BRAZIL Law and Practice Contributed by: Rafael Lacerda, Eric Nahum, Rômulo Martins and Fernando Oliveira, Lacerda Diniz Advogados
tainty and equal treatment of shareholders, which will be directly relevant to private equity funds considering exit alternatives that involve listed companies. In summary, while trade sales remain the predominant form of exit, the past year has seen an increased reli - ance on delistings, partial sell-downs and, to a lesser degree, emerging secondary structures. Dual-track processes are uncommon in practice, triple-tracks are extremely rare, and rollovers are used strategically but are not the prevailing practice in Brazil. 10.2 Drag and Tag Rights For institutional investors, drag rights are typically negotiated at thresholds ranging from a simple major - ity (more than 50% of the voting capital) to two thirds, reflecting the level at which a shareholder is effectively able to dictate the strategic direction of the company. In many sponsor-backed deals, the drag threshold is aligned with the level of control needed to approve extraordinary corporate matters, ensuring that minor - ity investors can be compelled to sell if the controlling sponsor determines an exit. Tag-along rights are equally common and, in most cases, are set at 100% of the stake being sold by the controlling shareholder, especially in transactions involving institutional investors. This standard reflects both market practice and the statutory baseline under Brazilian corporate law, which grants minority share - holders in public companies a mandatory tag-along at 80% of the price per voting share paid for the con - trolling block (Article 254-A of the Corporations Law). In private companies, however, contractual arrange - ments typically provide for full (100%) tag-along rights, ensuring equal treatment among shareholders. Management shareholders often negotiate more lim - ited protections. It is not unusual for managers to benefit from tag-along rights, but subject to higher thresholds (eg, only in the event of a sale of control) or to receive a proportionate allocation rather than a guaranteed full exit. Drag rights against management are standard, however, to avoid obstructing an exit process. By contrast, institutional co-investors gen - erally demand both robust tag-along rights and care - fully calibrated drag rights, with specific carve-outs to protect their governance prerogatives or veto rights.
In practice, the balance of drag and tag mechanisms reflects the relative bargaining power of the sponsor, management and co-investors, but their inclusion has become a consistent and almost universal feature of Brazilian private equity equity arrangements. 10.3 IPO In Brazil, when private equity sponsors exit through an IPO, lock-up arrangements are standard and typically range from 180 to 360 days, depending on market conditions and the size of the offering. These lock-ups are designed to provide stability and investor con - fidence during the aftermarket period and are often applied not only to the private equity seller but also to management and other significant shareholders. Relationship agreements between the sponsor and the issuer, as seen in some other jurisdictions, are not a typical feature in Brazilian IPOs. Instead, gov - ernance and shareholder arrangements are usually addressed prior to the IPO through shareholders’ agreements, which are either terminated upon listing or adapted to comply with B3 listing segment require - ments – particularly Novo Mercado and Nível 2, which impose heightened governance standards. Private equity-led IPOs also present some particulari - ties. It is common for sponsors to negotiate priority allocations in the event of follow-on offerings to allow for staged sell-downs over time. The use of dual-class structures is not permitted under Novo Mercado rules, which require one-share-one-vote common shares, thereby limiting certain governance arrangements often seen in other markets. Additionally, private equity-backed issuers are frequently scrutinised for related-party transactions, governance independence and post-IPO liquidity given the relatively concentrat - ed ownership structures that can persist following the listing. Overall, while lock-ups are strictly observed, the Brazilian IPO framework prioritises equal treatment of shareholders and enhanced governance, which means that the influence of private equity sponsors tends to diminish progressively following listing.
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