failing to make these filings may subject the publicly traded companies and its managers to fines and the sanctioning of administrative proceedings under the CVM regulations.

Publicly traded 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, and reviewing and issuing reports on provisions and technical reserves – and trading, directly or indirectly, in securities issued by the company.

As a rule, publicly traded 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 cannot reappoint the previous auditors for a period of at least three years. Lastly, a publicly traded 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 review and report 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; if the recommendation is not implemented, the managers must specify the reason for non-implementation.