Brazil: Corporate Governance

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This country-specific Q&A provides an overview to tax laws and regulations that may occur in Brazil.

This Q&A is part of the global guide to Corporate Governance. For a full list of jurisdictional Q&As visit

  1. What is the typical organizational structure of a company and does the structure typically differ if the company is public or private?

    Brazilian law affords two main types of business organizations: the limited liability company (sociedade limitada) and the joint-stock corporation (sociedade por ações). Legal title of ownership in the former is represented by quotas indicated in the company’s article of association, whereas in the latter by shares registered in the company’s corporate books (in case of the vast majority of the closely-held corporations) or kept in a trust account by a trustee (in case of listed corporations). In both cases, the liability of partners is limited to the amount they contributed to pay up the company’s capital, except in the case of the limited liability companies where all the quotaholders are also jointly liable for paying-up the quota capital, in case it is not fully paid-up; in principle, the partners are not held liable for any amount in excess of such contributions, unless illicit acts are held to occur.

    Typically, Brazilian business organizations are managed by a general meeting, a board of directors (in case of corporations, but which are not mandatory for closely-held companies), an executive office, a fiscal council (mostly in case of listed corporations) and committees that may be created by the board of directors, including the mandatory audit committee for corporations listed in the Novo Mercado segment.

  2. Who are the key corporate actors (e.g., the governing body, management, shareholders and other key constituencies) and what are their primary roles? How are responsibilities divided between the governing body and management?

    In Brazil, key corporate actors in a company’s management will normally include the general meeting, board of directors, the executive office, advisory committees and potentially the fiscal board, as the case may be.

    General meetings

    General meetings are attended by shareholders; they are called and instated pursuant to applicable laws and the company’s bylaws, with authority to resolve on all matters related to the company’s business purpose, as well as to adopt any resolutions deemed advisable for its protection and development. Such powers, however, are limited to the company’s business purpose, applicable laws and the bylaws.

    Annual general meetings, mandatorily called and held during the first four months of each tax year, have the purpose of verifying the management accounts; examining, discussing and voting on financial statements; electing managers and members of the Fiscal Board; resolving on the allocation of the net profits for each tax year as well as on the distribution of dividends.

    Extraordinary general meetings, on the other hand, may be called at any time to discuss specific matters relating to the holders of preferred shares, debentures, participation certificates or subscription warrants.
    As a rule, resolutions must be taken by a majority of votes, i.e. representing fifty percent (50%) of the voting stock plus one (1). The attendees of a meeting must bring forth evidence of their shareholder status, and may be represented by proxy.

    Minutes of the meeting must be drawn up in the proper book and signed by the shareholders then present (among other persons). These minutes must also be registered with the Public Register of Companies.

    Board of directors

    The board of directors is a decision-making body with authority to establish the company’s business policy in general; to elect and dismiss officers; to set the duties and monitor the day-to-day managerial actions of the officers; to express an opinion on any matters to be submitted to the shareholders; and to approve the implementation by the executive office of specific matters prescribed by law or under the company by-laws. The authority of the board of directors established by the Brazilian Corporation Law cannot be delegated to other bodies.

    Advisory Committees

    The Brazilian Corporate Law acknowledges the existence of committees or bodies created by board of directors through the articles of associations or bylaws (e.g. compensation, related-party transactions, audit and risk committees) to assist the management of the company. It also establishes that all the rules regarding fiduciary duties and liabilities applicable to management will also apply to the members of such advisory and technical committees. In Brazil, the existence of advisory committees to the board of directors is a common practice at closely and publicly-held corporations alike.

    For the companies currently listed at the Novo Mercado listing segment, it will be mandatory to install an audit committee, statutory or not, as from the ordinary general meeting that shall approve the financial statements related to the fiscal year of 2020.

    Executive office

    In broad terms, the executive office runs the company’s day-to-day operation. Among other duties, it represents the company in dealings with third parties. The company’s by-laws may establish that certain managerial decisions should be taken in executive office meetings only.

    The by-laws will also establish the number of officers permitted, the manner of their replacement, their term of office, and the assignments and powers of each officer. Officers will perform their duties separately, according to their assignments and powers, but in keeping with the other officers, and will not be held liable for any obligations assumed on behalf of the company as regards routine acts necessary for the company’s management.

    If the by-laws are silent or there is no resolution adopted by the board of directors prescribing the officers’ duties, any officer may represent the company and take the actions necessary for its routine operations.

    Fiscal board

    The fiscal board is a supervisory body responsible for supervising the company’s directors and officers and providing information in this respect to the shareholders.

    The fiscal board is a compulsory body, but need not operate on a standing basis. A non-permanent fiscal board must be instated upon the request of shareholders representing at least 10 per cent of the voting stock or 5 per cent of the non-voting stock.

    The fiscal board is composed of three to five members and a like number of alternates. The conditions for election and impairment of fiscal board members (who must be Brazilian residents) are prescribed by law.

    The fiscal board has the authority to, among other things:

    1. monitor the actions of the company’s officers and directors and verify their compliance with their legal and statutory duties;
    2. review and give an opinion on the board of directors’ annual report;
    3. review and give an opinion on proposals of the management to the shareholders’ meeting relating to changes in capital, issuance of debentures or warrants, investment plans or capital budgets, dividend distribution and certain corporate reorganisations;
    4. report any error, fraud or criminal act and suggest measures useful to the company to any officer or member of another administrative body and, if these fail to take any necessary steps, to act to protect the corporation’s interest and report to the shareholders’ meeting;
    5. review the balance sheet and other financial statements periodically prepared by the company; and
    6. examine the financial statements for the fiscal year and give an opinion about them.

    The fiscal board’s authorities can be neither delegated nor attributed to any other body of the company.

  3. What are the sources of corporate governance requirements?

    The corporate governance regime applicable to Brazilian companies is basically established by the Brazilian Corporation Law (Federal Law No. 6,404, of 15 December 1976, as amended), the rulings issued by the Brazilian Securities Commission (CVM), and the listing rules issued by the São Paulo Stock Exchange (B3)* to each of its listing segments.

    Among the Law and rules mentioned above, it is important to highlight that CVM enacted in June 2017 a new ruling (i.e., Ruling No. 586) establishing the obligation for listed companies to disclose, on an annual basis,** the ‘Brazilian Corporate Governance Code: Listed Companies Information’, whereby the companies shall indicate, in relation to each recommendation of the Brazilian Corporate Governance Code, whether the company was compliant, and if not, would provide an explanation for the non-compliance (i.e., ‘comply or explain’ approach). The Brazilian Corporate Governance Code for listed companies was elaborated by GT Interagentes (the Interagents Working Group, which comprises 11 of the most important agencies concerned with the Brazilian capital markets) and issued on 16 November 2016.

    Of the B3 listing segments, the Novo Mercado has the highest standards of corporate governance rules, followed by Level 2 and Level 1. There is also the BOVESPA MAIS, an organised over-the-counter market managed by B3 and created as a way for small and medium-sized companies to access the capital markets. It falls under the authority of CVM, a federal independent agency reporting to the Ministry of Finance that supervises and enforces listed companies’ compliance with the Brazilian Corporation Law and the rules issued by CVM. This enforcement can result in the imposition of fines and restrictions on companies and their administrators.

    B3 is responsible for supervising compliance with its listing rules and has the authority to impose on companies and their administrators contractual fines and other sanctions, such as suspension and exclusion from trading in shares in the B3 environment.

    Most Brazilian listed companies do not have widely-held stock, but in recent years there has been a trend for CVM to stimulate the participation of minority shareholders in the governance of companies, through the creation of a mechanism that enables all the shareholders to send their votes electronically prior to any shareholders’ meeting. In 2017, implementation of this mechanism was only mandatory for the main companies listed on B3; however, as from 2018 it became mandatory for all companies.

    CVM has also enacted rules in recent years to improve the quality and amount of information that a listed company must disclose to its investors, including Ruling No. 480, published at the end of 2009, which created the ‘reference form’, a document containing very detailed information about the company that must be updated at least once a year; and Ruling No. 481 (published simultaneously with Ruling No. 480), which sets forth the mandatory information that must be disclosed by listed companies on an ordinary basis and prior to each shareholders’ meeting. Both these rules have already been adjusted to incorporate improvements that CVM considered necessary.

    Furthermore, B3 launched the State-Owned Enterprise Governance Programme in September 2015 in response to the recent scandals and political use of state-owned companies by the government. The Programme aims to restore investor confidence in state-owned companies (which are significant elements of the Brazilian capital markets) by enhancing the corporate governance rules of these companies in the following ways: (1) through more clear disclosure of the company’s objectives; (2) through the creation of mechanisms to remove administrators who divert company activities from their statutory corporate purpose; (3) through the establishment of detailed nomination criteria encompassing the qualifications and expertise of the administrators; and (4) through the commitment of the public controlling shareholder to comply with corporate governance best practices.

    *B3 SA – Brasil, Bolsa, Balcão is the current corporate denomination of the São Paulo Stock Exchange, which was formerly denominated BM&FBOVESPA SA – Bolsa de Valores, Mercadorias e Futuros until 10 May 2017.

    **The Brazilian Corporate Governance Code: Listed Companies Information must be disclosed within seven months of the end of each fiscal year.

  4. What is the purpose of a company?

    In Brazil, as elsewhere, companies are typically deemed as profit-seeking entities with legal personality and segregated assets. In short, companies engaged in economic activities in an organized and ongoing fashion for the production or circulation of goods and services are called “business corporations” (sociedades empresárias), whereas companies lacking a complex organizational level, or those engaging in intellectual activities of a scientific, literary or artistic nature (unless these activities have a corporate business element to them) are referred to as “non-business companies” (sociedades simples).

    Please note that Brazilian law also foresees the so-called “principle of the social function of the company”, according to which management must always direct its conduct so as to harmonize the performance of the corporate purposes and the obtaining of profits with the interests of the community and of society (such as generating jobs or paying taxes) in which the company is inserted. For that reason, dissolution or liquidation of companies must be avoided.

  5. Is the typical governing body a single board or comprised of more than one board?

    As already mentioned, Brazilian companies are managed by a board of directors* and by an executive office. Brazilian companies may also install a fiscal board, which does not have the nature of a managerial body but rather of a supervisory body. For the purposes of this questionnaire, we are deeming the board of directors as the typical governing body of a Brazilian company.

    *Closely held companies are not required to have a board of directors.

  6. How are members of the governing body appointed and removed from service?

    The members of the board of directors are elected by the shareholders, who can dismiss them at any time. The shareholders representing at least one-tenth of the voting capital may request that a multiple voting procedure be adopted to entitle each share to as many votes as there are board members and to give each shareholder the right to vote cumulatively for only one candidate or to distribute his or her votes among several candidates.

    The term of office of the directors must be defined in the by-laws, but it cannot exceed three years, although re-election is permitted. In the case of companies listed in the Novo Mercado, Level 2, Level 1 and BOVESPA MAIS listing segments, the term of office cannot exceed two years, although again re-election is permitted.

  7. Who typically serves on the governing body and are there requirements that govern board composition or impose qualifications for directors regarding independence, diversity or succession?

    The Brazilian Corporation Law sets for that the board of directors shall be composed of at least three members, who are not required to be Brazilian residents.

    In the case of the companies currently listed on the Novo Mercado, considering the changes approved in its Listing Rules in 2017, they must observe the following rules: (1) until the ordinary shareholders’ meeting that shall approve the financial statements related to the fiscal year of 2020 - the board must be composed of at least five members and at least 20 per cent of the members must be considered to be ‘independent’; and (2) as from the ordinary shareholders’ meeting that shall approve the financial statements related to the fiscal year of 2020 – the board must be composed of at least three members and at least two or 20 per cent of the members, whichever is greater, must be considered to be ‘independent’. For the companies that have become listed on the Novo Mercado as from 2 January 2018, it shall apply the rule provided in item (2) above, as from its listing.

    In the case of the companies currently listed in the Level 2 segment, the board must be composed of at least five members and at least 20 per cent of the members must be considered to be ‘independent’.

    The requirements for the appointment to occupy a position on the board of directors are established in the Brazilian Corporation Law. In broad terms, the director must be someone with an unblemished reputation who has not been convicted in an administrative or judicial procedure in relation to corporate crimes or irregularities. Furthermore, unless waived in a shareholders’ meeting, individuals who hold positions in companies that may be regarded as market competitors of the company, or who have any interests that conflict with those of the company, should not be elected as board members.

    Up to one-third of the board members may be elected for executive board positions cumulatively. Pursuant to the rules of the Novo Mercado, Level 2 and Level 1 listing segments, the positions of chairman of the board of directors and CEO cannot be accumulated by the same individual. Notwithstanding, the accumulation of those positions is allowed, on an exceptional basis, for a maximum period of three years counting from the date that the company’s shares starts to be traded in the special listing segment.

    For companies currently listed on the Novo Mercado, considering the changes approved in its Listing Rules in 2017, the company’s bylaws must stipulate that the positions of chair of the board of directors and CEO must not be accumulated by any one person. The Brazilian Corporate Governance Code also indicates that this accumulation should be avoided, but that the CEO should participate in board meetings whenever invited.

  8. What is the common approach to the leadership of the governing body?

    In Brazil, one of the members of the board of directors will also act as the chairperson of the board. Typically, this individual will have the power to call board meetings at any time, conduct and lead the discussions held at any meetings, and to exercise a casting vote (in case he or she is vested with such under the company’s by-laws). Please note that, in Brazil, the position of chairman of the board of directors of a company is typically occupied either by the founder of the company or a well-known executive.

  9. What is the typical committee structure of the governing body?

    The committees can be formed by members of the board of directors, executive office, employees of the company of by third parties with a specific expertise to contribute to the relevant committee.

    In what refers specifically to the audit committee required by the Novo Mercado Listing Regulation in force, it shall be composed by at least three (3) members: (i) at least one of whom must be an independent member of the company’s board of directors; (ii) at least one of whom must have recognized experience in business accounting pursuant to the rules issued by CVM that govern the registration and practice of independent auditing activities in the securities market and define the duties and responsibilities of the management of audited entities in their relations with independent auditors; and (iii) one of whom may accumulate the qualifications described in the previous two items, (i) and (ii).

  10. How are members of the governing body compensated?

    The shareholders’ meeting shall prescribe the aggregate or individual compensation of the members of the board of directors and executive office, including benefits of any kind and representation allowances, taking into consideration their responsibilities, the time devoted to their duties, their skills and professional standing, and the market value of their services. If the shareholders’ meeting approves the aggregate compensation to be paid to the company’s directors and officers, it will fall under the authority of the board of directors to approve the allocation of the compensation between the company’s directors and officers.

    If the company’s by-laws set forth a compulsory dividend equal to or above 25 per cent of the net profits, it may establish a share in the company’s profits to the benefit of the company’s directors and officers, provided that the total amount thereof does not exceed the annual compensation of the directors and officers, nor one-tenth of the profits, whichever is lower. Nevertheless, directors and officers shall only be entitled to a share in the profits in a financial year for which the compulsory dividend is paid to the shareholders.

    Detailed information on the compensation paid to the company’s directors and officers, including, but not limited to, the breakdown of the compensation (e.g., fixed and variable compensation), the minimum, lowest and average compensation paid, must be disclosed in the company’s reference form. In addition, the companies listed in the Novo Mercado segment must have and disclose their compensation policies.

    The remuneration of the members of the fiscal board, besides the mandatory reimbursement for traveling expenses, board and lodgings incurred in their duties, will be fixed by the general meeting which elects them. The remuneration of each member shall not be less than ten per cent (10%) of the average remuneration paid to each director. Benefits, allowances and shares in profits will not be included in that figure.

  11. Are fiduciary duties owed by members of the governing body and to whom are they owed?

    Pursuant to the Brazilian Corporation Law, the directors have the following duties and obligations:

    1. a duty of diligence, employing the same care and diligence that every diligent and honest person employs in its own business;
    2. to act within the scope of their duties without misuse of power, refraining from the performance of gratuitous or non-authorised acts and from the receipt of personal advantage by reason of the performance of their duties;
    3. a duty of loyalty;
    4. to act without conflict of interest, not intervening in any transaction where they have an interest conflicting with that of the company; and
    5. a duty of information.
    6. even if elected by a certain group or class of shareholders, they have the same duty to the company as everyone else, and must not, even in the defence of the interests of those who elected them, fail to fulfil these duties.

    In this regard, directors may be held liable in the civil sphere for the damage resulting from a breach of their fiduciary duties, acts performed with negligence or in bad faith, or which violate the law or the company's bylaws; in some cases, criminal liability may also apply.

    As regards conflicts of interest, a director shall not take part in any corporate transaction in which he or she has an interest that conflicts with the interest of the company, nor take part in the decisions made by other directors on the matter. He or she shall disclose his or her disqualification to the other directors and shall cause the nature and extent of his or her interest to be recorded in the minutes of the meeting of the board of directors.

    Notwithstanding compliance with the conflict of interest provision, the director may only contract with the company at arm’s length. Any business contracted other than on an arm’s-length basis is voidable, and the director concerned shall be compelled to transfer to the company all benefits that he or she obtains through such business.

  12. Do members of the governing body have potential personal liability? If so, what are the key means for protecting against such potential liability?

    As regards the liability of the directors, the directors shall not be held personally liable for the obligations assumed on behalf of the company as a result of a regular act of management. However, the directors shall be held liable in civil lawsuits for the losses that they cause owing to acts of negligence or fraudulent intent and in violation of the law or the company’s by-laws. Accordingly, directors (and executive officer alike) are prohibited from taking any of the following acts:

    1. discretional acts at the company’s expense;
    2. any acts not authorized by the general meeting or board of directors, when such authorization is required;
    3. lending of the company’s funds or assets; or
    4. unauthorized receipt of any direct or indirect personal advantages from third parties, on account of their position.

    Note that the directors shall not be liable for unlawful acts performed by other directors, unless they are involved with these directors, or they neglect to perceive them or if, having knowledge of them, fail to act to prevent their performance. However, directors are held jointly liable in the case of decisions taken by the board of directors, unless they specifically vote against them.

    In this particular, we note that each of its members is personally liable for any act of omission or negligence of the board of directors, and a dissident director shall express his or her disagreement regarding the resolutions taken through the clear and written register in the minutes of the meeting of the relevant administration body, to release him or herself from any eventual civil liability. The director who agrees with the performance of acts that violate the law or the company’s by-laws shall be held jointly liable for the losses resulting from said act.

    If a manager is held liable for any damage to the company, the company may file a lawsuit for damages upon prior resolution of the general meeting. This lawsuit does not jeopardize any other court remedies available to the shareholders or third parties directly injured by the management acts.

    The most common tools available to mitigate directors’ and officers’ liability are (i) D&O insurance, (ii) E&O insurance and (iii) letter of indemnity, hold harmless letters or comfort letters.

    D&O insurance are insurance policies that cover the losses incurred by individuals with management power being held liable for acts performed in the ordinary course of business under their responsibilities as directors or officers of the company. According to the rules that regulate D&O insurances in Brazil, the purpose of a D&O insurance policy is to cover the risks held by individuals that have management powers in a company. Even though current rules provide that coverage may be extended to include individuals or companies retained to advise the policy holder, its subsidiaries or the insured parties, such as legal counsels, consultants, personal assistants, etc., the offer of such extended coverage by insurance companies is optional.

    Contracting a Professional Liability/Error and Omission (E&O) insurance policy is another alternative to protect managers from liabilities related to the performance of their activities as a board member. Typically, a Professional Liability/E&O insurance covers damages arising from error and omissions (including acts carried out with negligence, imprudence or malpractice) carried by the professionals of a company.

    A third option is a letter of indemnity. Typical, letters of indemnity provide for the company’s or its shareholders/partners undertaking to indemnify managers for losses arising under certain circumstances. It is possible to create a structure where an insurance company reimburses the company (or its shareholders/partners) for payments made under the letter of indemnity.

  13. How are managers typically compensated?

    As already mentioned, typically Brazilian companies are managed by an executive office team. The executive office team shall be composed of at least two officers. The officers of Brazilian listed companies may be elected and removed at any time by the board of directors. In relation to the compensation paid to the company’s executive officers, please refer to our comments on item 10 above.

  14. How are members of management typically evaluated?

    Brazilian law does not provide for particular criteria for the evaluation of corporate managers, which in fact vary from company to company. Still, the Brazilian Corporate Governance Code, which serves as a corporate governance guide for corporations, establishes that the evaluation of the board and board members contributes to the effectiveness of the body, is part of its accountability duties, and allows a greater level of governance in the organization. The board is responsible for disclosing information on the evaluation process and a summary of the main points of improvement identified for the body and the corrective actions implemented.

    According to the Code, the valuation of management may be carried out by board members, who may be aided by professional executives, other stakeholders and/or external advisors. Members of management must also undergo a self-evaluation (as a governing body and as individual members), as well as evaluate all other bodies that report to the board of directors. At more advanced stages of corporate governance maturity, the board may also be evaluated by management.

    Still under the Brazilian Corporate Governance Code, executive management shall be evaluated in order to promote a superior and consistent performance for the organization. The CEO is directly responsible for the evaluation of the executive management members, and should implement a process for their systematic and annual performance assessment. The CEO must ensure that all managers, or at least the organization’s senior management, undergo periodic evaluation. The evaluation process may be supported by the human resources department, if any. The results of an officer’s evaluation must always be shared with the board of directors.

  15. Do members of management typically serve on the governing body?

    Under Brazilian law, up to one-third of the board members may be elected for executive board positions concurrently. Pursuant to the rules of the Novo Mercado, Level 2 and Level 1 listing segments, the offices of chairman of the board of directors and CEO cannot be held by the same individual. However, the holding of these positions concurrently is allowed, on an exceptional basis: (1) in the case of the companies listed in Level 2 and Level 1 listing segments a maximum period of three years from the date that the company’s shares start to be traded on the special listing segment; and (2) in the case of the companies listed in the Novo Mercado listing segment, in the case of vacancy for a maximum period of one year, within such period the company shall disclose the accumulation of positions owing to vacancy not later than the business day following its occurrence and disclose within 60 days of the vacancy the measures taken to end the accumulation of positions.

  16. What are the required corporate disclosures, and how are they communicated?

    The Brazilian Corporation Law has adopted the principle of full disclosure when it comes to acts or facts related to the company that may be considered relevant. The disclosure of material events is a duty of the company’s investor relations officer, who may be held personally liable for damages arising as a result of non-disclosure.

    CVM Ruling No. 358/2002, which sets forth the general disclosure rules for listed companies, defines ‘material event’ broadly, as any decision arising from a controlling shareholder, a general meeting or a management body of a publicly held corporation, or any other act or event of a policy, management, technical, business, economic or financial nature in connection with its business that could considerably influence the trading price of the securities issued by or related to the company; the decision by investors to buy, sell or keep those securities; and the decision by investors to exercise any rights they have as holders of securities issued by or related to the company.

    The companies listed in the Novo Mercado segment are required to disclose their material facts in Portuguese and English, concurrently.

    At the end of 2009, CVM enacted CVM Rulings Nos. 480/2009 and 481/2009, modifying, respectively, the rules regarding the disclosure of information by publicly held companies and the presentation of documents and information before meetings are held. The main change in disclosure issues was the introduction of the reference form, which basically compiles corporate, contractual, financial or economic, governance, and human resources information about the company. The reference form must be updated at least once a year, or in a shorter period upon the occurrence of certain events that demand an update of the information provided in the reference form.

    As to financial reporting, listed companies must disclose their financial statements, together with the management report, the independent auditors’ report and the opinion of the fiscal board, if installed, at least one month in advance of the ordinary shareholders’ meeting.*

    Listed companies must also disclose the standard form of financial statements (DFP), within the first three months of the end of each fiscal year. The DFP is an electronic form created in CVM’s electronic system that must be completed using information obtained from the annual financial statement.

    Listed companies shall also disclose, on a quarterly basis, the quarterly information form, which is also an electronic form, and which must be completed using the company’s quarterly financial information; it must contain the report of the special review issued by the independent auditor.

    In addition to disclosing their financial statements in Portuguese, companies listed in the Level 2 listing segment must also disclose them in English.

    Regarding one-on-one meetings, companies listed in the Novo Mercado must hold a public presentation on the information disclosed in their quarterly earnings results or financial statements within five business days of their release. Such public presentation may be conducted face-to-face or via teleconference, videoconference or any other means that enables stakeholders to participate remotely. On the other hand, the companies listed in the Level 2 and Level 1 listing segments are required to hold, at least once a year, a public meeting with analysts and other third parties, to disclose information about their financial and economic situation, projects and expectations.

    In the event of a tender offer for the acquisition of the control of a listed company (Takeover TO), in principle, the board of directors of the listed companies is not under an obligation to make a statement as to whether or not it agrees with the terms and conditions of the Takeover TO.

    If, however, the board of directors decides to make a statement on the Takeover TO, the statement must be disclosed to the market and must address such issues as: provision of information on all aspects necessary to allow an informed decision by the investor, especially with regard to the price being offered; and any material changes in the company’s financial condition since the date of the most recent financial statements or quarterly reports disclosed to the market.

    In the case of companies listed on the Novo Mercado and Level 2 listing segments, the board of directors is required to prepare and disclose a reasoned opinion on the Takeover TO – in favour or against it – and to address the following topics:

    1. the suitability of and opportunities presented by the Takeover TO;
    2. the impact of the Takeover TO on the interests of the company;
    3. the offeror’s stated strategic plans for the company; and
    4. any other point of consideration the board may deem relevant.

    * the ordinary shareholders’ meeting must be held within the first four months of the end of each fiscal year.

  17. How do the governing body and the equity holders of the company communicate or otherwise engage with one another?

    The company must disclose to all of its shareholders, through its website, as well as on the CVM and B3 websites, certain ordinary and extraordinary reports or information, such as the reference form, financial statements, minutes of the shareholders’ meetings and documents necessary for review by shareholders to be able to exercise their voting right in shareholders’ meetings.

    It is a common practice in listed companies to hold a conference call with investors right after the release of the annual or quarterly financial statement to discuss the company’s results. It is also usual for the companies to hold meetings or calls with analysts to discuss the company, to enable the analysts to issue their reports on the company. In the case of the companies listed in the Novo Mercado segment, as already mentioned above, they must hold a public presentation on the information disclosed in their quarterly earnings results or financial statements within five business days of their release.

    Whenever the company holds a meeting with a specific shareholder to discuss a material fact that has not been disclosed, it is usual to have this shareholder sign a non-disclosure agreement and the shareholder would be subject to a blackout period, during which it would be unable to trade in the company’s shares, until the material information is disclosed to the market.

    The call notices for the shareholders’ meetings of publicly held companies must be published at least three times, with the first call notice being published, as a general rule, at least 15 days in advance.*

    Publicly held companies are required to disclose on the same day as the first publication of the call notice the manual of the shareholders’ meeting, which contains detailed information about the matters to be discussed and the management proposal for each of the matters that will be voted on.

    The supporting documentation for the ordinary shareholders’ meeting (e.g., financial statements, management report, independent auditors report and opinion of the fiscal board) must be disclosed to the shareholders 30 days in advance of the date of the meeting.

    In 2015, CVM enacted a ruling on attendance and distance voting at shareholders’ meetings of publicly held companies, whereby shareholders would be able to present proposals of deliberations to be voted on, and to vote on the deliberations of the shareholders’ meeting, subject to certain requirements. Implementation of this proxy voting system was mandatory for the major companies listed on B3 as from 2017 and will be mandatory for all listed companies as from 2018.

    * for some specific matters the call notice must be published 30 days in advance.

  18. Are dual or multi-class capital structures permitted and how common are they?

    Typically, each common share shall have the right to one vote in shareholders’ meetings, and it is not possible to have shares with multiple voting rights. Brazilian companies may, however, issue preferred shares, which can be issued without voting rights (although companies listed in the Novo Mercado are required to issue only common shares).

    In addition, the Brazilian Corporation Law sets forth that it is possible to include in the company’s by-laws a provision restricting the number of votes by each shareholder. Nevertheless, the companies listed in the Novo Mercado and Level 2 listing segments are not permitted to include in their by-laws any provision restricting the number of votes of shareholders to a percentage below 5 per cent of the stock capital, except in a few cases provided in the listing rules.

    Shareholders holding preferred shares must be accorded the following privileges, on a cumulative or non-cumulative basis: (i) priority in the distribution of fixed or minimum dividends; or (ii) priority in capital repayment, at or without a premium. In order to be traded on the securities market, preferred shares without voting rights or with restricted voting rights must confer on their holders at least one of the following privileges: (i) payment of dividends corresponding to at least twenty-five percent (25%) of the average profits at year-end; or (ii) payment of dividends at least ten percent (10%) higher than those paid to common shares; or (iii) the right to tag these shares along in a public offer for disposal of control, receiving dividends at least equal to those paid to common shares.

    In addition, common shares in a closely-held corporation may belong to different classes, depending on: (i) their non-convertibility into preferred shares; (ii) the requirement that the shareholder be Brazilian; or (iii) the right to vote separately for election of certain officers of the company.

    Preferred shares may also belong to one or more classes, and carry rights and/or privileges that may include the right to elect certain members for the company's administrative bodies, even if these preferred shares are granted no other voting rights. In government companies that undergo privatization, a special class of preferred shares exclusively owned by the government may be created (the so called “golden share”). In this case, the company’s bylaws may confer specific powers upon the golden share, including the power to veto resolutions of the general meeting in certain matters.

  19. What percentage of public equity is held by institutional investors versus retail investors?

    According to the information disclosed by B3 (the São Paulo Stock Exchange), in 2018, investors in Brazilian listed corporations may be categorized as follows:

    1. retail investors (17.8%);
    2. institutional investors (26.7%);
    3. foreign investors (50%);
    4. companies (1%);
    5. financial institutions (4.6%).
  20. What matters are subject to approval by the shareholders and what are the typical quorum requirements and approval standards? How do shareholders approve matters (e.g., voted at a meeting, written consent)?

    Under Brazilian law, the shareholders’ meeting has exclusive authority to:

    1. amend the by-laws;
    2. elect or discharge the company’s senior management and fiscal board members;
    3. receive the annual accounts of the senior management and resolve on the financial statements presented by them;
    4. suspend the exercise of rights by a shareholder;
    5. resolve on the appraisal of assets contributed by any shareholder to the company’s capital;
    6. authorize the issuance of participation certificates;
    7. resolve on the transformation, merger, consolidation, spin-off, winding-up and liquidation of the company; elect and dismiss liquidators; and examine the liquidators’ accounts; and
    8. authorize the senior managers to admit bankruptcy of the company and to file for debt rehabilitation.

    As a rule, resolutions of the shareholders shall be taken by the majority vote, representing fifty percent (50%) plus one (1) vote, of the attendee shareholders, whenever a higher quorum is not provided by law or by the relevant bylaws. For instance, the transformation of a company’s corporate type (into a limited liability company) depends upon the totality of the shareholders’ votes. Moreover, shareholders representing at least fifty percent (50%) of the voting shares issued by the company must approve changes to the company’s corporate purpose or mandatory dividend, transactions such as mergers, spins-off and dissolutions, as well as liquidation procedures.

    As for the rights of dissenting shareholders, certain fundamental changes in the company entitle the shareholders who have not voted in favour of the resolution to withdraw, by refund of their shares, under the circumstances below:

    1. in the case of the creation of preferred shares or increase of an existing class without maintaining its ratio in relation to the other classes, and change of a preference, a privilege or a condition of redemption or amortisation conferred upon one or more classes of preferred shares, or creation of a new and more favored class;
    2. the spin-off of the company only triggers the right to withdraw if it results in a change in the corporate purposes – except when the spun-off company is transferred to a corporation with a main line of business that coincides with the line of business of the spun-off company – a reduction in the mandatory dividend or participation in a group of corporations;
    3. the reduction of the compulsory dividend in any specific fiscal year, change of corporate purpose and insertion of an arbitration clause in the by-laws;
    4. the approval of the ‘merger of shares’ entitles shareholders of both companies involved to withdraw; and
    5. a shareholder who has not voted in favor of the acquisition by the listed company of which he or she is a shareholder of the control of a business corporation is entitled to withdraw if the purchase price exceeds 1.5 times the greatest of: the average quotation of the shares on the stock exchange during the 90 days prior to the contracting date; the net value of each share or quota, the assets and liabilities having been valued at market prices (liquidation value); and the net profit of each share or quota, which may not exceed 15 times the annual net profit per share during the past two fiscal years, monetarily adjusted.
  21. Are shareholder proposals permitted and what requirements must be met for shareholders to make a proposal?

    As a rule, the board of directors is entitled to propose the agenda of the general meeting, submitting to the shareholders a manual for participation. In 2015, CVM enacted a ruling on attendance and distance voting at shareholders’ meetings of publicly held companies, whereby shareholders would be able to present proposals of deliberations to be voted on, and to vote on the deliberations of the shareholders’ meeting, subject to certain requirements. Implementation of this proxy voting system was not mandatory for companies up until 2016, but in 2017 it became mandatory for the major companies listed at B3 and, as from 2018, for all listed corporations.

  22. May shareholders call special meetings or act by written consent?

    The board of directors (if any) or the executive officers may call a general meeting as determined in the company’s bylaws and written consent is not permitted. General meetings may also be called:

    1. by the fiscal board, in the cases prescribed by law;
    2. by any shareholder, when the managers fail to make a timely call;
    3. by shareholders representing at least five percent (5%) of the S.A.’s capital stock, when the managers fail to make a timely call requested by them; and
    4. by shareholders representing at least five percent (5%) of the voting stock, or by those representing at least five percent (5%) of non-voting stock, when the managers fail to call a meeting for the setup of a Fiscal Board.

    Calling notices must be published at the press, containing information on the place, date and time of the meeting, as well as the agenda (any proposed amendment to the bylaws must be expressly identified). Evidence of prior call may be waived if all shareholders attend the meeting, in which case the meeting is deemed as validly installed.

  23. Is shareholder activism common and what are the recent trends?

    Shareholder activism is not well developed in Brazil. Recent years, however, have seen a growing amount of shareholder activism, especially by some fund managers, but shareholder activism is still not part of the culture of the Brazilian capital markets.

    The Brazilian companies most exposed to shareholder activism are those that have issued American depository receipts in the US market. A good example would be Petrobras, the Brazilian oil and gas company, which faced securities class actions filed with the New York courts by US investors, owing to losses stemming from the money-laundering and corruption schemes that have become public in the past years; Petrobras announced in January 2018 that it has signed an agreement to settle such class action in the amount of US$2.95 billion. Owing to this settlement, some minority shareholders have filed lawsuits in Brazil asking for a similar indemnification in Brazil, but it is unlikely that they will receive an indemnification from Petrobras in such amount, since the Brazilian legislation and judicial environment do not provide minority shareholders the ability to receive indemnifications in such proportion.

  24. What is the role of shareholders in electing the governing body?

    Please refer to our comments on item 6.

  25. Are shareholder meetings required to be held annually or otherwise, and what information needs to be presented?

    Under Brazilian law, shareholders must hold at least one ordinary meeting annually for the purposes of reviewing and resolving upon the company’s financial statements of the preceding fiscal year. Companies must disclose their financial statements, together with the management report, the independent auditors’ report and the opinion of the fiscal board, if installed, at least one month in advance of the ordinary shareholders’ meeting.

  26. Do any organizations advise or counsel shareholders on whether to approve matters?

    There are situations in which the board of directors may be requested to render its opinion to shareholders. For instance, in companies listed at the Novo Mercado and Level 2 listing segments, the board of directors is required to prepare and disclose a reasoned opinion in the event of a tender offer for the acquisition of the control of a listed company (Takeover TO), either for or against the transaction. In other companies, the board may choose to make a statement about the Takeover TO, in which case the statement must be disclosed to the market.

    Moreover, in accordance with the Brazilian Corporation Law, the financial statements of the companies shall be previously drafted by the executive office before being submitted to the general meeting for approval.

    Finally, please refer to our comments on item 2 in relation to the installation and operation of a fiscal board at Brazilian companies.

  27. What role do other stakeholders, including debt holders, employees, suppliers and customers and the government, typically play in the corporate governance of a company?

    Generally speaking the role of other stakeholders is very limited. Government-controlled companies, such as Petrobras, of course have the Government as controlling shareholder and therefore may be influenced by public policy and politics, although this is frowned upon by the market. In some privatized companies, such as Vale and Embraer, the government has retained a “golden share” that gives it a veto power on some decisions that may be taken by the company and companies in which BNDESPAR (the Brazilian development bank investment branch) and government controlled companies pension funds have a large stake can also be subject to government interference in their governance.

    Debtholders can have some degree of interference on corporate governance depending on the nature of their debt (typically debentureholders will have some matters that would require their approval in a meeting to be approved by the general meeting) or in case of insolvency/debt restructuring, in which case the restructuring plan needs to be approved by the creditors.

    As to employees, government-controlled companies are required to have a representative of the employees elected to the board of directors.

  28. What consideration is given to environmental and social issues, including climate change, sustainability and product safety issues, and are there any legal disclosure obligations regarding the same?

    All publicly held companies must prepare on an annual basis, within their financial statement, a value-added statement, which could be considered as the balance statement of the company’s ‘social account’. This statement provides information on the overall wealth produced by the company, on the allocation of resources to those areas of the company that contributed to the generation of that wealth (such as employees, financiers, shareholders, the government and others) and on the unallocated portion of that wealth. In addition, some companies seek certification from institutes such as the Ethos Institute, the Brazilian Institute of Social and Economic Analysis and the Global Reporting Initiative, but such certification is not mandatory for listed companies.

    Another aspect of this ‘social accounting’ is evidenced in the code published by the Brazilian Financial and Capital Markets Association (ANBIMA) regarding public offerings, which sets forth that companies must include in their reference form information on social responsibility and cultural incentives, and on any projects in those areas implemented by the company. Thus, although the ANBIMA code does not require their existence, if the company has any social responsibility policies in place, these should be disclosed in the reference form.

    Furthermore, a new anti-corruption law has been in place since 29 January 2014, and this introduced administrative and civil liability of legal entities for illicit acts committed in relation to local and foreign public officials. However, there is as yet no whistle-blowing legislation in force in Brazil.

  29. How are the interests of shareholders and other stakeholders factored into decisions of the governing body?

    Please refer to our comments on item 4.

  30. Do public companies typically provide earnings guidance on either a quarterly or annual basis?

    Please refer to our comments on item 16.

  31. May public companies engage in share buybacks and under what circumstances?

    Yes, they may. Share buyback is defined by the Brazilian Corporations Law as the transaction by which a company pays back shareholders for the acquisition of such shares and, as a result, they are withdrawn from the market (with or without reduction of the company’s corporate capital). Typically, all types of shares may be subject to buyback, to the extent approved by an extraordinary shareholders’ meeting. The company’s bylaws will determine the advantages provided in each class of shares and respective restrictions, without the need of calling upon an extraordinary meeting to discuss such matter.

  32. What do you believe will be the three most significant issues influencing corporate governance trends over the next two years?

    We expect the biggest trends for the next few years to include the escalation of proxy voting and the battle over the implementation by listed companies of the practices provided for in the Brazilian Corporate Governance Code, as well as an increase in widely-held corporations in Brazil. Also, it is expected that the government implements an ambitious privatization program that will see many of the current government controlled companies being transferred to private players. The current government also has tried to isolated government controlled companies from political influence, appointing highly regarded market executives to the management of such companies. Moreover, considering the increase on the number of IPOs and follow-ons in the pipeline, we expect that it will be important for companies to pursue the highest level in terms of corporate governance rules in order to be well evaluated by investors and, therefore, be successful in their offerings.