By Willian de Rosso and Layon Lopes*
Setting up a company in Brazil is a presupposition for many challenges: deadlines, queues, fees, more queues, more fees, until finally the company is registered and can operate normally. This is the moment when the entrepreneur breathes for relief the first time. Moving forward will be joyful business and much profit distribution.
This view is very similar to that of a wedding, where the couple plans everything before finally getting married, or at least should. Benefits of the new house, the new car and the new furniture properly divided, finally go to the registry office and sign the marriage contract. Now it will be just joy, achievements, and a future of many trips around the world.
We know this not how it works. We are aware that problems exist and will happen sooner or later. In a marriage it is more difficult to predict, especially in contract, the way of solving eventual problems. However, the same does not apply to the relationship between partners in a company. To regulate this relationship, we have the Shareholder Agreement!
The document is a corporate instrument, widely used to regulate the relationship between the partners, together with the Social Contract, in the case of Limited Companies, or in conjunction with the Bylaws, in the case of Corporations. The main difference of the Shareholders Agreement for the constitutive act of the company is that, while the constitutive act regulates the relationship of the partners/shareholders with the company, the Shareholders Agreement regulates the relationship of the partners with each other.
Another major difference between these two documents is that, while the constitutive act needs to be filed in the Junta Comercial (Trade Board Office), the Shareholders Agreement may be filed only at the company’s headquarters. This difference is further highlighted by the fact that there is no need for filing in the Junta Comercial, because it is not a public instrument. The partners/shareholders may deliberate with greater freedom regarding the clauses of the Shareholders Agreement.
It is important to note the fact that the Shareholders Agreement is not a public, therefore, does not mean that it has no legal validity. It is rather a valid document, and it binds only its signatories.
When deliberating on the clauses that will be included in the Company’s Shareholders Agreement, first, it is important to have specialized legal advice because depending on the type of company, the type of partners, and the roadmap for the next years of the company, different clauses will be necessary to be included in the Shareholders Agreement.
To regulate this marriage, I mean, relationship between partners/shareholders, it usually follows a certain “backbone” of the Shareholders Agreement, which we do not normally find in a marriage agreement:
1) Minimum period of stay in society (Lock-up);
2) Rules for entry and exit of the Company;
3) Rules for conflict resolution;
4) Rules for profit distribution;
7) Specific obligations of each partner;
8) Hypotheses of serious misconduct that generates exclusion for the sake of the Company.
After performing the exercise of association with the clauses mentioned above in a marriage contract, we can conclude that these two institutes (marriage and business society) are remarkably similar, and may, in some cases, one being less risky than the other.
Thus, in view of the fact that we do not normally deliberate on the clauses of our marriage contracts, at least the companies of business are properly regulated.
*Layon Lopes is the CEO of Silva | Lopes and Willian de Rosso is a member of the Silva | Lopes team.