BRAZIL Trends and Developments Contributed by: Enrique Tello Hadad, Daniel Domenech Varga and Marcus Luan Silva, Loeser e Hadad Advogados
Loeser e Hadad Advogados Francisco Matarazzo Avenue, 1400 15 floor Sao Paulo Brazil Email: lh@lhlaw.com.br Web: lhlaw.com.br
Introduction Over the past few years, Brazil has experienced noticeable growth in shareholders’ awareness of and active involvement in corporate governance matters, reflecting a broader global surge in shareholder activ- ism. This article provides: • an examination of Brazil’s evolving shareholders’ rights and activism landscape; • an analysis of the legal framework governing shareholder rights; • an inventory of the tools available to shareholders; and • a breakdown of the defensive strategies adopted by companies to address these developments. Furthermore, it delves into the complexities of the Bra- zilian regulatory environment, shedding light on how companies and investors navigate and adapt to these evolving regulatory changes. The Legal Framework for Shareholders’ Rights in Brazil The rights of shareholders in Brazil are primarily regu- lated by two key pieces of legislation: • the Brazilian Civil Code (Law No 10,406 of 2002); and • the Brazilian Corporation Law (Law No 6,404 of 1976). These laws collectively provide a comprehensive framework that governs the operations of both pub- lic and private companies in Brazil. They outline a wide range of rights and obligations for sharehold- ers, including voting rights, dividend entitlements and protection against unfair treatment. Additionally, these
laws emphasise the importance of transparency and fairness in corporate governance, aiming to foster a robust and ethical business environment. Under this legal framework, shareholders are granted a range of fundamental rights essential for their par- ticipation in the company’s governance. Among these are the rights to vote at general meetings, receive divi- dends, and oversee management actions. The right to vote is particularly significant, as it allows share- holders to influence critical corporate decisions, such as the election of board members, the approval of financial statements, and decisions regarding merg- ers and acquisitions. By exercising their voting rights, shareholders can play a crucial role in shaping the company’s strategic direction and safeguarding their financial interests. In Brazil, protecting minority shareholders’ rights is crucial due to the prevalence of concentrated own- ership structures in many Brazilian companies. This ownership dynamic often places minority share- holders at a disadvantage compared to controlling shareholders. In response to this challenge, Brazil- ian legislation has established specific mechanisms to safeguard the interests of minority shareholders. One prominent mechanism is the “tag-along” right, which grants minority shareholders of publicly traded corporations the right to sell their shares, at a mini- mum price of at least 80% of the price paid to the exiting majority shareholder, in the event of a change in company control. In addition to the tag-along right, minority sharehold- ers in Brazil can initiate legal actions to defend their individual or collective rights. For instance, sharehold- ers can file liability actions against directors who act
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