Although Brazilian Law sets forth other types of companies, Brazilian companies usually adopt the form of a limited liability company (Sociedade Limitada, Ltda.) or corporation (Sociedade Anônima, S.A.).

The limited liability company is regulated by Law 10,406/02 (the “Brazilian Civil Code”) and residually, whenever set forth in their articles of association, by Law 6,404/76 (the “Brazilian Corporations Law”), as amended. A limited liability company is easier to incorporate and operate, as less formalities are required for its organisation and management.

The corporate capital of the limited liability company is divided into quotas representing the value of money, credits, rights, or assets contributed by the shareholders (the quotas cannot be paid with services). The company is managed by the officers/managers, who must be individuals appointed by the board of directors or by the shareholders (if the company does not have a board of directors, which is the most common situation in limited liability companies). The management structure, profits distribution, share capital, liquidation procedures and other key relevant aspects of the existence of a limited liability company are established in the company’s articles of association (contrato social), which may be amended by the shareholders to a great extent.

The corporation, governed by the Brazilian Corporations Law, has its share capital represented by shares. These shares can be closely held (S.A. fechada) or publicly held (S.A. aberta). For a publicly held corporation, registration with the Securities and Exchange Commission of Brazil (Comissão de Valores Mobiliários or CVM) is mandatory, along with the securities, which may be traded on the stock exchange. Conversely, the shares of a closely held corporation are not accessible to the general public.

Both types of companies benefit from limitation of liability. Consequently, in bankruptcy, the shareholders do not risk losing their private assets, unless specific circumstances are proven, such as fraud, confusion between the assets of the company and the assets of shareholders’ or conflicts of interest.

In Brazil, foreign investors commonly use the two primary types of company structures: limited liability company and corporation. A combination of legal, operational, and strategic considerations drives these choices.

The limited liability company is one of the most popular choices for foreign investors in Brazil - small and medium-sized companies more often use it. It is important to mention that it is not permitted to offer securities or quotas publicly. It provides limited liability protection for investors and can be relatively easy to set up and suitable for various types of businesses or investments.

The corporation companies are often used when a more complex corporate structure is needed, such as for large-scale public companies or when issuing shares for public trading. This structure may be chosen for IPOs and publicly traded entities.

The shares of corporations are classified concerning rights and obligations, as well as their transfer methods. In the first case, there are common shares and preferred shares. In the second case, there are registered or book-entry shares.

Concerning rights and obligations, the following applies:

• Common shares (ações ordinárias) – Holders of these shares have the power to oversee the company, receive dividends (when there is a profit), and the right to vote in general meetings.
• Preferred shares (ações preferenciais) – Preferred shareholders usually have their voting rights suppressed, in exchange for economic benefits. The most common types of economic benefits granted to preferred shareholders are the right to receive fixed dividends, priority on receiving dividends, and priority on being reimbursed if the company is liquidated.

Regarding the shares transfer mechanism, the following applies:

• Registered shares (ações nominativas) – Registered shares are transferred through annotations in the corporate books of the company, notably the shares transfer book. Ownership thereof is proven through certificates issued by the company on behalf of the shareholder.
• Book-entry shares (ações escriturais) – Book entry shares are transferred through registration in the records of a financial institution, responsible for providing depositary services to a corporation. Ownership thereof is proven through bank statements issued by the financial institution in charge of providing the depositary services.

The Brazilian Corporations Law also provides for the existence of “Golden Shares”. Golden Shares may be granted to the state during the privatisation process of state-controlled companies, and they confer veto rights against the resolutions adopted by the shareholders’ general meetings, as may be stipulated in the privatised company’s by-laws.

With regard to limited liability companies, the law does not make any prior distinction regarding the type of shares (named quotas). Nevertheless, the issuance of ordinary and preferred shares is currently admitted by limited liability companies, if this is expressly stated in their articles of association. Regarding the shares transfer regime of limited liability companies, the only form of transferring them is through an amendment to the company’s articles of association, which on its turn must be registered with the Board of Trade.

Variation in shareholders’ rights depends largely on the type of entity involved.

Limited Liability Companies

For limited liability companies (sociedades limitadas), shareholders’ rights may be varied by the articles of association and a shareholders’ agreement, which may establish different classes of quotas, with different rights and obligations, such as voting, dividend, and liquidation rights, as well as restrictions on transferability and preferential rights to subscribe for new quotas. The articles of association and the shareholders’ agreement may also provide for arbitration clauses, drag-along and tag-along rights, pre-emption rights, and other contractual arrangements among shareholders. Overall, shareholders have great flexibility to vary shareholders’ rights through the company’s articles of association and a shareholders’ agreement.

Corporations

For closely held corporations (sociedades anônimas de capital fechado), shareholders’ rights may be varied by the by-laws and also a shareholders’ agreement, which may for instance create different classes of shares, with different rights and obligations, such as voting, dividend, and liquidation rights, as long as the by-laws respect the essential rights of shareholders established by the Corporations Law, such as the right to participate in the general meetings, the right to access information, the right to withdraw from the company in certain cases, and the right to receive dividends.

Publicly held corporations, in addition to observing the essential rights established in the Brazilian Corporations Law, must also observe the rules and regulations of the CVM, as well as the applicable regulations of the stock exchange. For example, the “Novo Mercado” listing segment of B3 (Brazil’s largest stock exchange) requires that all shares have voting rights, that the board of directors must have at least 20% of independent members, and that any disputes must be resolved by arbitration. Other segments, such as Level 1, Level 2, and Bovespa Mais, have different requirements and benefits for the companies and the shareholders.

Limited Liability Companies

In principle, no minimum share capital requirement applies. However, depending on the industry the company operates (such as financial services and insurance), minimum share capital requirements may apply.

Corporations

Similarly to limited liability companies, corporations are not subject to minimum share capital requirements, unless industry specific requirements apply. However, it is worth mentioning the mandatory cash down payment of 10% of the issued price of the subscribed nominative shares in the incorporation process of a corporation.

For the limited liability company, there is no minimum number of shareholders for the company’s incorporation. However, in the case of corporations, a minimum of two shareholders is legally required.

There is no legal requirement for shareholders to be resident in Brazil. However, foreign shareholders must be represented by a Brazilian resident (either a Brazilian national, or a foreigner with a residence permit) with specific powers to represent them as shareholders of the Brazilian company and receive service of process on their behalf.

Shareholder agreements are commonly used in Brazil to regulate ownership and governance within companies. These agreements outline the rights, responsibilities, and decision-making processes for shareholders, helping to manage issues like share transfers, voting and pre-emption rights, veto powers, drag and tag along rights, dividends and dispute resolution.

In addition to shareholder agreements, joint venture agreements are frequently employed in Brazil. They establish the roles, profit-sharing, dispute resolution, and exit strategies for partnering entities, enabling them to work together effectively and sharing risks.

Typical provisions in shareholders’ agreements concern:

• the exercise of voting rights;
• the appointment and removal of board members and executive officers;
• administration rights, powers, obligations and limitations;
• lock-up period;
• right of first refusal, drag along and tag along rights;
• put and call options; and
• dispute resolution.

The agreements are enforceable before the Brazilian courts or through arbitration, as the case may be, and in general they are kept private. However, publicly listed corporations are required to disclose the existence of shareholders’ agreements, and the limits to the circulation of shares that may apply.

Limited Liability Companies

As per the Brazilian Civil Code, shareholders of a limited liability company must hold an annual general meeting (AGM) in the first four months following the end of the previous fiscal year.

The notice for the AGM must be published at least three times, with a minimum period of eight days between the date of the first publication and the date of the meeting at first call, and five days for subsequent calls. The notice period can be shortened or waived if all shareholders attend the meeting, or if all shareholders adopt a resolution in writing.

The main issues commonly discussed and approved at an AGM of a limited liability company are:

• approval of the management’s financial accounts to ensure transparency and accountability;
• appointment and destitution of managers and board members; and
• allocation of net profits.

In addition to the AGM, a limited liability company can and sometimes should hold extraordinary general meetings (EGMs) when necessary to address specific matters that require shareholders’ approval.

Corporations

According to the Brazilian Corporations Law, an AGM of a corporation shall be held every year during the first four months after the closing of the fiscal year to:

• examine, discuss, and vote on the financial statements;
• decide on the allocation of net profits and dividends distribution; and
• elect the officers, board members and the members of the statutory audit committee, if any.

The call must be made by a published notice containing, in addition to the place, date, and time of the general meeting, the agenda and, in the case of an amendment to the by-laws, an indication of the subject matter and, for listed corporations, a copy of the by-laws highlighting the proposed amendments along with a report informing the purpose of the proposed amendment and its legal and economic effects.

Limited Liability Companies

In limited liability companies, the notice period for AGMs and EGMs is the same. The notice must be published at least three times, with a minimum period of eight days between the date of the first publication and the date of the meeting at first call, and five days for subsequent calls. The notice period can be shortened or waived if all shareholders attend the meeting, or if all shareholders adopt a resolution in writing.

Corporations

In corporations, the notice period for AGMs and EGMs is also the same. In closely held corporations, the notice must be published at least three times, with a minimum period of eight days between the date of the first publication and the date of the meeting at first call, and five days for subsequent calls. In publicly listed corporations, the notice must also be published at least three times, but with a minimum period of 21 days between the date of the first publication and the date of the meeting at first call, and eight days for subsequent calls

Limited Liability Companies

The General Shareholders Meeting shall be called by the company’s managers (administradores). However, the general meeting may also be called as follows:

• by any shareholder, if the managers delay the call for more than 60 days in the cases established by law or in the articles of association;
• by shareholders representing at least 20% of the share capital, if the managers fail to call the meeting in eight days after receiving a notice for calling the meeting; and
• by the audit committee (conselho fiscal), if the company has one, for urgent matters.

Corporations

The General Shareholders Meeting in corporations shall be called by the company’s board of directors (if applicable) or executive officers. However, the general meeting may also be called as follows:

• by any shareholder, if the managers delay the call for more than 60 days in the cases established by law or in the by-laws;
• by shareholders representing at least 5% of the voting shares, or by shareholders representing at least 5% of the non-voting shares, if the managers fail to call the meeting in eight days after receiving a notice for calling the meeting;
• by shareholders representing at least 5% of the share capital, if the managers fail to install the audit committee in eight days after receiving a notice in this respect; and
• by the audit committee, in the cases provided by law.

All shareholders are entitled to receive notice of a general meeting, ensuring that they have an opportunity to participate and exercise their rights. This notice may be provided through various means, including publication in widely circulated newspapers or electronic communication, depending on the company’s practices and regulatory requirements.

Shareholders also have specific information rights by law or regulation, which encompass several key aspects, as outlined below.

Access to Company Registers

Shareholders, particularly those who hold at least 5% of the company’s corporate capital, have the legal right to inspect the company’s books and records.

Requesting Information

Shareholders can request information within the competence of the company’s board of directors or supervisory board, which must be provided upon request. This information can pertain to the company’s financial performance, strategic plans, and other relevant matters.

Advance Disclosure of Meeting Documents

The company is generally required to provide all documents related to the matters to be discussed at a particular general meeting at least thirty days before the meeting’s scheduled date. This ensures shareholders have sufficient time to review and assess the proposed agenda items. Publicly listed corporations are subject to additional disclosure requirements, pursuant to the regulations enacted by the CVM. Depending on the topic of the agenda (eg, amendment of the by-laws, appointment of board members, approval or remuneration of board members, and corporate restructurings), a specific list of documents applies.

Virtual shareholders’ general meetings are permitted for limited liability companies, closely held corporations, and listed corporations. Companies may choose between in-person meetings, virtual meetings, and a hybrid of these options. Virtual meetings are those in which the shareholders may only attend and vote through electronic systems, whereas hybrid meetings are those in which the shareholders may attend and vote either in person or through electronic systems.

On 04 June 2024, the CVM has enacted a new rule that enters into force on 02 June 2025. According to the new regulation, the remote voting ballot (BVD) becomes mandatory for all meetings, regardless of the subject matter of the agenda. The BVD is a tool that allows shareholders to send their voting instructions in advance, without the need to attend the meeting in person or to be represented by a proxy.

Limited Liability Companies

Limited liability companies with up to ten shareholders are free to establish in their articles of association the quorums required so a general meeting can be considered to be valid. Limited liability companies with more than ten shareholders require a quorum of at least three quarters of the share capital in the first call. In the second call, a quorum shall be deemed to be reached regardless of the percentage of the share capital present or represented.

Corporation

Apart from the exceptions provided by law, a general meeting shall be opened on first call with the presence of shareholders representing at least of the voting corporate capital; on the second call, it shall be opened with any number.

In corporations and limited liability companies, there are basically annual general meetings, and extraordinary general meetings. The difference between them is their periodicity (annual general meetings must be mandatorily carried out annually, while extraordinary general meetings may be carried out whenever required), and the matters involved (the list of matters to be resolved in the annual general meeting are expressly set forth in the legislation).

Limited Liability Companies

According to the Brazilian Civil Code, in addition to other matters provided in the company’s articles of association, the following matters require shareholders’ approval: (i) the approval of the management’s accounts; (ii) the appointment and removal of the company’s officers; (iii) the remuneration of the company’s officers, if not provided in the company’s articles of association; (iv) the amendment to the company’s articles of association; (v) the merger, spin-off and dissolution of the company; (vi) the appointment and removal of the liquidator, as well as the approval of its accounts; and (vii) the request for judicial recovery.

In limited liability companies, the following majorities apply:

• Unanimous vote of all shareholders – Approval of the transformation of the company from one corporate type to another, unless this possibility is foreseen in the articles of association of the company.
• At least two thirds of the share capital – Appointment of a non-shareholder as executive officer, when the share capital is not fully paid up.
• Absolute majority (more than half of the share capital) – Designation of executive officers (except for the case mentioned above); removal of executive officers; remuneration of the executive officers, when not established in the articles of association; approval of the request for judicial recovery; amendment to the articles of association; merger, consolidation, dissolution of the company and cessation of the state of liquidation.
• Relative majority (majority of the attendees at the general meeting) – Approval of the accounts of the managers; appointment and removal of the liquidators and approval of their accounts; and in all other cases (unless the articles of association require a higher majority).

Corporations

According to the Corporations Law, the following matters require shareholders’ approval:

• amending the by-laws;
• electing and removing directors;
• approving annually the company’s accounts and financial statements from the past year;
• issuing debentures;
• suspending shareholders’ rights;
• approving the valuation of the shareholders’ assets for the purpose of paying up the share capital;
• issuing participation certificates;
• approving the transformation, merger, spin-off, dissolution or liquidation of the company, and the appointment and destitution of liquidators and approving the company’s accounts;
• authorising the request for bankruptcy and judicial recovery; and
• in publicly listed corporations, authorising transactions with related third parties, selling assets or contributing them to another company, if the value of the operation is above 50% of the company’s total assets.

In corporations, the absolute majority principle (ie, more than 50% of the shares bearing voting rights) governs decision-making, with some exceptions. However, in privately held corporations, there is the possibility of stipulating higher majorities for certain matters.

Corporations

A shareholder may be represented at a general meeting by a proxy appointed less than one year before, who shall be another shareholder, a director of the company, or a qualified lawyer; in a publicly held corporation, the proxy may also be a financial institution. Before a general meeting is opened, the shareholders shall sign the attendance book, indicating their name, nationality, and residence, as well as the number, type, and class of shares owned.

The voting method can be secret, open, in writing or orally, as may be stipulated in the corporations’ by-laws. Under Brazilian law, the principle that one share corresponds to one vote applies Nevertheless, in 2021 the Brazilian Corporations Law has been amended to admit weighted voting rights in closely held corporations, to the extent that one ordinary share shall correspond to a maximum of ten votes.

The shareholders’ meetings can take place in person, electronically, or a mix between both. If the meeting is held totally or partially electronically, the corporation must provide the vote bulletin, or another suitable mechanism to enable the counting of the votes.

Limited Liability Companies

Limited liability companies are more flexible in terms of establishing their own internal rules. Ordinary voting methods, weighed voting rights and electronic votes are permitted, but they must be clearly provided in the company’s articles of association. Proxy voting is also permitted, and the proxy must be either another shareholder or a lawyer. 

Limited Liability Company

Brazilian legislation is unclear as to which extent the shareholders have the right to require a specific issue to be considered, or a resolution put forward, at a shareholders’ meeting. As a result, in limited liability companies, this possibility will mostly depend on the articles of association of the company.

Corporations

Similar to limited liability companies, Brazilian legislation applicable to closely held corporations is unclear as to which extent the shareholders have the right to require a specific issue to be considered, or a resolution put forward, at a shareholders’ meeting, so this will mostly depend on the company’s by-laws. On the other hand, the regulations enacted by the CVM applicable to publicly listed corporations provide that shareholders representing a certain percentage of the share capital may request the inclusion of topics at the annual’s general meeting, as follows:

• at least 5% of the share capital, for companies with a share capital equal to or below BRL500 million;
• at least 3% of the share capital, for companies with a share capital above BRL500 million and equal to or below BRL2 billion;
• at least 2% of the share capital, for companies with a share capital above BRL2 billion and equal to or below BRL10 billion; and
• at least 1% of the share capital, for companies with a share capital above BRL10 billion.

Shareholders can challenge a resolution passed at a general meeting under specific circumstances, such as violation of the law, the company’s by-laws, or the general principles of corporate law, such as the duty of loyalty by managers, the equal treatment of shareholders, and the protection of the company’s interests and social function.

One notable aspect is that there is no requirement for a specific quorum to challenge a resolution. This means that any shareholder, as well as third parties that may have been jeopardised by the illegal resolution (such as bond holders) may challenge it. The statute of limitations is of two years following the passing of the resolution. This provision ensures that shareholders have a mechanism to safeguard their rights and the integrity of corporate decision-making processes, particularly in cases where irregularities or misconduct may have occurred.

Institutional investors and shareholders’ groups influence and actively monitor a company’s actions through several strategic approaches. One of the primary methods involves the election of Board of Directors members who can effectively represent their interests and concerns within the company’s governance structure. These representatives play a pivotal role in shaping key management decisions and corporate strategies.

Furthermore, shareholders often leverage their influence by stipulating specific requirements in the company’s by-laws or articles of association. These provisions may mandate that specific actions or decisions, such as entering into high-value contracts, engaging in significant corporate transactions, or providing guarantees, must secure approval through a shareholders’ general meeting. This mechanism not only enforces transparency and accountability but also ensures that major company undertakings align with the broader interests and objectives of shareholders. 

A shareholder may be represented at a general meeting by a proxy appointed less than one year before, who shall be a shareholder, a corporation officer, or a lawyer; in a publicly held corporation, the proxy may also be a financial institution.

The rights of the shareholder represented by a proxy shall be the same as those of the shareholder who attends in person, unless the proxy itself or the articles of association/by-laws provide otherwise.

Shareholders pass a written resolution without holding a meeting, but only if they represent 100% of the company’s share capital.

Existing shareholders have pre-emption rights to subscribe newly issued shares. Pre-emption rights mean that existing shareholders have the right to subscribe to a proportionate amount of the new shares, according to their current shareholding, before the new shares are offered to the public or to third parties. The by-laws of the company or the general meeting may fix the term to exercise the pre-emption rights, which shall be of at least 30 days.

Pre-emption rights are considered to be fundamental rights under the Brazilian legal framework, so overall it cannot be excluded. Nevertheless, the Brazilian Corporations Law provides that the by-laws of publicly listed companies with authorised capital (ie, capital that may be increased by the board of directors without the approval of the shareholders) may exclude pre-emption rights in a share capital increase, in the following circumstances: (i) public offerings, and (ii) tender offers for control acquisition.

Restrictions on the transfer of shares will mostly depend on the type of company. In listed companies, except for some restrictions resulting from shareholders’ agreements, shares must be freely traded to guarantee market liquidity. On the other hand, closely held corporations may limit the transfer of shares through their by-laws, but they may never entirely forbid the transfer.

Limited liability companies are intuitu personae entities that may incorporate in their articles of association restrictions on the transfer of shares to third parties. However, if the articles are silent in this regard, shareholders may transfer their shares to third parties if this transfer is not opposed by more than 25% of the company’s corporate capital. Conversely, the transfer of shares to another shareholder is usually permitted in the absence of a specific rule provided in its articles of association.

In general, shareholders can grant security interests over their shares. However, it is standard for the company’s by-laws/articles of association to contain provisions prohibiting shareholders from granting security interests over their shares.

In limited liability companies, the share capital of the company and the participation of each shareholder are stated in the company’s articles of association, which in turn are subject to registration with the Board of Trade. Since the Board of Trade records are publicly available, the shareholders’ interests are necessarily disclosed to the public. In addition, any transfer of shares must be carried out through an amendment to the company’s articles of association, and necessarily registered with the Board of Trade. Thus, any shares transfer in limited liability companies are also disclosed to the public.

In closely held corporations, the share capital is registered in the shares registry book, while any share transfers are registered in the shares transfer book. Both books are kept by the company at its headquarters, meaning that they are not subject to registration with public records. As a result, closely held corporations are not required to disclose shareholders’ interests.

Publicly listed corporations are subject to the disclosure requirements of the CVM. According to the CVM regulations, publicly listed corporations are required to disclose its controlling shareholder (or group of shareholders that form a control block), as well as shareholders holding 5% or more of the same class of shares.

Shares of a company can be cancelled after issue in certain specific situations, as outlined below.

Share Capital Reduction

A company can reduce its share capital by cancelling shares, either with or without reimbursement to the shareholders, if it has excess capital or if it needs to absorb losses, subject to the approval of the shareholders’ meeting and the observance of the legal and statutory requirements. The share capital reduction cannot jeopardise creditors or the payment of the mandatory dividends to the shareholders.

Repurchase of Shares

A company can repurchase its own shares, either to hold them in treasury, to cancel them, or to resell them, subject to the limits and conditions established by law and the company’s by-laws. The repurchase of shares must not reduce the minimum mandatory capital or the legal reserve, and it must be authorised by the board of directors or the shareholders’ meeting, depending on the case. The repurchase of shares can be done through a public offer, a private agreement, or on the stock exchange.

Amalgamation, Merger or Spin-Off

A company can cancel shares as a result of an amalgamation, merger, or spin-off, in which case the shareholders of the cancelled shares will receive shares or cash from the surviving or resulting company, according to the exchange ratio approved by the shareholders’ meeting of each company involved in the transaction. The cancellation of shares must comply with the legal and contractual provisions applicable to each type of corporate reorganisation.

Corporations

Brazilian corporations can buy back their shares either to cancel them, reducing their capital stock, or to hold them in treasury, reserving them for future sale, distribution or cancellation. The buyback must be authorised by the shareholders’ meeting or the board of directors, depending on the company’s by-laws and the applicable law, and must comply with the rules of the CVM and the stock exchange or over-the-counter market where the shares are traded, if applicable.

The buyback must have a specific purpose, such as increasing the company’s profitability, optimising its capital structure, creating a market for its shares, facilitating a merger, spin-off or acquisition, or satisfying stock option plans or other incentive programmes for employees or managers. The buyback cannot be used to manipulate the market price or volume of the shares, to favour certain shareholders or managers, or to evade taxes or regulations.

The buyback must be funded by the company’s available profits, capital reserves or retained earnings, and cannot impair the company’s liquidity or solvency. In addition, the buyback must be limited in terms of the number and the value of the shares to be acquired, as well as the duration of the programme.

Limited Liability Companies

The Brazilian Civil Code does not expressly regulate the acquisition of quotas by limited liability companies themselves, nor does it prohibit it. However, it does establish some general principles and rules that may apply to such a transaction, such as the preservation of the company’s capital, the equal treatment of shareholders, the respect for the company’s purpose and social interest, and the protection of creditors and third parties.

The general shareholders’ meeting usually decide the amount and frequency of dividends. The by-laws or articles of incorporation may also set a minimum dividend that must be paid, a policy for paying dividends, or a preference or priority for some classes of shares to receive dividends.

Cash is the usual form of payment for dividends, but they may also be paid in other ways (such as shares, assets, or securities) or offered as credit (such as debentures or bonds), as long as the shareholders agree, and the laws and regulations are followed.

In corporations, the date for paying dividends is within 60 days of the declaration date, unless a different date is set by the shareholders’ meeting, which cannot be later than the end of the fiscal year in which they are declared. Dividends that are not paid within the legal or agreed term accrue interest at the official rate, unless the by-laws or articles of incorporation say otherwise.

Only distributable reserves can be used to pay dividends, which are the company’s net income minus any legal or statutory reserves, taxes, and other obligations. Legal reserves are reserves that corporations must set aside by law to cover losses or contingencies.

The Brazilian Civil Code does not contain detailed rules regarding the payment of dividends in limited liability companies, so shareholders are overall free to establish which rules shall apply in the company’s articles of association.

Shareholders of corporations can appoint and remove directors or officers at any time by at least a majority vote or a higher majority, subject to the specific provisions set forth in the company’s by-laws.

In the case of limited liability companies, shareholders can appoint and remove non-shareholder directors or officers by at least a majority vote if the corporate capital is fully paid or by the approval of two thirds of the corporate capital, if the corporate capital is not fully paid. A higher quorum may be outlined in the articles of association of the company.

If the corporation only has a board of executive officers (closely held companies are not required to have a board of directors), their members shall be elected and removed by the shareholders themselves. However, if the corporation has both a board of directors and a board of executive officers (mandatory for public companies), directors shall be elected and removed by the shareholders, and the executive officers shall be elected and removed by the board of directors. In limited liability companies, the shareholders are usually in charge of appointing and removing officers, unless the articles of association provide for a board of directors, with specific powers to appoint or remove officers.

Corporations can sue directors for harm they caused to it, and this lawsuit needs the consent of most of the shareholders who can vote. But if they do not agree, any shareholder who owns at least 5% of the shares can start the lawsuit by themselves.

The business judgement rule is not clearly defined in Brazil, but the CVM, which regulates and oversees the stock market, has used it often to decide whether to punish directors of public companies. However, most experts think that a judge can let the directors and officers off the hook if they are satisfied that they acted honestly and for the benefit of the company. The business judgement rule protects directors or officers from being sued if they made a business decision based on careful and informed reasoning, using all the relevant information they could get, and without any personal interests involved. The main goal of the rule is to respect the decision-making power of the company’s managers, and it assumes that they always act in good faith.

The role, duties, and responsibilities of the audit committee and the independent auditors (auditores independentes) of publicly held and closely held corporations are regulated by the Brazilian Corporations Law (Law 6,404/1976). This law allows the shareholders to create an audit committee at any time, which can oversee the management, the financial statements, and the independent auditors of the company. The audit committee can also ask for the replacement of the independent auditors if they detect any irregularities or breaches of their obligations. The independent auditors, on the other hand, are required for publicly held corporations and optional for closely held corporations and must be chosen by the board of directors or, if there is none, by the shareholders’ meeting.

The Brazilian Civil Code (Law 10,406/2002), which applies to limited liability companies, does not require the audit committee for these companies, but the shareholders can decide to establish one in their articles of association. The audit committee, if created, can have the same or similar functions and powers as the one for corporations, depending on the terms of the articles. The independent auditors are also not required for these companies, but the shareholders can also decide to hire them in their articles of association, or by a resolution of the shareholders’ meeting. The shareholders’ meeting can also select or remove the independent auditors, by a majority vote, unless the articles of association state otherwise.

The law requires directors to disclose to shareholders any significant information that could affect the company’s operations, finances, or market value, as well as any decisions made by the board of directors or the shareholders’ general meeting. Moreover, directors must prepare and publish annual financial statements, management reports, and independent auditors’ opinions, which must contain information on the company’s adherence to legal and statutory obligations, internal controls, risk management, and social and environmental performance. Additionally, directors must call and participate in general meetings of shareholders, where they must report and clarify the company’s financial and managerial outcomes, as well as respond to any questions or demands from shareholders.

Brazilian corporate law clearly establishes that controlling shareholders are responsible for any harm they cause to the corporation by misusing their authority, which can be challenged in court. Misuse of authority includes actions such as:

• straying from the company’s purpose;
• engaging in transactions that damages the company;
• altering the by-laws or making decisions that go against the company’s interest;
• choosing unsuitable board members;
• contracting with a company outside arm’s length terms; and
• deliberately approving or ignoring irregular accounts from management.

Shareholders who own 5% of the company’s stock, or any shareholder who offers a guarantee if the claim is rejected by the courts, can sue the controlling shareholder for damages.

An insolvency situation may lead a company to resort to judicial recovery. This legal process is designed to assist financially distressed companies facing insolvency by enabling them to restructure their debts and continue their operations. This process is governed by the Brazilian Bankruptcy and Recovery Law (Law 11,101/2005).

The insolvent company initiates the process by submitting a formal petition to the court, detailing its financial situation and proposing a recovery plan. Once accepted by the court, the company enjoys protection against creditor enforcement actions for a designated period.

A comprehensive recovery plan is formulated, and creditors vote for or against it during a creditors’ general meeting. Shareholders can also vote on the plan at the creditors’ meeting, but their votes are not as important as the creditors’ votes. Shareholders can also go to court to contest the plan if they think it harms their rights or breaks the law.

An administrator appointed by the court supervises and supports the plan’s implementation. If the plan is successfully executed, the company exits the judicial recovery process and resumes regular operations.

Shareholders can propose a lawsuit against the company who allegedly breached the shareholders’ individual rights or interests, such as receiving dividends, taking part in the management, inspecting the books and records, withdrawing from the company, or challenging unlawful acts or decisions. The shareholders must demonstrate that they have a personal and direct claim against the defendant, and that they suffered a specific and measurable damage.

Furthermore, a class action on behalf of a group of shareholders who have a common interest or right that was damaged by the company may be proposed by one or more shareholders or by a shareholders’ association. The shareholders must demonstrate that they have a collective or diffuse claim against the defendant, and that they suffered a widespread or indivisible damage.

With the approval of the majority of voting shareholders, the company may file a lawsuit against its directors for damaging the company.

If the majority of voting shareholders do not approve a lawsuit against directors for damaging the company, shareholders representing at least 5% of the share capital can bring a derivative action.

In Brazil, shareholder activism is predominantly governed by the Brazilian Corporations Law, in conjunction with regulations enacted by the CVM. This legal framework collectively provides key instrumental legal tools designed to facilitate and regulate shareholder activism, as outlined below:

• Shareholders’ meetings – Shareholders have the right to participate in annual and extraordinary general meetings, where they can exercise their voting rights and express their opinions on the company’s operations and management.
• Right to information – Shareholders have the right to access certain company information, such as financial statements and minutes of meetings.
• Filing complaints – Shareholders can file complaints with the CVM if they believe the company or its management has violated securities laws or regulations.
• Class actions – Shareholders can file class-action lawsuits if they believe they have a joint claim against the company.

Recent legislative changes and regulatory developments that may encourage shareholder activism include proxy voting. The CVM has implemented regulations facilitating proxy voting, making it easier for shareholders who cannot attend in-person meetings to participate and vote.

In Brazil, activist shareholders often focus on improving corporate governance to ensure the company is managed in the best interests of all shareholders. This is particularly relevant in Brazil, where many companies have a controlling shareholder or group of controlling shareholders. By enhancing governance structures, activist shareholders aim to bring more balance and fairness in decision-making processes, ensuring that the rights and interests of minority shareholders are also considered.

Increasing transparency is another primary goal for activist shareholders. They may demand greater disclosure from the company’s management about its operations, financial performance, and strategic decisions. Such transparency is essential to hold the management accountable and to allow shareholders to make informed decisions.

Another focus area for activist shareholders in Brazil is promoting social and environmental responsibility. As the world increasingly recognises the importance of sustainable practices, activist shareholders are pushing companies to adopt strategies that are socially and environmentally friendly, aligning the company’s operations with global sustainability goals.

Ultimately, the main objective of activist shareholders is to maximise shareholder value. They may advocate for changes in the company’s strategy, operations, or leadership to improve performance and, consequently, enhance the company’s value. By addressing specific issues, such as executive compensation or related party transactions, activist shareholders strive to eliminate practices detrimental to shareholders’ interests, ensuring the company is positioned for long-term success.

The main strategies employed by activist shareholders are reaching out to fellow shareholders to express grievances in order to amend shareholders’ meetings’ agenda, appointing members to the board of directors and audit committee of the companies, and resorting to, or at least threatening to initiate, legal proceedings.

So far, it is not possible to identify particular industries that have been targeted more than other sectors, nor any trends in terms of market capitalisation of targeted companies. However, some preliminary data suggest that the level of governance of the company may impact shareholders’ activism: companies listed on the Novo Mercado index (B3’s top governance index) are less prone to shareholders’ activism, than companies listed in other B3 listing segments, subject to a less stringent set of corporate governance rules.

Asset management firms, through the investment funds managed by them, have been particularly vocal in shareholders’ activism. Several of them adopt an ESG approach, and design investment thesis based on particular standards, such as the company’s carbon footprint, or the publication of environmental reports.

High net worth individuals have also been a key driver of shareholders’ activism in Brazil. Due to high income concentration in Brazil, particular individuals are able to influence companies through their family offices or investment funds.

Lastly, pension funds activism cannot be ignored in Brazil, especially those pension funds connected with state-controlled companies. Such pension funds usually invest in other state-controlled companies, and data suggest that on some occasions, there can be an alignment between the interests of the controlling shareholder (the State) and those of the pension funds.

In Brazil, there is no precise information of or official record on what proportion of public activist demands are met.

Ensuring strict compliance, fortifying internal controls, and bolstering corporate governance policies are crucial steps in responding optimally to shareholders’ activism. Furthermore, maintaining transparency and providing comprehensive information on management decisions and actions are essential for an environment of openness and accountability.

From a practical point of view, companies may identify potential activists in advance, understand their tactics, and anticipate potential activities. In addition, maintaining a robust and well-equipped investors relations team is key to minimise the risk of shareholders’ activism.

In addition, ensuring the participation and representation of minority shareholders in the board of directors and the audit committee, encouraging the presence of independent board members, promoting dialogue and engagement with minority shareholders by addressing their concerns and demands in a timely and respectful manner, and adopting alternative dispute resolution methods, such as mediation and arbitration, may also prove to be helpful to minimise the risk of shareholders’ activism.