By Gustavo Chaves Barcellos and Layon Lopes*
The Brazilian Corporations are subject to the rules of the Law nº 6.404/1976. The Brazilian Civil Code also be applicable to the Brazilian Corporations, only when the Law nº 6.404/1976 is silent.
Unlike the limited liability companies, Brazilian Corporations are not “people” companies, but capital companies. This means that the titles representing the equity interest (the shares) are freely negotiable – none of the shareholders can prevent the entry of other shareholders in the Company.
The share capital of this corporate type is divided into units represented by shares. The shareholders only can be held accountable because of the issue price of the shares they subscribed or acquired.
Brazilian Corporations are classified as open or closed, depending on whether or not they admitted to negotiate their shares on the Stock Exchange or on the Over-the-Counter Market. An Open Brazilian Corporation will admit the trading of its shares on the Stock Exchange, unlike the Closed Brazilian Corporations.
Trading of shares on the Stock Exchange ensures greater liquidity for the Companies. However, in order to carry out such a negotiation, companies need an authorization, which is granted by the Brazilian Securities and Exchange Commission (“CVM”).
The CVM supervises and controls the capital market in accordance with the guidelines drawn up by the National Monetary Council – CMN.
In order to set up a Brazilian Corporation, the following are necessary:
(i) Subscription of the entire share capital for at least two people;
(ii) Realization, as a down payment, of at least 10% of the issue price of the subscribed shares, in cash.
(iii) In case of term payment in cash, at least 1/10 of the price of the shares must be paid in as input.
(iv) Deposit of cash entries at Banco do Brasil or any other bank authorized by the CVM. This deposit must be made by the fund donor, up to 5 days of receipt of the amounts, on behalf of the subscriber and in favor of the company being formed.
Upon completion of the constitution process, the company will withdraw the deposited amount; if this process is not completed in 6 months of the deposit, the subscriber will withdraw the amount he paid.
The Brazilian Law provides two forms of creation of a Brazilian Corporation, according to the existence or not of public appeal: the constitution by public subscription, in which the founders seek resources with investors; and the constitution by private subscription, in which there is no concern for the founders.
The constitution by public subscription begins with the registration process in the CVM, whose request must be accompanied by the economic and financial feasibility study of the enterprise, the project of the bylaws and the prospectus. To apply for CVM’s registration, the company’s founder must necessarily hire a financial institution to mediate the placement of shares on the market.
Once the registration has been granted, the second phase of the constitution by public subscription begins with the subscription of the shares representing the share capital. The investment is offered to the public by the intermediary financial institution and anyone wishing to subscribe for shares in that company should contact the institution to subscribe to the newsletter or subscription list.
When all the share capital has been subscribed, the founders will call the foundation meeting to evaluate the assets offered for payment and deliberate about the constitution of the Corporation.
On the other hand, the constitution by private subscription is much simpler, and it will be processed by resolution of the subscribers in an assembly or by public deed.
The shares of a Brazilian Corporation are divided in two types:
(i) Ordinary: Ordinary Shares grant their holders the rights that the law reserves to the common shareholder, including the right to vote in the Company’s Assemblies. These are mandatory shares and because of this there is no Brazilian Corporation without shares of this kind.
(ii) Preferential: Preferential Shares grant their holders differentiated rights, such as, for example, priority in the distribution of dividends. The Preferential Shares may or may not confer voting rights to their holders. The maximum number of Preferential Shares without voting rights, or with restrictions to that right, tolerated by law, is 50%.
(iii) Fruition: Fruition Shares are those attributed to shareholders whose shares have been fully amortized. Its holder will be subject to the same restrictions or will enjoy the same advantages of the amortized Ordinary or Preferential Share.
The share capital of a Brazilian Corporation, as occurs in relation to other Brazilian types of companies, can be paid in by the shareholder in cash, assets, or credits. For the payment of the share capital in assets, it is necessary to carry out the valuation of these assets, which must be carried out in compliance with certain rules established by Brazilian law.
In relation to the governing bodies of the Brazilian Corporations, there are four that are very important:
(i) The General Shareholders ‘Meeting: It is the highest organ of a Brazilian Corporation and has an exclusively deliberative character, that gathers all shareholders with or without voting rights. The law requires a general meeting to be held within four months immediately after the end of the fiscal year, for the purposes of assessing a set of specific matters (Annual General Shareholders’ Meeting): a) assessthe accounts of the administrators; b) resolve on the allocation of income and the distribution of dividends; c) elect the administrators and inspectors, if applicable. Any other topic may not be appreciated at the Annual General Shareholders ‘Meeting, but at an Extraordinary General Shareholders Meeting.
(ii) Board of Directors: It is an optional body for the Closed Brazilian Corporations but, for the Open Brazilian Corporations, the Board of Directors is mandatory. It is a collegiate body with a deliberative nature, to which the Brazilian law attributes part of the competence of the General Shareholders ‘Meeting, in order to streamline decision-making of interest to the Corporation.
(iii) Board of Executive Officers: It is the body that legally represents the company and executes the resolutions of the General Shareholders ‘Meeting and the Board of Directors. Executive Officers do not necessarily have to be shareholders of the Corporation, and are elected by the Board of Directors, if there is one, or by the General Shareholders ‘Meeting.
(iv) Fiscal Council: The fiscal council is a mandatory body, but its operation is optional, composed of at least three, and a maximum of five members, that can be shareholders or not. The Fiscal Council is a body designed to inspect the management bodies, in order to protect the interests of the Corporation and all Shareholders.
To set up a Corporation in Brazil, it is important to hire a local lawyer and an accountant. They will be responsible for providing the necessary documents for the constitution of the company. Such documents and procedures are, for example: Consultation of business viability with the Commercial Board of the respective Brazilian state; Acquisition of a national legal entity registration with the IRS; Preparation of the Corporation’s By-laws; Provision of the Basic Entry Document and the payment of State Collection Documents.
The dissolution of the Brazilian Corporation can take place, by judicial decision or by decision of the competent administrative authority. The causes of the first hypotheses can be the end of the term, the cases foreseen in by-laws, the resolution of the general meeting by shareholders’ shares due to the incident of sole proprietorship, and, finally, by the extinction of the authorization to operate.
Causes of the judicial dissolution are the annulment of the Corporation’s constitution, proposed by any shareholder, the unrealisability of the corporate purpose proven in a lawsuit proposed by a shareholder that represents 5% or more of the share capital and, finally, bankruptcy.
*Layon Lopes is the CEO of Silva | Lopes and Gustavo Chaves Barcellos is a member of the Silva | Lopes team.
